diff --git a/parsed_sections/prospectus_summary/2024/ABLVW_able-view_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/ABLVW_able-view_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..f22ccc6f72d14c84b23131c52dbb797c08eb4dfe --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/ABLVW_able-view_prospectus_summary.txt @@ -0,0 +1 @@ +Prospectus Summary, Summary or Risk Factors, and Risk Factors Sections for more details. Able View s PRC Operating Entities (as defined below) face various legal and operational risks and uncertainties related to doing business in China. For Example, Able View s PRC Operating Entities face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy. These risks could result in a material adverse change in Able View s business operations and the value of Pubco Class B Ordinary Shares, significantly limit or hinder Pubco s ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. For a detailed description of risks related to doing business in China, see "Risk Factors — Risk Factors Relating to Doing Business in China" in this prospectus. Able View may encounter several limitations related to cash transfer among its PRC Operating Entities, the holding company and its investors. Any funds we transfer to the PRC Operating Entities, either as a shareholder loan or as an increase in registered capital, are subject to permission and approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on foreign invested enterprises in China, capital contributions to our PRC Operating Entities are subject to the registration with the State Administration for Market Regulation or its local counterpart and registration with a local bank authorized by SAFE. In addition, (i) any foreign loan procured by our PRC Operating Entities is required to be registered with the SAFE or its local branches and (ii) any of our PRC Operating Entities may not procure loans which exceed the difference between its total investment amount and registered capital or, as an alternative, only procure loans subject to the calculation approach and limitation as provided by the People s Bank of China. See "Risk Factors — PRC regulations of loans to PRC entities and direct investment in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of our offerings to make loans or additional capital contributions to our PRC Operating Entities." Furthermore, a Hong Kong Special Administrative Region ("Hong Kong") company may only make a distribution out of profits available for distribution or other distributable reserves; and there can be no assurance that in the future the PRC government will not intervene or impose restrictions on our Hong Kong entity s ability to transfer or distribute cash/assets to entities outside of Hong Kong, which could result in an inability or prohibition on making transfers or distributions to us and adversely affect our business. In addition, to the extent funds and/or assets are in mainland China, the funds and/or assets may not be available to fund operations or for other use outside of PRC due to interventions in or the imposition of restrictions and limitations by the government in mainland China. See Risk Factors Summary and "Risk Factor — Restrictions on currency exchange may limit our ability to utilize our revenue effectively. To the extent our cash in the business is in mainland China, such cash may not be available to freely convert or be changed at favorable rate, and such cash may not be available to fund operations or for other use outside of PRC due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government in mainland China to transfer cash." An "indirect transfer" of PRC assets, including a transfer of equity interests in an unlisted non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of the underlying PRC assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Such limitation on the ability of our PRC Operating Entities to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. Pursuant to the Arrangement between the PRC and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise, as the beneficial owner, owns no less than 25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including, without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC Operating Entities to their respective immediate holding company in Hong Kong. See "Risk Factors — Able View is a holding company, and will rely on dividends paid by our PRC Operating Entities for our cash needs. Any limitation on the ability of our PRC Operating Entities to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our ordinary shares." and "Risk Factors — Dividends payable to our foreign investors and gains on the sale of our ordinary shares or ordinary shares by our foreign investors may become subject to PRC tax law." As Pubco, through its subsidiaries, operates business, and has most of the assets and executive officers in China, it may be difficult for Pubco s shareholders to effect foreign service of process upon Pubco or those executives or officers inside China. Apart from that, there is uncertainty as to whether the courts in China would recognize or enforce judgments of United States courts, as the United States and China do not have a treaty or other arrangements providing for reciprocal recognition and enforcement of judgments of courts of the United States in civil and commercial matters. However, a foreign judgment may be enforced in Hong Kong under common law by bringing an action in a Hong Kong court. Please see "Risk Factors —You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against Pubco or its management named in the prospectus based on foreign laws." and "Enforceability Of Civil Liability" for more details. Able View may also be subject to a variety of laws and other obligations regarding cybersecurity and data protection, which includes the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) (the "PDPO") and the Personal Data (Privacy) (Amendment) Ordinance 2021 (the "PDPAO"). Our directors are of the view that Able View is in compliance with the PDPO and the PDPAO, because our services do not require users personal information and our possession to personal information is minimal. We cannot assure you that the governmental authorities will not interpret or implement the laws or regulations in ways that negatively affect us, and any failure to comply with applicable laws and obligations could have a material and adverse effect on our business, financial condition and results of operations. Further, due to long arm provisions under the current Mainland China laws and regulations, the PRC government may apply laws and regulations relating to data protection, cybersecurity review and the anti-monopoly regulations that have not been listed in Annex III of the Basic Law of the Hong Kong Special Administrative Region of the People s Republic of China ("Basic Law") to the Hong Kong subsidiary of Able View. In the event that the Hong Kong subsidiary of Able View were to become subject to laws and regulations of Mainland China relating to data protection, cybersecurity review or the anti-monopoly regulations, it may be subject to the cybersecurity review or trigger anti-monopoly concern. Please see "Risk Factors — We may be subject to a variety of laws and other obligations regarding cybersecurity, data protection or anti-monopoly, and any failure to comply with applicable laws and obligations could have a material and adverse effect on our business, financial condition and results of operations" for more details. Able View also may face risks related to certain PCAOB determinations, which may cause Pubco securities to be delisted from a U.S. stock exchange or prohibited from being traded over-the-counter in the future under the Holding Foreign Companies Accountable Act (the "HFCAA"), if the PCAOB has determined it is unable to inspect or investigate Able View s auditor completely for two consecutive years beginning in 2021. The delisting or the cessation of trading of Pubco securities, or the threat of their being delisted or prohibited from being traded, may materially and adversely affect the value of your investment. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which proposes to reduce the period of time for foreign companies to comply with PCAOB audits from three to two consecutive years. On December 29, 2022, the Consolidated Appropriations Act, 2023 (the "CAA") was signed into law, which officially reduced the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, thus, would reduce the time before an applicable issuer s securities may be prohibited from trading or delisted. On December 16, 2021, the PCAOB issued a report to notify the SEC its determinations that is the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, respectively, and identifies the registered public accounting firms in China and Hong Kong that are subject to such determinations. Able View s auditor, Marcum Asia CPAs LLP (formerly known as Marcum Bernstein & Pinchuk LLP), an independent registered public accounting firm is headquartered in Manhattan, New York, was not included in the determinations announced by the PCAOB on December 16, 2021. Able View s auditor is currently subject to inspections and has been inspected by the PCAOB on a regular basis with the last inspection in 2020. On August 26, 2022, the PCAOB announced and signed a Statement of Protocol (the "Protocol") with the China Securities Regulatory Commission and the Ministry of Finance of the People s Republic of China. The Protocol provides the PCAOB with: (1) sole discretion to select the firms, audit engagements and potential violations it inspects and investigates, without any involvement of Chinese authorities; (2) procedures for PCAOB inspectors and investigators to view complete audit work papers with all information included and for the PCAOB to retain information as needed; (3) direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates. On December 15, 2022, the PCAOB issued a new Determination Report which concluded that it was able to inspect and investigate completely PCAOB-registered accounting firms headquartered in mainland China and Hong Kong in 2022, and the PCAOB vacated the December 16, 2021 Determination Report. Should the PCAOB again encounter impediments to inspections and investigations in mainland China or Hong Kong as a result of positions taken by any authority in either jurisdiction, including by the CSRC or the MOF, the PCAOB will make determinations under the HFCAA as and when appropriate. However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of Able View s, and Able View s auditor s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue to demand complete access to inspections and investigations against accounting firms headquartered in mainland China and Hong Kong in the future and states that it has already made plans to resume regular inspections in early 2023 and beyond. The PCAOB is required under the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely accounting firms based in the mainland China and Hong Kong. Should the PCAOB again encounter impediments to inspections and investigations in mainland China or Hong Kong as a result of positions taken by any foreign authority including but is not limited to mainland China or Hong Kong jurisdiction, the PCAOB will act expeditiously to consider whether it should issue a new determination. See "Risk Factors — The Holding Foreign Companies Accountable Act, or the HFCAA, and the related regulations continue to evolve. Further implementations and interpretations of or amendments to the HFCAA or the related regulations, or a PCAOB determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China." We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, and are therefore eligible to take advantage of certain reduced reporting requirements otherwise applicable to other public companies. We are also a "foreign private issuer," as defined in the Exchange Act and are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions under Section 16 of the Exchange Act. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. Investing in our Class B Ordinary Shares involves a high degree of risk. Before buying any Class B Ordinary Shares you should carefully read the discussion of material risks of investing in such securities in "Risk Factors" beginning on page 13 of this prospectus. Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. This prospectus is dated February 2, 2024. TABLE OF CONTENTS Page ABOUT THIS PROSPECTUS ii MARKET AND INDUSTRY DATA iii SUMMARY 1 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/ABVC_abvc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/ABVC_abvc_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/ABVC_abvc_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY 1 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/AERTW_aeries_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/AERTW_aeries_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..c9fd2f0bc0ac92a1eabec7bbde875d294de2162b --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/AERTW_aeries_prospectus_summary.txt @@ -0,0 +1,1389 @@ +SUMMARY OF THE PROSPECTUS + + + +This summary highlights selected information from this prospectus and may not contain all of the information that is important to you in making an investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our financial statements and the related notes included in this prospectus and the information set forth under the sections titled Risk Factors and Management s Discussion and Analysis of Financial Condition and Results of Operations. + + + +Our Business + + + +Aeries is a global professional and management services partner offering a range of management consultancy services for private equity sponsors and their portfolio companies with engagement models that are designed to provide a mix of deep vertical specialty, functional expertise, and digital systems and solutions to scale, optimize and transform a client s business operations. + + + +We support and drive our client s global growth by providing a range of management consultancy services involving professional advisory services and operations management services to build and manage dedicated delivery centers in appropriate locations based on customer business needs. With a focus towards digital enterprise enablement, these dedicated delivery centers act as a seamless extension of the client organization, with access to the best resources. It empowers them to be competitive and nimble to achieve their goals of enduring cost efficiencies, operational excellence, and value creation, without sacrificing functional control and flexibility. + + + +Advisory service to customers involves, among other things, active participation of senior leadership recommending strategies, best practices as it relates to operating model design, right approach, consultation on various areas, market availability for resources with appropriate skillsets required for specific roles contemplated in the service model, regulations to be complied with, optimization of tax structure etc. Our customers have the ability to customize the services based on options provided by Aeries and Aeries subsequently firms up the execution plan with the customers. + + + +Our customers also use our services to manage their organizational operations including software development, information technology, cybersecurity, finance, human resources, customer service and operations. Aeries hires appropriate talent and personnel on its payroll for deployment on customer operations. We work with our customers in a collaborative manner to select the appropriate candidates and create functional alignment with the customers organizations. While our talent becomes an extension of our clients team, Aeries continues to provide them with the opportunity for promotion, recognition and career path progression, which we believe results in higher employee satisfaction and lower voluntary attrition rates. We manage the regulatory, tax, recruiting, human resources compliance and branding for each of our delivery centers. We believe this disruptive business model delivers overall cost and operational efficiencies with the ability to deliver digital transformation solutions tailor made for our customers growth strategies. + + + +This purpose-built business model aims to create a more flexible and less expensive talent pool for deployment on customers operations, while creating innovation through strategic alignment at senior levels and visibility across the organization. The model also aims to insulate our clients from regulatory and tax issues and provides flexibility in scaling teams up or down based on our customers changing business needs. Aeries is able to deliver best practices due to its visibility into winning playbooks from multiple companies and is able to eliminate the deficiencies of the traditional outsourcing and offshoring models. + + + +As of +December 31, 2023, Aeries had more than 30 clients spanning across industry segments, including companies in the industries of e-commerce, +telecom, security, healthcare, engineering and others. With over a decade of experience catering to private equity firms and their portfolio +companies, Aeries had a revenue of $53.1 million and $41.0 million, net income of $1.7 million and $4.7 million, and net income margin +of 3.2% and 11.5%, for the years ended March 31, 2023 and 2022, respectively. Aeries had an adjusted EBITDA of $8.7 million and +$7.3 million (a non-GAAP measure) and an adjusted EBITDA margin of 16.4% and 17.8% for the years ended March 31, 2023 and 2022, +respectively. + + + + + + + 9 + + Table of Contents + + + + + + + +Aeries had a revenue of $52.8 million and $38.0 million, a net loss of $14.9 million and a net (loss)/income $0.8 million, and a net (loss)/income margin of (28.2)% and 2.1%, for the nine months ended December 31, 2023 and 2022, respectively. Aeries had an adjusted EBITDA of $8.2 million and $5.9 million (a non-GAAP measure) and an adjusted EBITDA margin of 15.5% and 15.5% for the nine months ended December 31, 2023 and 2022, respectively. + + + +Aeries Technology Group Business Accelerators Private Limited is an Indian private company limited by shares, with company registration number U74999MH2014PTC257474. Aeries Technology Group Business Accelerators Private Limited s principal executive office is located at 5th Floor, Paville House, Twin Tower Lane, Prabhadevi, Mumbai 400 025, and its telephone number is +91 22 7177 4000. + + + +The Business Combination + + + +On November 6, 2023, as contemplated in the Business Combination Agreement, the Company consummated the Business Combination, following the approval by the Company s shareholders at the annual meeting of shareholders held on November 2, 2023. In connection with the Closing, the Company adopted the Memorandum and Articles of Association and changed its name from Worldwide Webb Acquisition Corp. to Aeries Technology, Inc. + + + +Exchange Agreements +and Exchange by the Sole Shareholder + + + +On +March 26, 2024, the Company determined that the exercise conditions in the Exchange Agreements with respect to the Sole Shareholder and +one of the Exchanging Aeries Holders, Bhisham Khare, had been satisfied. On April 5, 2024, the Sole Shareholder exchanged an aggregate +amount of 9,500 AARK ordinary shares for 21,337,000 Exchanged Shares. An aggregate of 10,566,347 Exchanged Shares remain to be issued +upon exchanges, including 7,740,979 Exchanged Shares for which the exchange conditions have not yet been met. + + + +Summary Risk Factors + + + +Risks Related to Our Industry and Business + + + + + + + We operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects; + + + + + + + + + Competitive pricing pressure may reduce our revenue; + + + + + + + + + Our business depends on a strong brand and corporate reputation; + + + + + + + + + We may face difficulties as we expand our operations into countries in which we have no prior operating experience which could adversely impact our results of operations; + + + + + + + + + We have and may continue to experience a long selling and implementation cycle; + + + + + + + + + We may need additional capital, and a failure by us to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business or enhance our service offerings; + + + + + + + + + Fluctuations against the U.S. dollar in the local currencies in the countries in which we operate could have a material effect on us; + + + + + + + + + Our unaudited pro forma condensed combined financial information may not be representative of our future results; + + + + + + + + + 10 + + Table of Contents + + + + + + + + + + + Fluctuations against the U.S. dollar in the local currencies in the countries in which we operate could have a material effect on us; + + + + + + + + + + We may acquire other companies, which may divert our management s attention; + + + + + + + + + We may be unable to effectively manage our rapid growth or achieve anticipated growth; + + + + + + + + + We may be unable to maintain adequate resource utilization rates; + + + + + + + + + Our management team has limited experience managing a public company; + + + + + + + + + We may fail to attract, hire, train and retain sufficient numbers of skilled employees; + + + + + + + + + + Our business depends upon our international operations, particularly in India, Singapore, the United States and Mexico; + + + + + + + + + + We have identified conditions and events that raise substantial doubt about our ability to continue as a going concern; + + + + + + + + + We have significant fixed costs related to lease facilities and our inability to renew our leases on commercially acceptable terms may adversely affect us; + + + + + + + + + The loss of a key client could have an adverse effect on our business and results of operations; + + + + + + + + + Although we have executed auto-renewal contracts with our clients, they have the right to terminate the same for any reason upon a notice period ranging from 90 days to 180 days as negotiated and certain termination payment; + + + + + + + + + Some of our contracts could be unprofitable, which could adversely impact our business; + + + + + + + + + Global economic and political conditions could adversely affect our business, results of operations, financial condition and prospects; + + + + + +Risks Related to Regulation, Legislation and Legal Proceedings + + + + + + + Regulatory, legislative or self-regulatory/standard developments regarding privacy and data security matters could adversely affect our ability to conduct our business; + + + + + + + + + Changes and uncertainties in the tax system in the countries in which we have operations could materially adversely affect our financial condition and results of operations; + + + + + + + + + We are subject to laws and regulations in the United States and other countries in which we operate, including export control laws, import and customs laws, trade and economic sanctions laws, the U.S. Foreign Corrupt Practices Act ( FCPA ) and other similar anti-corruption laws; + + + + + + + + + Our global operations expose us to numerous legal and regulatory requirements and failure to comply with such requirements, including unexpected changes to such requirements, could adversely affect our results of operations; + + + + + +Risks Related to Our Intellectual Property, Technology Solutions, Software Usage and Cyber Security + + + + + + + Others could claim that we infringe, violate, or misappropriate their intellectual property rights; + + + + + + + + + If we fail to adequately protect our or our client s intellectual property rights and proprietary information in the United States and abroad, our competitive position could be impaired; + + + + + + + + + We use third-party software, hardware and software-as-a-service, or SaaS, technologies from third parties that may be difficult to replace; + + + + + + + + + 11 + + Table of Contents + + + + + + + +Risks Related to Finance and Accounting + + + + + + + Our operating results may fluctuate from quarter to quarter due to various factors; + + + + + + + + + Our cash flows and results of operations may be adversely affected if we are unable to collect on billed and unbilled receivables from clients; + + + + +Risks Related to Ownership of Our Class A Ordinary Shares + + + + + + + We have not paid and may not pay cash dividends for the foreseeable future; + + + + + + + + + There has been no prior market for our Class A ordinary shares and an active trading market for such securities may never develop or be sustained; + + + + + + + + + The market price of our Class A ordinary shares may be volatile or may decline regardless of our operating performance, which could cause the value of your investment to decline; + + + + + + + + + The Class A ordinary shares being offered in this prospectus represent a substantial percentage of our outstanding Class A ordinary shares, and the sales of such shares, or the perception that these sales could occur, could cause the market price of our Class A ordinary shares to decline significantly; + + + + + + + + + We are an emerging growth company and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our Class A ordinary shares less attractive to investors; + + + + + + + + + We may be required to make a cash payment in respect of approximately 4 million Class A ordinary shares to the investors with whom we entered into Forward Purchase Agreements in connection with the Closing, which would reduce the amount of cash available to us to fund our operations; + + + + + + + + + Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business; + + + + + + + + + You may be diluted by the future issuance of Class A ordinary shares registered pursuant to this prospectus as well as any additional Class A ordinary shares issued in connection with our incentive plans, acquisitions or otherwise; + + + + + + + + + The + Sole Shareholder, certain employees and certain founder shareholders may have interests that conflict with other shareholders + and the employees may sell additional shares, or the market perception of such sale may cause the market price of our Class A ordinary + shares to decline; + + + + + + + + + We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and the share price of our securities; + + + + + + + + + We + are a controlled company under the Nasdaq listing standards, and as a result, its shareholders may not have certain + corporate protections that are available to shareholders of companies that are not controlled companies; and + + + + + + + + We have + a dual class ordinary share structure that has the effect of concentrating voting control with the Class V Shareholder + with regard to certain extraordinary events described in our Memorandum and Articles of Association. Additionally, the Class V Shareholder + is a business associate of the Sole Shareholder, who currently holds approximately 68.4% of all votes attached to the total issued + and outstanding Class A ordinary shares and the Class V ordinary share, subject to the special voting right of the Class V ordinary + share. This concentrated control will limit or preclude your ability to influence corporate matters, including the election of directors, + amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other + major corporate transactions requiring shareholder approval, and that may adversely affect the trading price of our Class A ordinary + shares. + + + + + + + + + 12 + + Table of Contents + + + + + + + +Corporate Information + + + +On November 6, 2023, we consummated the Business Combination, pursuant to which Worldwide Webb Acquisition Corp. was renamed Aeries Technology, Inc. As of the open of trading on November 7, 2023, the Class A ordinary shares and Public Warrants of Aeries Technology, Inc., formerly those of Worldwide Webb Acquisition, Corp., began trading on Nasdaq as AERT and AERTW, respectively. + + + +Our principal executive offices are located at 60 Paya Lebar Road, #08-13, Paya Lebar Square, Singapore, and our telephone number at that location is 65 98416625. Our website address is https://aeriestechnology.com/. Information contained on our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only. + + + +Emerging Growth Company and Smaller Reporting Company + + + +We are an emerging growth company, as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the JOBS Act ), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act ), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. + + + +Further, Section 102(b) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act are required to comply with the new or revised financial accounting standards). The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used. + + + +We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the IPO, which occurred on June 18, 2021, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. + + + +Additionally, we are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common equity held by non-affiliates exceeds $250 million as of the last business day of the most recently completed second fiscal quarter or (ii) the market value of our common equity held by non-affiliates exceeds $700 million as of the last business day of the most recently completed second fiscal quarter and our annual revenue in the most recent fiscal year completed before the last business day of such second fiscal quarter exceeded $100 million. To the extent we take advantage of such reduced disclosure obligations, it may make comparison of our financial statements with other public companies difficult or impossible. + + + + + + + 13 + + Table of Contents + + + + + + + +THE OFFERING + + + + + Class + A ordinary shares offered by us + + 31,594,148 + Class A ordinary shares issuable upon exercise of exchange rights and exercise of Warrants. + + + + + + + + Class + A ordinary shares offered by the Selling Securityholders + + 54,917,027 + Class A ordinary shares. + + + + + + + + Warrants offered by the Selling Securityholders + + 9,527,810 Private Placement Warrants. + + + + + + + + Class + A ordinary shares outstanding prior to this offering + + 38,896,962 + Class A ordinary shares (as of April 30, 2024). + + + + + + + + Warrants + outstanding prior to this Offering + + 21,027,801 + Warrants (as of April 30, 2024). + + + + + + + + Exercise price per Warrant + + $11.50. + + + + + + + + Use + of proceeds + + We will not receive any proceeds + from the issuance of Exchanged Shares. We will not receive any proceeds from the sale of Class A ordinary shares or Warrants + by the Selling Securityholders pursuant to this prospectus. We will receive proceeds from the exercise of the Warrants (if + any) for cash, but not from the sale of the Class A ordinary shares issuable upon such exercise. Our Warrants are exercisable + at a price of $11.50 per share, which means that the Warrants are currently out of the money. Therefore, there is a high likelihood + that the warrant holders will not exercise their Warrants unless the market price of our Class A ordinary shares increases above + the exercise price of the Warrants. + + + + + + + + + Risk factors + + You should carefully read the Risk Factors beginning on page 15 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our Class A ordinary shares or Warrants. + + + + + + + + Nasdaq symbol for our Class A ordinary shares + + AERT + + + + + + + + Nasdaq symbol for our Warrants + + AERTW + + + + + + + + + 14 + + Table of Contents + + + + + +RISK FACTORS + + + +You +should carefully review and consider the following risk factors and the other information contained in this prospectus, including the +financial statements and notes to the financial statements included herein. The following risk factors apply to the business of Aeries, +the operation of the business by Aeries and also applied to the business and operations of ATG prior to the completion of the Business +Combination. The occurrence of one or more of the events or circumstances described in these risk factors, alone or in combination with +other events or circumstances may have a material adverse effect on the business, cash flows, financial condition and results of operations +of Aeries. You should carefully consider the following risk factors in addition to the other information included in this prospectus, +including matters addressed in the section entitled Cautionary Note Regarding Forward-Looking Statements. Aeries may face +additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair Aeries s +business or financial condition. The following discussion should be read in conjunction with the financial statements and notes to the +financial statements included herein. Unless the context requires otherwise, as used herein, references to we, us, + our, and ours refer both to the business of Aeries and its subsidiaries as presently conducted, as well as +the business of ATG and its subsidiaries prior to the Business Combination. + + + + 15 + + Table of Contents + + + + + +Risks Related to Our Industry and Business + + + +We operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects. + + + +The technology services industry is competitive and continuously evolving, subject to rapidly changing demands and constant technological developments. As a result, success and performance metrics are difficult to predict and measure in our industry. Because services and technologies are rapidly evolving and each company within the industry can vary greatly in terms of the services it provides, its business model, and its results of operations, it can be difficult to predict how any company s services, including ours, will be received in the market. Neither our past financial performance nor the past financial performance of any other company in the technology services industry is indicative of how our company will fare financially in the future. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, any forecasts of market growth we have made or may make in the future should not be taken as indicative of our future growth. Our future profits may vary substantially from those of other companies and those we have achieved in the past, making an investment in our company risky and speculative. If our clients demand for our services declines as a result of economic conditions, market factors or shifts in the technology industry, our business would suffer and our results of operations and financial condition would be adversely affected. + + + +We face intense competition and the failure to stand out could adversely affect our business. + + + +The market for technology and information technology services is intensely competitive, highly fragmented and subject to rapid change and evolving industry standards and we expect competition to intensify. Our primary competitors include next-generation IT service providers, digital agencies and consulting companies and in-house development and information technology departments of our clients. Many of our competitors have substantially greater financial, technical and marketing resources and greater name recognition than we do. As a result, they may be able to compete more aggressively on pricing or devote greater resources to the development and promotion of technology and information technology services. Further, there is a risk that our clients may elect to increase their internal resources to satisfy their services needs as opposed to relying on a third-party service providers, such as us. The technology services industry may also undergo consolidation, which may result in increased competition in our target markets from larger firms that may have substantially greater financial, marketing or technical resources, may be able to respond faster to new technologies or processes and changes in client demands. Increased competition could also result in price reductions, reduced operating margins and loss of our market share. + + + +Pricing pressure may reduce our revenue or gross profits and adversely affect our financial results. + + + +The prices for our services and solutions may decline for a variety of reasons, including pricing pressures from our competitors, pricing leverage from clients, anticipation of the introduction of new solutions by our competitors, or promotional programs offered by us or our competitors. We may face increased pricing pressure from our key clients as we grow the existing services and solutions we provide to our key clients or expand our business with them by cross-selling new services and solutions. In addition, competition continues to increase in the markets in which we operate, and we expect competition to further increase in the future. If we are unable to maintain our pricing due to competitive pressures or other factors, our margins will be reduced and our gross profits, business, financial condition and results of operations would be adversely affected. + + + +Our business depends on a strong brand and corporate reputation and the impairment of the brand could adversely impact our business. + + + +We believe the brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts to recruit and retain talented professionals. However, our corporate reputation is susceptible to damage by actions or statements made by current or former employees or clients, competitors, vendors and adversaries in legal proceedings, as well as members of the investment community and the media. There is a risk that negative information about our company, even if based on false information or misunderstanding, could adversely affect our business. Damage to our reputation could reduce the value and effectiveness of our brand name and could reduce investor confidence in us and adversely affect our operating results. + + + + 16 + + Table of Contents + + + + + +We may face difficulties and be subject to increased business and economic risks as we expand our operations into countries in which we have no prior operating experience which could impact our results of operations. + + + +We expect to continue to expand our international operations in order to maintain an appropriate cost structure and meet our clients needs, which may include opening sites in new jurisdictions and providing our services and solutions in additional languages. It may involve expanding into less developed countries, which may have less political, social or economic stability and less developed infrastructure and legal systems. As we expand our business into new countries, we may encounter economic, regulatory, personnel, technological and other difficulties that increase our expenses or delay our ability to start up our operations or become profitable in such countries. This may affect our relationships with our clients and could have an adverse effect on our business, financial condition, results of operations and prospects. In addition, our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal and regulatory systems, and commercial markets. Operating internationally subjects us to new risks and may increase risks that we currently face. + + + +Our success largely depends on our ability to achieve our business strategies, and our results of operations and financial condition may suffer if we are unable to continually develop and successfully execute our strategies. + + + +While we believe that our strategic plans reflect opportunities that are appropriate and achievable, the execution of our strategy may not result in long-term growth in revenue or profitability due to a number of factors, such as: + + + + + + + the number, timing, scope and contractual terms of projects in which we are engaged; + + + + + + + + + the business decisions of our clients regarding the use of our services; + + + + + + + + + the ability to further grow sales of services from existing clients; + + + + + + + + + the timing of collection of accounts receivable; and + + + + + + + + + general economic conditions. + + + + + +The failure to continually develop and execute optimally on our business strategies could have a material adverse effect on our business, financial condition and results of operations. To manage the expected domestic and international growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls, our reporting systems and procedures, and our utilization of real estate. If we fail to successfully scale our operations and increase productivity, we may be unable to execute our business plan, and such failure could have a material adverse effect on our business, financial condition and results of operations. + + + +We have and may continue to experience a long selling and implementation cycle with respect to certain projects that require us to make significant resource commitments prior to realizing revenue for our services. + + + +Before committing to use our services, potential clients may require us to expend substantial time and resources educating them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject to many risks and delays over which we have little or no control, including our clients decision to choose alternatives to our services. Our current and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential clients to which we have devoted significant time and resources. If our sales cycle unexpectedly lengthens for one or more projects, it would negatively affect the timing of our revenue and hinder our revenue growth. + + + + 17 + + Table of Contents + + + + + +We may need additional capital, and a failure by us to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business or enhance our service offerings. + + + +We may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity, debt or equity-linked securities, such as convertible debt, draw down on our credit facility or obtain another credit facility. The sale of additional equity or equity-linked securities could result in dilution to our shareholders. Any new equity or equity-linked securities we issue could have rights, preferences and privileges superior to those of holders of our Class A ordinary shares. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations. If we seek to access additional capital or increase our borrowings, there can be no assurance that debt, equity or equity-linked financing may be available to us on favorable terms, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business, results of operations and financial condition may be harmed. + + + +Artificial intelligence presents risks and challenges that can impact our business including by posing security risks to our confidential information, proprietary information, and personal data. + + + +Issues in the use of artificial intelligence, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations. As with many technological innovations, artificial intelligence presents risks and challenges that could impact our business. Our vendors may incorporate generative artificial intelligence tools into their offerings without disclosing this use to us, and the providers of these generative artificial intelligence tools may not meet existing or rapidly evolving regulatory or industry standards with respect to privacy and data protection and may inhibit our or our vendors ability to maintain an adequate level of service and experience. If our vendors, or our third-party partners experience an actual or perceived breach or privacy or security incident because of the use of generative artificial intelligence, we may lose valuable intellectual property and confidential information and our reputation and the public perception of the effectiveness of our security measures could be harmed. Further, bad actors around the world use increasingly sophisticated methods, including the use of artificial intelligence, to engage in illegal activities involving the theft and misuse of personal information, confidential information, and intellectual property. Any of these outcomes could damage our reputation, result in the loss of valuable property and information, and adversely impact our business. + + + +The benefits to customers of our services could be reduced or supplanted by artificial intelligence, which may materially and adversely affect our business, prospects, financial condition and operating results. + + + +The benefits to customers of our services could be reduced or supplanted by artificial intelligence technologies. We cannot be sure that artificial intelligence technologies will not match or exceed the benefits of our services or be more cost effective than our services. The development of any alternative technology that can compete with or supplant our services may materially and adversely affect our business, prospects, financial condition and operating results in ways we do not currently anticipate. Any failure by us to develop new or enhanced processes, or to react to changes in existing technologies, could result in the loss of competitiveness of our services, decreased revenue and a loss of market share to competitors. Our efforts may not be sufficient to adapt to changes in artificial intelligence technology. + + + + 18 + + Table of Contents + + + + + +Our ability to expand our business and procure new contracts or enter into beneficial business arrangements could be affected to the extent we enter into agreements with clients containing non-competition clauses. + + + +Our ability to expand our business and procure new contracts or enter into beneficial business arrangements in the future could be affected to the extent we enter into agreements with clients containing non-competition clauses. + + + +Our unaudited pro forma condensed combined financial information may not be representative of our future results. + + + +The pro forma financial information included in this prospectus is constructed from our historical consolidated financial statements and such financial statements may not be indicative of our future operations. The pro forma financial information is based, in part, on certain assumptions that we believe are reasonable; however, we cannot assure you that our assumptions will prove to be accurate over time. Accordingly, the pro forma financial information included in this prospectus does not purport to be indicative of what our results of operations and financial condition would have been had we been a combined entity during the periods presented, or what our results of operations and financial condition will be in the future. + + + +Fluctuations against the U.S. dollar in the local currencies in the countries in which we operate could have a material effect on our results of operations. + + + +A majority of our revenues are in U.S. Dollars and our costs are primarily in local currencies, including the U.S. Dollar, Indian Rupee and Mexican Peso. An appreciation of local currencies against the U.S. Dollar would cause a net adverse impact to our profitability. Because our financial statements are presented in U.S. dollars and revenues are primarily generated in U.S. dollars, any significant unhedged fluctuations in the currency exchange rates between the U.S. dollar and the currencies of countries in which we incur costs in local currencies will affect our results of operations and financial statements. This may also affect the comparability of our financial results from period to period, as we convert our subsidiaries statements of financial position into U.S. dollars from local currencies at the period-end exchange rate, and income and cash flow statements at average exchange rates for the year. + + + +Changes in the exchange rate of the Indian rupee versus the U.S. dollar result in earnings volatility and may have a material adverse effect on our business, financial condition and operating results. + + + +Our functional currency is the Indian rupee, and our financial statements are converted to U.S. dollars when preparing our financial statements. Changes in the exchange rate between the two currencies can cause reported financial results to fluctuate and a weakening Indian rupee relative to the U.S. dollar would impact our earnings. + + + + 19 + + Table of Contents + + + + + +We are subject to foreign exchange and currency risks that could adversely affect our operations, and our ability to mitigate our foreign exchange risk may be limited. + + + +Our results of operations could be adversely affected by certain movements in exchange rates, particularly if the Indian rupee or other currencies in which we incur expenses appreciate against the U.S. dollar or if the currencies in which we receive revenues, such as the euro, depreciate against the U.S. dollar. If the Indian rupee or other currencies in which we incur expenses appreciate against the U.S. dollar, we may have to consider additional means of maintaining profitability, including by increasing pricing, which may or may not be achievable. + + + +We may acquire other companies in pursuit of growth or may make dispositions or investments, any of which may divert our management s attention, result in dilution to our shareholders and consume resources that are necessary to sustain our business. + + + +As part of our business strategy, we regularly review potential strategic transactions, including potential acquisitions, dispositions, consolidations, joint ventures, investments or similar transactions. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to complete these transactions may be subject to conditions or approvals that are beyond our control, including anti-takeover and antitrust laws in various jurisdictions. Consequently, these transactions, even if undertaken and announced, may not close. + + + +An acquisition, investment or new business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, services, products, personnel or operations of acquired companies. Moreover, the anticipated benefits of any merger, acquisition, investment or similar partnership may not be realized or we may be exposed to unknown liabilities, including litigation against the companies we may acquire, for example from failure to identify all of the significant risks or liabilities associated with the target business. These integration activities are complex and time-consuming, and we may encounter unexpected difficulties or incur unexpected costs. Any of these risks could materially and adversely affect our business, financial condition, results of operations and prospects. + + + +We may be unable to effectively manage our rapid growth or achieve anticipated growth, which could place significant strain on our management personnel, systems and resources. + + + +As we add new delivery sites, introduce new services or enter into new markets, we may face new market, technological and operational risks and challenges with which we are unfamiliar, and we may not be able to mitigate these risks and challenges to successfully grow those services or markets. We may not be able to achieve our anticipated growth or successfully execute large and complex projects, which could materially adversely affect our revenue, results of operations, business and prospects. As our company grows, and we are required to add more employees and infrastructure to support our growth, we may find it increasingly difficult to maintain our corporate culture. If we fail to maintain a culture that fosters career development, innovation, creativity and teamwork, we could experience difficulty in hiring and retaining the trained professionals. Failure to manage growth effectively could have a material adverse effect on the quality of the execution of our engagements, our ability to attract and retain the trained professionals and our business, results of operations and financial condition. + + + +We may be unable to maintain adequate resource utilization rates and productivity levels, which may adversely impact our profitability. + + + +Our profitability and the cost of providing our services are affected by our utilization rates of our employees in our delivery locations. If we are not able to maintain appropriate utilization rates for our employees involved in delivery of our services, our profit margin and our profitability may suffer. Our revenue could also suffer if we misjudge demand patterns and do not recruit sufficient employees to satisfy demand. Employee shortages could prevent us from completing our contractual commitments in a timely manner and cause us to lose contracts or clients. + + + + 20 + + Table of Contents + + + + + +We are dependent on members of our senior management team and other key employees. + + + +Our future success heavily depends upon the continued services of our senior management team, particularly Mr. Sudhir Appukuttan Panikassery, our Chief Executive Officer, and other key employees. We currently do not maintain key man life insurance for any of the members of our senior management team or other key employees. We have employment agreements and consultancy contracts with our key employees. If one or more of our senior executives or key employees are unable or unwilling to continue in their present positions, it could disrupt our business operations, and we may not be able to replace them easily, on a timely basis or at all. In addition, competition for senior executives and key employees in our industry is intense, and we may be unable to retain our senior executives and key employees, in which case our business may be severely disrupted. If any of our senior management team or key employees joins a competitor or forms a competing company, we may lose clients, suppliers, know-how and information technology professionals and staff members to them. Any non-competition, non-solicitation or non-disclosure agreements we have with our senior executives or key employees might not provide effective protection to us in light of legal uncertainties associated with the enforceability of such agreements. + + + +Our management team has limited experience managing a public company. + + + +Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could harm our business, financial condition and results of operations. + + + +We may fail to attract, hire, train and retain sufficient numbers of skilled employees in a timely fashion at our sites to support our operations, which could have a material adverse effect on our business, financial condition, results of operations and prospects. + + + +Our business relies on large numbers of trained and skilled employees at our sites, and our success depends to a significant extent on our ability to attract, hire, train and retain skilled employees. The outsourcing industry as well as the technology industry generally experience high employee turnover. Increased competition for skilled employees, in our industry or otherwise, particularly in tight labor markets, could have an adverse effect on our business. Additionally, a significant increase in the turnover rate among trained employees could increase our costs and decrease our operating profit margins and could have an adverse effect on our ability to complete existing contracts in a timely manner, meet client objectives and expand our business. + + + +Our failure to attract, train and retain personnel with the experience and skills necessary to fulfil the needs of our existing and future clients or to assimilate new employees successfully into our operations could have a material adverse effect on our business, financial condition, results of operations and prospects. + + + +In particular, competition for qualified employees, particularly in the United States, India and Mexico, remains high and we expect such competition to continue. In many locations in which we operate, there is a limited pool of employees who have the skills and training needed to do our work. If our business continues to grow, the number of people we will need to hire will increase. Significant competition for employees could have an adverse effect on our ability to expand our business and service our clients, as well as cause us to incur greater personnel expenses and training costs. + + + + 21 + + Table of Contents + + + + + +Our failure to detect and deter criminal or fraudulent activities or other misconduct by our employees could result in loss of trust from our clients and negative publicity, which would have an adverse effect on our business and results of operations. + + + +Because +we have access to our clients sensitive and confidential information in the ordinary course of our business, our employees could +engage in criminal, fraudulent or other conduct prohibited by applicable law, client contracts or internal policy. Remote and hybrid +work arrangements for many of our employees reduces our ability to monitor employee conduct and has elevated the risk of our employees +engaging in such conduct undetected by us. Although we terminate employees when our investigations establish misconduct and have implemented +measures designed to identify and deter such misconduct, such as fraud prevention training, there can be no assurance that such measures +will prevent or detect further employee misconduct. If our employees use their access to our and our clients systems as a conduit +for criminal activity or other misconduct, our clients and their customers may not consider our services and solutions safe and trustworthy, +and we could receive negative press coverage or other public attention as a result. Such loss of trust and negative publicity could cause +our existing clients to terminate or reduce the scope of their dealings with us and harm our ability to attract new clients, which would +have an adverse effect on our business and results of operations. Further, we may be subject to claims of liability by our clients or +their customers based on the misconduct or malfeasance of our employees, and our insurance policies may not cover all potential claims +to which we are exposed or indemnify us for all liability. + + + +Our business is heavily dependent upon our international operations, particularly in India and Mexico, and any disruption to those operations would adversely affect us. + + + +Our business and future growth depend largely on continued demand for our services performed in India and Mexico. Various factors, such as changes in the central or state governments, could trigger significant changes in India s economic liberalization and deregulation policies and disrupt business and economic conditions in India generally and our business in particular. Our business and our international operations may also be affected by actual or threatened trade war or tariffs or other trade controls. If we are unable to continue to leverage the skills and experience of our international workforce, particularly in India and Mexico, we may be unable to provide our solutions at an attractive price and our business could be materially and negatively impacted. + + + +We have identified conditions and events that raise substantial doubt about our ability to continue as a going concern. + + + +We have reported a net loss for the nine and three months ended December 31, 2023, The shareholders equity as at December 31, 2023 also has a deficit of $43 million. These factors may raise a substantial doubt regarding our ability to continue as a going concern for at least 12 months from the date when these financial statements are available to be filed with the SEC. As at December 31, 2023 we had a balance of $6.5 million in cash and cash equivalents and also generated positive cash flows for the nine months ended December 31, 2023. We have historically financed our operations and expansions with cash generated from operations, a revolving credit facility from Kotak Mahindra Bank, and loans from related parties. We expect to have sufficient cash from the operations, cash reserves and debt capacity for the next 12 months and for the foreseeable future to finance our operations, growth and expansion plans. On account of this, the condensed consolidated financial statements included elsewhere in this prospectus have been prepared on a going concern basis. We may require additional financing to maintain our business and strategy. If we are unable to continue as a going concern, we may liquidate our assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely that investors will lose all or a part of their investment. It is possible that future SEC reports we may file may contain statements expressing doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains uncertainty about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide funding to us on commercially favorable terms, if at all. + + + +We have significant fixed costs related to lease facilities. + + + +We have made and continue to make significant contractual commitments related to our leased facilities. These expenses will have a significant impact on our fixed costs, and if we are unable to grow our business and revenue proportionately, our operating results may be negatively affected. + + + + 22 + + Table of Contents + + + + + +Our sites operate on leasehold property, and our inability to renew our leases on commercially acceptable terms or at all may adversely affect our results of operations. + + + +Our sites operate on leasehold property. Our leases are subject to renewal and we may be unable to renew such leases on commercially acceptable terms or at all, which may have an adverse impact on our operations. In addition, in the event of non-renewal of our leases, we may be unable to locate suitable replacement properties for our sites or we may experience delays in relocation that could lead to a disruption in our operations. + + + +Our business is dependent on key clients, and the loss of a key client could have an adverse effect on our business and results of operations. + + + +We derive a substantial portion of our revenue from a small number of key clients who generally retain us across multiple service offerings. Our top five clients accounted for 57% and 64% of our revenue for the year ended March 31, 2022 and the nine months ended December 31, 2022, respectively, and 64% and 52% of our revenue for the year ended March 31, 2023 and the nine months ended December 31, 2023, respectively. The loss of all or a portion of our business with, or the failure to retain a significant amount of business with, any of our key clients could have a material adverse effect on our business, financial condition and results of operations. In addition, our ability to maintain, increase and collect revenue from our top clients depends in part on the financial condition of those clients. Further, our reliance on any individual client for a significant portion of our revenue may give that client a certain degree of pricing leverage against us when negotiating contracts and terms of service and solutions. + + + +Although we have executed auto-renewal contracts with our clients, they have the right to terminate the same. + + + +Although we have executed auto-renewal service agreements with our clients, the clients may choose to terminate or not renew such agreements. In the event our clients terminate the agreements without cause or not renew the agreement, adequate notice period (ranging from 90 days to 180 days as negotiated) needs to be provided by the client. Additionally, a termination fee component (based on commercial margin) is payable by the clients in the event of such termination without cause or non-renewal. + + + +Our ability to maintain continuing relationships with our major clients and successfully obtain payment for our services and solutions is essential to the growth and profitability of our business. + + + +The consolidation or corporate actions of our clients or potential clients may adversely affect our business, financial condition, results of operations and prospects. + + + +Our clients may engage in certain corporate actions such as potential mergers, consolidations, divestment, disposal of assets or joint ventures or similar transactions, some of which may be material. Any of these client actions may result into change of ownership of our client and could materially and adversely affect our business, financial condition, results of operations and prospects. + + + +Some of our contracts could be unprofitable, which could adversely impact our business. + + + +We perform our services primarily under time-and-materials contracts (where materials costs consist of travel and other indirect expenses). We charge out the services performed by our employees under these contracts at monthly rates that are agreed at the time at which the contract is entered. The rates and other pricing terms negotiated with our clients are highly dependent on our internal forecasts of our operating costs and predictions of increases in those costs influenced by wage inflation and other marketplace factors, as well as the volume of work provided by the client. Our predictions are based on limited data and could turn out to be inaccurate, resulting in contracts that may not be profitable. + + + +In addition to our time-and-materials contracts, we undertake some engagements on a fixed-price basis and also provide managed services in certain cases. Moreover, some of our client contracts do not have minimum volume requirements, and the profitability of each client contract or work order may fluctuate, sometimes significantly, throughout various stages of the program. + + + + 23 + + Table of Contents + + + + + +If our current insurance coverage is or becomes insufficient to protect against losses incurred, our business, financial condition and results of operations may be adversely affected. + + + +We provide services and solutions that are integral to our clients businesses. If we were to default in the provision of any contractually agreed-upon services or solutions, our clients could suffer significant damages and make claims against us for those damages. Any defects or errors or failure to meet clients expectations in the performance of our contracts could result in claims for substantial damages against us. Our contracts generally limit our liability for damages that arise from negligent acts, error, mistakes or omissions in rendering services to our clients. However, we cannot be sure that these contractual provisions will protect us from liability for damages in the event we are sued. In addition, certain liabilities, such as claims of third parties for intellectual property infringement and breaches of data protection and security requirements, for which we may be required to indemnify our clients, could be substantial. The successful assertion of one or more large claims against us in amounts greater than those covered by our current insurance policies could materially adversely affect our business, financial condition and results of operations. + + + +We currently carry cyber and errors and omissions liability coverage in an amount we consider appropriate for all of the services we provide. To the extent client damages are deemed recoverable against us in amounts substantially in excess of our insurance coverage, or if our claims for insurance coverage are denied by our insurance carriers, there could be a material adverse effect on our revenue, business, financial condition and results of operations. + + + +Although we maintain professional liability insurance, product liability insurance, commercial general and property insurance, business interruption insurance, workers compensation coverage, and umbrella insurance for certain of our operations, our insurance coverage does not insure against all risks in our operations or all claims we may receive. Damage claims from clients or third parties brought against us or claims that we initiate due to a data security breach, the disruption of our business, litigation, or natural disasters, may not be covered by our insurance, may exceed the limits of our insurance coverage, and may result in substantial costs and diversion of resources even if insured. Some types of insurance are not available on reasonable terms or at all in some countries in which we operate, and we cannot insure against damage to our reputation. The assertion of one or more large claims against us, whether or not successful and whether or not insured, could materially adversely affect our reputation, business, financial condition and results of operations. + + + +If we do not continue to innovate and remain at the forefront of emerging technologies and related market trends, we may lose clients and not remain competitive. + + + +Our success depends on delivering innovative solutions that leverage emerging technologies and emerging market trends to drive increased revenue. Technological advances and innovation are constant in the technology services industry. As a result, we must continue to invest significant resources to stay abreast of technology developments so that we may continue to deliver solutions that our clients will wish to purchase. If we are unable to anticipate technology developments, enhance our existing services or develop and introduce new services to keep pace with such changes and meet changing client needs, we may lose clients and our revenue and results of operations could suffer. Our competitors may be able to offer engineering, design and innovation services that are, or that are perceived to be, substantially similar or better than those we offer. This may force us to reduce our rates and to expend significant resources in order to remain competitive, which we may be unable to do profitably or at all. Because many of our clients and potential clients regularly contract with other information technology service providers, these competitive pressures may be more acute than in other industries. + + + +In order to offer innovative services, we may incur capital expenditures in product development, technology and communications infrastructure, which may not necessarily maintain our competitiveness. + + + +In order to offer innovative services, we anticipate that it will be necessary to continue to invest in product development, technology and communications infrastructure to ensure reliability and maintain our competitiveness. This is likely to result in capital expenditures for maintenance as well as growth as we continue to grow our business. There can be no assurance that any of our information systems will be adequate to meet the emerging market or the client s future needs or that we will be able to incorporate new technology to enhance and develop our existing solutions. Moreover, investments in technology, including future investments in upgrades and enhancements to hardware or software, may not necessarily maintain our competitiveness. Our future success will also depend in part on our ability to anticipate and develop information technology solutions that keep pace with evolving industry standards and changing client demands. + + + + 24 + + Table of Contents + + + + + +Global economic and political conditions could adversely affect our business, results of operations, financial condition and prospects. + + + +Our results of operations may vary based on the impact of changes in the global economy and political environment on us and our clients. The technology services industry is particularly sensitive to the economic environment and tends to decline during general economic downturns. Unfavorable economic conditions would adversely affect the demand for some of our clients products and services and therefore could cause a decline in the demand for our services and solutions. Our business growth largely depends on continued demand for our services and solutions from clients in the U.S. and other countries that we may target in the future. In addition, our clients may be particularly susceptible to economic downturns. If the U.S. economy further weakens or slows, or a negative or an uncertain political climate persists, whether due to inflation, interest rates, global conflict, a pandemic, or otherwise, pricing for our services and solutions may be depressed and our clients may reduce or postpone their spending significantly. Lower demand for our services and solutions and price pressure from our clients could negatively affect our revenues and profitability. + + + +Natural events, health pandemics or epidemics and other acts of violence involving any of the countries in which we or our clients have operations could adversely affect our operations. + + + +Natural events (such as floods, tsunamis and earthquakes), health pandemics or epidemics, wars, widespread civil unrest, terrorist attacks and other acts of violence, such as the invasion of Ukraine by Russia or the Israel-Hamas war, could result in significant disruptions to our business. Such events could adversely affect global economies, worldwide financial markets and our clients levels of business activity and could potentially lead to economic recession, which could impact our clients purchasing decisions and reduce demand for our services and solutions and, consequently, adversely affect our business, financial condition, results of operations and cash flows. Any disaster or series of disasters, particularly in areas where we have a concentration of sites, such as India or Mexico, could significantly disrupt our operations and have a material adverse effect on our business, results of operations and financial condition. + + + +Risks Related to Regulation, Legislation and Legal Proceedings + + + +Changes in laws and regulations related to the internet or the internet infrastructure may diminish the demand for our services, and could have a negative impact on our business. + + + +The future success of our business depends upon the continued use of the internet as a primary medium for commerce, communication and business applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the internet as a commercial medium. Changes in these laws or regulations could adversely affect the demand for our services or require us to modify our solutions in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related commerce or communications generally, resulting in reductions in the demand for technology services such as ours. In addition, the use of the internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease of use, accessibility, and quality of service. The performance of the internet and its acceptance as a business tool have been adversely affected by ransomware, viruses, worms, malware, phishing attacks, data breaches and similar malicious programs, behavior and events. If the use of the internet is adversely affected by these or any other issues, demand for our services and solutions could suffer. + + + + 25 + + Table of Contents + + + + + +Changes and uncertainties in the tax system in the countries in which we have operations, could materially adversely affect our financial condition and results of operations. + + + +We conduct business globally and file income tax returns in multiple jurisdictions. Our consolidated effective income tax rate could be materially adversely affected by several factors, including: changing tax laws, regulations and treaties, or the interpretation thereof; tax policy initiatives and reforms under consideration; the practices of tax authorities in jurisdictions in which we operate; and the resolution of issues arising from tax audits or examinations and any related interest or penalties. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid. + + + +We are unable to predict what tax reforms may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices in jurisdictions in which we operate, could increase the estimated tax liability that we have expensed to date and paid or accrued on our balance sheets, and otherwise affect our financial position, future results of operations, cash flows in a particular period and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our shareholders and increase the complexity, burden and cost of tax compliance. + + + +Tax authorities may disagree with our historical and future tax positions and conclusions regarding certain tax positions, or may apply existing rules in an arbitrary or unforeseen manner, resulting in unanticipated costs, taxes or non-realization of expected benefits. + + + +We conduct business globally and file income tax returns in multiple jurisdictions. Consequently, we are subject to tax laws, treaties, and regulations in the countries in which we operate, and these laws and treaties are subject to interpretation. We have taken, and will continue to take, tax positions based on our interpretation of such tax laws. However, tax authorities may disagree with certain tax positions we have taken, which could result in increased tax liabilities. Similarly, a tax authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection, which assertion, if successful, could increase our expected tax liability in one or more jurisdictions. If we are assessed with additional taxes, this may result in a material adverse effect on our results of operations and financial condition. Contesting tax assessments by applicable taxing authorities may be lengthy and costly and if we were unsuccessful in disputing such assessments, if applicable, the implications could increase our anticipated effective tax rate, where applicable, or result in other liabilities. + + + +Unauthorized or improper disclosure of personal or other sensitive information, or security breaches and incidents, could result in liability and harm our reputation, which could adversely affect our business, financial condition, results of operations and prospects. + + + +Our clients provide data and systems that our employees use to provide services to those clients. Internal or external attacks on either our or our clients technology infrastructure, data, equipment, or systems could disrupt the normal operations of our and our clients businesses. While we believe we take reasonable measures to protect the security of, and against unauthorized or other improper access to, our technology infrastructure, data, equipment, and systems, including with respect to personal and proprietary information, it is possible that our security controls and practices may not prevent unauthorized or other improper access to our infrastructure and underlying personal or proprietary information. In addition, we rely on systems provided by third parties, which may also suffer security breaches or incidents. Any unauthorized access, acquisition, use, or destruction of data we collect, store, process or transmit could expose us to significant liability under our contracts, as well as to regulatory actions, litigation, investigations, remediation obligations, and reputational damage, which could adversely affect our business. + + + + 26 + + Table of Contents + + + + + +Our business is subject to a variety of U.S. federal and state as well as foreign laws and regulations, including those regarding privacy, data protection and data security, and we or our clients may be subject to regulations related to the handling and transfer of certain types of personal data as well as sensitive and confidential information. Any failure to comply with applicable privacy and data security laws and regulations could harm our business, results of operations and financial condition. + + + +We and our clients are subject to privacy, data protection and data security-related laws and regulations that impose obligations in connection with the collection, use, storage, transfer, dissemination, security, and/or other processing of personal information. Such privacy, data protection and information security-related laws and regulations are rapidly evolving and subject to potentially differing interpretations, and may be inconsistent among countries and jurisdictions in which we operate, or conflict with other rules. + + + +In the United States, a number of other states have passed comprehensive new privacy laws and other jurisdictions have proposed new laws that would impose privacy and data security obligations. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies. The existence of privacy and security laws in different states may make our compliance obligations more complex and costly and may increase the likelihood that we may be subject to enforcement actions or otherwise incur liability for noncompliance. In addition, many countries outside of the United States have enacted comprehensive privacy and data protection laws and other jurisdictions are considering such laws. + + + +Globally, governments and agencies have adopted and could in the future adopt, modify, apply or enforce laws, policies, regulations, and standards covering user privacy and data security. New regulation or legislative actions regarding data privacy and security (together with applicable industry standards) may increase the costs of doing business and could have a material adverse impact on our operations and cash flows. We expect that there will continue to be new proposed laws, regulations and industry standards relating to privacy, data protection, marketing, consumer communications and information security in the United States, the European Union and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business. Future laws, regulations, standards and other obligations or any changed interpretation of existing laws or regulations could impair our ability to develop and market new services and maintain and grow our client base and increase revenue. + + + +Compliance with U.S. and foreign privacy, data protection and data security laws and regulations is a rigorous and time-intensive process and could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. If our privacy or data security measures fail to comply with current or future laws, regulations, policies, legal obligations or industry standards, we may be subject to litigation, regulatory investigations, fines or other liabilities, as well as negative publicity and a potential loss of business. Any failure or perceived failure (including as a result of deficiencies in our policies, procedures, or measures relating to privacy, data protection, marketing, or client communications) by us to comply with laws, regulations, policies, legal or contractual obligations, industry standards, or regulatory guidance relating to privacy or data security, may result in governmental investigations and enforcement actions, litigation, fines and penalties or adverse publicity, and could cause our clients and partners to lose trust in us, which could have an adverse effect on our reputation and business. + + + + 27 + + Table of Contents + + + + + +We are subject to laws and regulations in the United States and other countries in which we operate, including the FCPA and other anti-corruption laws, as well as export control laws, import and customs laws, trade and economic sanctions laws. Compliance with these laws requires significant resources and non-compliance may result in civil or criminal penalties and other remedial measures. + + + +Our operations are subject to anti-corruption laws, the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. 201, the U.S. Travel Act, and other anti-corruption laws that apply in countries where we do business. The FCPA and these other laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage. We may also be liable for failing to prevent a person associated with us from committing a bribery offense. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United States, applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as the trade control laws. We may not be completely effective in ensuring our compliance with all such applicable laws, which could result in our being subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses. Likewise, any investigation of any potential violations of such laws by United States or other countries authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition. + + + +Litigation or legal proceedings could expose us to significant liabilities and have a negative impact on our reputation or business. + + + +From time to time, we have been and may be party to various claims and litigation proceedings, including class actions. Although we are not currently party to any litigation that we consider material, actual outcomes or losses may differ materially from our assessments and estimates. + + + +Even when these claims are not meritorious, defending these claims may divert our management s attention, and may result in significant expenses. The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments may result in adverse monetary damages, penalties or injunctive relief against us, which could have a material adverse effect on our financial position. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future. + + + +We may be subject to liability claims if we breach our contracts and our insurance may be inadequate to cover our losses. + + + +We are subject to numerous obligations in our contracts with our clients. Despite the procedures, systems and internal controls we have implemented to comply with our contracts, we may breach these commitments, whether through a weakness in these procedures, systems and internal controls, negligence or the willful misconduct of an employee or contractor. While we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as caps on amounts recoverable. Even if we believe a claim is covered by insurance, insurers may dispute our entitlement to recovery for a variety of potential reasons, which may affect the timing and, if the insurers prevail, the amount of our recovery. Further, our insurance may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management s attention. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. + + + + 28 + + Table of Contents + + + + + +From time to time, some of our employees spend significant amounts of time at our client s sites, often in foreign jurisdictions, which exposes us to certain risks. + + + +Some of our projects require a portion of the work to be undertaken at our clients facilities, which are often located outside of our employees country of residence. The ability of our employees to work in locations around the world may depend on their ability to obtain the required visas and work permits, and this process can be lengthy and difficult. Immigration laws are subject to legislative change, as well as to variations in standards of application and enforcement due to political forces, economic conditions and international travel, which may be adversely affected by regional or global circumstances or travel restrictions also affects our employees ability to work in foreign jurisdictions. In addition, we may become subject to taxation in jurisdictions where we would not otherwise be so subject as a result of the amount of time that our employees spend in any such jurisdiction in any given year. There can be no assurance that we will successfully monitor and comply with the various local requirements in the jurisdictions where our employees may be located in. + + + +Our business operations and financial condition could be adversely affected by negative publicity about offshore outsourcing or anti-outsourcing legislation in the countries in which our clients operate. + + + +Concerns that offshore outsourcing has resulted in a loss of jobs and sensitive technologies and information to foreign countries have led to negative publicity concerning outsourcing in some countries. Current or prospective clients may elect to perform in-house services that we offer, or may be discouraged from transferring these services to offshore providers. As a result, our ability to compete effectively with competitors that operate primarily out of facilities located inside these countries could be harmed. + + + +It may be difficult for you to enforce any judgment obtained in the United States against us, our directors or executive officers or our affiliates. + + + +ATG +is incorporated under the laws of India and many of our directors and executive officers reside outside the United States. A substantial +portion of our assets and the assets of many of these persons are also located outside the United States. As a result, you may be unable +to effect service of process upon us outside of India or upon such persons outside of India. In addition, you may be unable to enforce +against us in courts outside of India, or against such persons outside the jurisdiction of their residence, judgments obtained in courts +of the United States, including judgments predicated solely upon the federal securities laws of the United States. + + + +We have been advised by our Indian counsel that the United States and India do not currently have a treaty providing for reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. India has reciprocal recognition and enforcement of judgments in civil and commercial matters with a limited number of jurisdictions, which include, the United Kingdom, Singapore, Malaysia, New Zealand, UAE and Hong Kong. A judgment from certain specified courts located in a jurisdiction with reciprocity must meet certain requirements of Section 44A of the Civil Procedure Code, 1908 ( Civil Code ). Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States on civil liability, whether or not predicated solely upon the federal securities laws of the United States, would not be enforceable in India. However, Section 44A of the Civil Code is applicable only to monetary decrees not being of the same nature as amounts payable in respect of taxes, other charges of a like nature or of a fine or other penalties. + + + +However, the party in whose favor such final judgment is rendered may bring a new suit in a competent court in India based on a final judgment that has been obtained in the United States. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is possible that a court in India may not award damages on the same basis as a foreign court if an action is brought in India. + + + +Furthermore, it is unlikely that an Indian court would enforce a foreign judgment if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice or that would contravene or violate Indian law. A party seeking to enforce a foreign judgment in India is required to obtain approval from the Reserve Bank of India under the Foreign Exchange Management Act, 1999, to execute such a judgment or to repatriate any amount recovered. + + + + 29 + + Table of Contents + + + + + +Risks Related to Our Intellectual Property, Technology Solutions, Software Usage and Cyber Security + + + +Our business relies heavily on owned and third-party technology and computer systems, which subjects us to various uncertainties. + + + +We rely heavily on sophisticated and specialized communications and computer technology coupled with third-party telecommunications and bandwidth providers to provide high-quality and reliable real-time solutions. We also rely on the data services provided by local communication companies in the countries in which we operate. Our operations, therefore, depend on the proper functioning of our and third parties equipment and systems, including hardware and software. + + + +Any disruptions in the delivery of our services due to the failure of our systems, hardware or software, whether provided and maintained by third parties or our in-house teams, or due to interruptions in our data services or those of third parties that adversely affect the quality or reliability (or perceived quality or reliability) of our solutions, may result in reduction in revenue. These types of interruptions or failures could also adversely impact our timekeeping, scheduling, and workforce management applications. The occurrence of any such interruption or unplanned investment could materially adversely affect our business, financial positions, operating results and prospects. + + + +Others could claim that we infringe, violate, or misappropriate their intellectual property rights, which may result in substantial costs, diversion of resources and management attention and harm to our reputation. + + + +We may be subject to claims that our services and solutions infringe, misappropriate, or violate the intellectual property rights of third parties. Any such claims, whether or not they have merit or are successful, may result in substantial costs, divert management attention and other resources, harm our reputation and prevent us from offering our solutions to clients. In our contracts, we agree to indemnify our clients for expenses and liabilities resulting from third parties claiming our solutions infringe, misappropriate, or violate their intellectual property rights. In some instances, the amount of these indemnity obligations may be greater than the revenues we receive from the client under the applicable contract. A successful infringement claim against us could materially and adversely affect our business. + + + +We also license software from third parties. Other parties may claim that our use of such licensed software infringes their intellectual property rights. Although we seek to secure indemnification protection from our software vendors to protect us against such claims, it is possible that such vendors may not honor those obligations or that we may have a costly dispute. + + + +If we fail to adequately protect our intellectual property rights and proprietary information in the United States and abroad, our competitive position could be impaired and we may lose valuable assets, experience reduced revenues and incur costly litigation to protect our rights. + + + +We believe that our success is dependent, in part, upon protecting our intellectual property rights and proprietary information, including trade secrets. We rely on a combination of intellectual property rights, including \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/AIOT_powerfleet_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/AIOT_powerfleet_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/AIOT_powerfleet_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY 1 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/APLD_applied_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/APLD_applied_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..8c0aee282148d2366f9dc40cf627f0da4077facf --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/APLD_applied_prospectus_summary.txt @@ -0,0 +1,475 @@ +PROSPECTUS +SUMMARY + + + +This +summary highlights information contained elsewhere in this prospectus and the documents incorporated by reference herein. This summary +does not contain all of the information that you should consider before deciding to invest in our securities. You should read this entire +prospectus carefully, including the section entitled "Risk Factors" beginning on page 14, our consolidated financial +statements and the related notes and the other information incorporated by reference into this prospectus before making an investment +decision. + + + +Our +Business + + + +We +are a United States ("U.S.") designer, developer, and operator of next-generation digital infrastructure across North America. +We provide digital infrastructure solutions and cloud services to the rapidly growing industries of High-Performance Computing ("HPC") +and Artificial Intelligence ("AI"). We operate in three distinct business segments, including, Blockchain data center hosting +(the "Data Center Hosting Business"), cloud services through a wholly owned subsidiary (the "Cloud Services Business") +and HPC data center hosting (the "HPC Hosting Business"), as further discussed below. + + + +We +completed our initial public offering in April 2022 and our Common Stock began trading on Nasdaq on April 13, 2022. In November 2022, +we changed our name from Applied Blockchain, Inc. to Applied Digital Corporation. + + + +Data +Center Hosting Business + + + +Our +Data Center Hosting Business provides energized infrastructure services to crypto mining customers. Our custom-designed data centers +allow customers to rent space based on their power requirements. We currently serve seven crypto mining customers, all of which have +entered into contracts with us ranging from three to five years. This business segment accounts for the majority of the revenue we generate +from our operations (approximately 83% for the fiscal year ended May 31, 2024). + + + +We +currently operate sites in Jamestown and Ellendale, North Dakota, with a total hosting capacity of approximately 286 MW: + + + + Jamestown, + North Dakota: 106 MW facility. + + Ellendale, + North Dakota: 180 MW facility. + + + +In +March 2021, we executed a strategy planning and portfolio advisory services agreement (the "Services Agreement") with GMR +Limited, a British Virgin Island limited liability company ("GMR"), Xsquared Holding Limited, a British Virgin Island limited +liability company ("SparkPool") and Valuefinder, a British Virgin Islands limited liability company ("Valuefinder" +and, together with GMR and SparkPool, the "Service Provider(s)"). Under the Services Agreement, the Service Providers agreed +to provide crypto asset mining management and analysis and assist us in securing difficult-to-obtain mining equipment. Under the terms +of the Services Agreement, we issued 7,440,148 shares of our Common Stock to each of GMR and SparkPool and 3,156,426 shares of our Common +Stock to Valuefinder. In June 2022, SparkPool ceased all operations and forfeited 4,965,432 shares of our Common Stock back to us. + + + +In +March 2022, we decided to terminate our crypto mining operations, shifting our focus and our business strategy to developing the HPC +Hosting Business and our other two business segments (including the Data Center Hosting Business). Each Service Provider advised us concerning +the design and buildout of our hosting operations. We continue to partner with GMR, and other providers as they remain our strategic +equity investors. Our partners have strong relationships across the cryptocurrency ecosystem, which we may leverage to identify leads +for the expansion of our operations and business segments. + + + + 5 + + + + + + + +Compared +to our previous mining operations, co-hosting revenues are less subject to volatility related to the underlying crypto-asset markets. +We have a contractual ceiling for our energy costs through our Amended and Restated Electric Service Agreement, entered into in September +2023 with a utility in the upper Midwest (the "Electric Service Agreement"). One of the main benefits of the Electric Service +Agreement is the low cost of power for mining. Even before the recently imposed crypto mining restrictions in China, power capacity available +for Bitcoin mining was scarce, especially at scalable sites with over 100 MW of potential capacity. This scarcity of mining power allows +us to realize attractive hosting rates in the current market. The Electric Service Agreement has also enabled us to launch our hosting +business with long-term customer contracts. + + + +In +March 2024, we announced that we entered into a definitive agreement to sell our 200 MW campus in Garden City, TX, to Mara Garden City +LLC, a Delaware limited liability company and subsidiary of Marathon Digital Holdings (Nasdaq: MARA). We completed the sale transaction +on April 1, 2024. + + + +Cloud +Services Business + + + +We +officially launched our Cloud Services Business in May 2023. We operate our Cloud Services Business through our wholly owned subsidiary, +Applied Digital Cloud Corporation ("Applied Digital Cloud"), which provides cloud services to customers, such as AI and machine +learning developers. Our Cloud Services Business specializes in providing GPU computing solutions to empower customers in executing critical +workloads related to AI, machine learning ("ML"), rendering, and other HPC tasks. Our managed hosting cloud service allows +customers to sign service contracts, utilizing our Company-provided equipment for seamless and cost-effective operations. + + + +We +are rolling out multiple GPU clusters, each comprising 1,024 GPUs, which are available for lease by our customers. Additionally, we have +secured contracts with colocation service providers to ensure secure space and energy for our hosting services. Our strategy is to utilize +a blend of third-party colocation and our own HPC data centers to deliver cloud services to our customers. + + + +We +currently rely on a few major suppliers for our products in this business segment: NVIDIA Corp. ("NVIDIA"), Super Micro Computer +Inc. ("Super Micro"), Hewlett Packard Enterprise ("HPE") and Dell Technologies Inc. ("Dell"). In +May 2023, we partnered with Super Micro, a renowned provider of Application-Optimized Total IT Solutions. Together, we aim to deliver +our cloud services to our customers. Super Micro s high-performance server and storage solutions are designed to address +a wide range of computational-intensive workloads. Their next-generation GPU servers are incredibly power-efficient, which is vital for +data centers as the power requirements for large-scale AI models continue to increase. Optimizing the Total Cost of Ownership ("TCO") +and Total Cost to Environment ("TCE") is critical for data center operators to ensure sustainable operations. + + + +In +June 2023, we announced a partnership with HPE, a global company specializing in edge-to-cloud technology. As part of this collaboration, +HPE will provide its powerful and energy-efficient supercomputers to support large-scale AI through our cloud service. HPE has been supportive +in core design considerations and engineering of Company-owned facilities which will support Applied Digital Cloud s infrastructure. +In addition, we have supply agreements with Dell for delivery of AI and GPU servers. + + + +By +May 31, 2024, we had received and deployed a total of 6,144 GPUs; 4,096 GPUs were actively recognizing revenue and 2,048 GPUs +were pending customer acceptance to start revenue recognition. The Cloud Services Business currently serves two customers and accounted +for approximately 17% of our revenue in fiscal year 2024. As we ramp up operations in this business segment, we expect to acquire and +deploy additional GPUs, increase revenue from the Cloud Services Business and increase the percentage of our revenue produced by our +Cloud Services Business. + + + +HPC +Hosting Business + + + +Our +HPC Hosting Business specializes in designing, constructing, and managing data centers tailored to support HPC applications, including +AI. + + + + 6 + + + + + + + + We +are currently building two HPC focused data centers. +The first facility, which is nearing completion, is a 7.5 MW facility in Jamestown, ND location adjacent to our 106 MW Data center +hosting facility. We also broke ground on a 100 MW HPC data center project in Ellendale, ND (the "HPC Ellendale Facility"), +on land located adjacent to its existing 180 MW Data center hosting facility. These separate and unique buildings, designed and purpose-built +for GPUs, will sit separate from our current buildings and host more traditional HPC applications, such as natural language processing, +machine learning, and additional HPC developments. + + + +We +anticipate that this business segment will begin generating meaningful revenues once the HPC Ellendale Facility becomes operational, +which is expected in calendar year 2025. + + + +Recent +Developments + + + + 2024 +Annual Meeting of Stockholders + + + + On +November 20, 2024, we held our 2024 Annual Meeting of Stockholders. We received stockholder approval for all proposals set forth in +our definitive proxy statement filed with the SEC on October 23, 2024, as supplemented, including for the proposal to approve, for +the purpose of complying with the applicable provisions of The Nasdaq Stock Market LLC Listing Rule 5635, the potential issuance of +shares of our Common Stock issuable upon conversion of the Series F Preferred Stock. + + + + Charter +Amendment + + + + On +November 20, 2024, we filed an amendment to our Second Amended and Restated Articles of Incorporation (as amended, the "Articles +of Incorporation"), increasing the number of shares of (i) Common Stock authorized for issuance thereunder to 400,000,000 shares, +each share of Common Stock having a par value of $0.001 and (ii) preferred stock authorized for issuance thereunder to 10,000,000 shares. + + + + Series +E-1 Preferred Stock + + + + On +September 23, 2024, we entered into a Dealer Manager Agreement with Preferred Capital Securities, LLC (the "Dealer Manager"), +pursuant to which the Dealer Manager agreed to serve as our agent and dealer manager for an offering (the "Series E-1 Offering") +of up to 62,500 shares of the Company s Series E-1 Redeemable Preferred Stock, par value $0.001 (the "Series E-1 Preferred +Stock"). In connection with the issuance of the Series E-1 Preferred Stock, we filed a registration statement on Form S-1 (File +No. 333-282293) with the SEC under the Securities Act to register the offer and sale of the shares of Series E-1 Preferred Stock, which +was declared effective by the SEC on November 4, 2024. + + + + On +November 8, 2024, we filed a Certificate of Designations of the Powers, Preferences and Relative, Participating, Optional and other Restrictions +of Series E-1 Preferred Stock of the Company (the "Series E-1 Certificate of Designations") with the Secretary of State of +the State of Nevada to establish the rights, privileges, preferences, and restrictions of the Series E-1 Preferred Stock. As set forth +in the Series E-1 Certificate of Designations, we designated 62,500 shares of preferred stock as Series E-1 Preferred Stock. The Series +E-1 Certificate of Designations was filed in connection with the initial settlement under the Series E-1 Offering. As of the date of +this prospectus, we have issued and sold 6,359 shares of Series E-1 Preferred Stock and the Series E-1 Offering remains ongoing. + + + + Convertible +Notes Offering and Indenture + + + + On +November 4, 2024, we completed a private offering (the "Convertible Notes Offering") of 2.75% Convertible Senior Notes due +2030 (the "Convertible Notes"). The Convertible Notes were sold under a purchase agreement, dated as of October 30, 2024, +entered into by and among the Company and Goldman Sachs & Co. LLC, Cantor Fitzgerald & Co. and J.P. Morgan Securities LLC, as +representatives of the several initial purchasers named therein (the "Initial Purchasers"), for resale to persons reasonably +believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act. The aggregate principal amount of Convertible +Notes sold in the Convertible Notes Offering was $450.0 million, which includes $75.0 million aggregate principal amount of Convertible +Notes issued pursuant to an option to purchase additional Convertible Notes granted to the Initial Purchasers under the purchase agreement, +which the Initial Purchasers exercised in full on October 31, 2024 and which additional purchase was completed on November 4, 2024. The +net proceeds from the sale of the Convertible Notes was approximately $434.5 million after deducting the Initial Purchasers discounts +and commissions and estimated offering expenses payable by us. We intend to use approximately $84 million of the net proceeds from the +Convertible Notes Offering to fund share repurchases of Common Stock in connection with the Convertible Notes Offering including (i) +$52.7 million to fund the cost of entering into prepaid forward repurchase (as described below) and (ii) $31.3 million to repurchase +shares of Common Stock, approximately $51.8 million of the net proceeds from the Convertible Notes Offering to pay the cost of the capped +call transactions (as described below) and the remainder for general corporate purposes. + + + + 7 + + + + + + + + Also +on November 4, 2024, we entered into an indenture with respect to the Convertible Notes (the "Indenture") with Wilmington +Trust, National Association, as trustee. The Convertible Notes are senior unsecured obligations of the Company and bear interest at a +rate of 2.75% per year payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2025. The Convertible +Notes will mature on June 1, 2030, unless earlier converted, redeemed or repurchased in accordance with their terms. + + + + Prepaid +Forward Repurchase Transaction + + + + On +October 30, 2024, in connection with the pricing of the Convertible Notes Offering, we entered into a privately negotiated prepaid forward +repurchase transaction (the "Prepaid Forward Repurchase") with one of the Initial Purchasers (the "Forward Counterparty"). +The initial aggregate number of shares of Common Stock underlying the Prepaid Forward Repurchase was approximately 7.2 million shares +of Common Stock. In the event that we pay any cash dividends on our Common Stock, the Forward Counterparty will pay an equivalent amount +to us. The cost of the Prepaid Forward Repurchase was approximately $52.7 million. + + + + Capped +Call Transaction + + + + On +October 30, 2024, in connection with the pricing of the Convertible Notes Offering, we entered into privately negotiated capped call +transactions (the "Base Capped Call Transactions") with certain financial institutions (the "Option Counterparties"). +In addition, on October 31, 2024, in connection with the Initial Purchasers exercise of their option to purchase additional Convertible +Notes, we entered into additional capped call transactions (the "Additional Capped Call Transactions," and, together with +the Base Capped Call Transactions, the "Capped Call Transactions") with each of the Option Counterparties. The Capped Call +Transactions cover, subject to customary anti-dilution adjustments, the aggregate number of shares of Common Stock that initially underlie +the Convertible Notes, and are expected generally to reduce potential dilution to the Common Stock upon any conversion of the Convertible +Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Convertible Notes, as the +case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Transactions. The cap price +of the Capped Call Transactions is approximately $14.72, which represents a premium of 100% over the last reported sale price of the +Common Stock on October 30, 2024. The cost of the Capped Call Transactions was approximately $51.8 million. + + + + Yorkville +Agreements + + + + As +previously disclosed, on March 27, 2024 and May 24, 2024, respectively, we entered into Prepaid Advance Agreements (as amended, the "March +PPA" and "May PPA," respectively, and collectively, the "Prepaid Advance Agreements") and related promissory +notes (the promissory note issued in March 2024 under the March PPA, the "March Note," the promissory note issued in April +2024 under the March PPA, the "April Note," and the promissory note issued in May 2024, the "May Note," and collectively, +the "YA Notes") with YA Fund. As of the date of this prospectus, approximately $85.9 million outstanding under the YA Notes +has been converted into shares of our Common Stock and $6.9 million remains outstanding across all the YA Notes with only the March Note +left outstanding, which amount is anticipated to be repaid in cash, unless we receive stockholder approval to issue shares of Common +Stock in lieu of repayment in cash, in compliance with Nasdaq rules and regulations (which approval we do not intend to seek at this +time). + + + + On +October 29, 2024, we entered into certain amendments to the March PPA and the March Note. The amendments (i) provided consent to the +Convertible Notes Offering and share repurchase transactions and (ii) removed certain prior restrictions on redemption of the March Note +before January 1, 2025. + + + + + + 8 + + + + + + + + Termination +of Designations + + + +We +previously designated (i) 70,000 shares of preferred stock as Series A Convertible Preferred Stock (the "Series A Preferred Stock"), +(ii) 50,000 shares of preferred stock as Series B Convertible Preferred Stock (the "Series B Preferred Stock"), and (iii) +1,380,000 shares of preferred stock as Series D Convertible Redeemable Preferred Stock (the "Series D Preferred Stock"). + + + +On +October 21, 2024, we filed Withdrawals of Designation relating to the Series A Preferred Stock, the Series B Preferred +Stock and the Series D Preferred Stock (collectively, the "Withdrawals of Designation") with the Secretary of State +of the State of Nevada and terminated the designations of the Series A Preferred Stock, Series B Preferred Stock and Series D Preferred +Stock. At the time of the filing of the Withdrawals of Designation, no shares of the Series A Preferred Stock, Series B Preferred +Stock or Series D Preferred Stock were outstanding. The Withdrawals of Designation were effective upon filing and eliminated from +our Articles of Incorporation all matters set forth in the previously filed Certificates of Designations with respect to the previously +designated Series A Preferred Stock, Series B Preferred Stock, and Series D Preferred Stock. + + + +Management +Update + + + +Effective +October 15, 2024, Saidal Mohmand transitioned from his prior role of Executive Vice President of Finance to become the Chief Financial +Officer of the Company, succeeding David Rench, who served as the Company s Chief Financial Officer from March 2021 and who will +continue with the Company in his new capacity as Chief Administrative Officer. + + + +PIPE + + + +On +September 5, 2024, we entered into a securities purchase agreement (the "PIPE Purchase Agreement") with the purchasers named +therein (the "PIPE Purchasers"), for the private placement of 49,382,720 shares of Common Stock (the "PIPE Shares"), +at a purchase price of $3.24 per share, representing the last closing price of the Common Stock on Nasdaq on September 4, 2024. The +private placement closed on September 9, 2024, with aggregate gross proceeds to us of approximately $160 million, before deducting +offering expenses. + + + + We + and the PIPE Purchasers also entered into a registration +rights agreement (the "PIPE Registration Rights Agreement"), pursuant to which we agreed to prepare and file with the SEC +a Registration Statement on Form S-1, registering the resale of the PIPE Shares, within 30 days of signing the PIPE Registration Rights +Agreement (subject to certain exceptions). On October 4, 2024, we filed a registration statement on Form S-1 (File No. 333-282518) with +the SEC for the resale under the Securities Act by the PIPE Purchasers of the PIPE Shares, which was declared effective by the +SEC on October 15, 2024. + + + +SEPA + + + +On +August 28, 2024, we entered into the SEPA. Under the SEPA, we agreed to issue and sell to YA Fund, from time to time, +and YA Fund agreed to purchase from us, up to $250 million of our Common Stock, subject to certain obligations and +limitations (the "SEPA Aggregate Commitment"). In connection with the execution of the SEPA, we agreed to pay a structuring +fee (in cash) to YA Fund in the amount of $25,000. Additionally, we agreed to pay a commitment fee of $2,125,000 to YA Fund (the "Commitment +Fee"), payable on the effective date of the SEPA, in the form of the issuance of 456,287 shares of Common Stock. We have +subsequently agreed with YA Fund to satisfy our obligations with respect to the Commitment Fee in cash by increasing the +principal amount due under the March Note in an equivalent amount. As a result, as of the date of this prospectus, the principal amount +outstanding under the March Note is approximately $6.9 million (inclusive of the $2,125,000 Commitment Fee). + + + + As +described elsewhere in this prospectus, in connection with the +SEPA, Northland acted as placement agent and received a fee equal to 1% of the SEPA Aggregate Commitment (the "SEPA Placement +Agent Fee"). We have agreed to pay the SEPA Placement Agent Fee in shares of Common Stock at a price per share +of $4.73 per share, the Nasdaq official closing price of the Common Stock on August 27, 2024, for a total of 528,541 +shares of Common Stock. For additional information, see "Private Placements" on page 12 of this prospectus. + + + + 9 + + + + + + + +Corporate +Information + + + +Our +executive office is located at 3811 Turtle Creek Blvd., Suite 2100, Dallas, Texas 75219, and our phone number is (214) 427-1704. Our +principal website address is www.applieddigital.com. + + + +We +make available free of charge through the Investor Relations link on our website access to press releases and investor presentations, +as well as all materials that we file electronically with the SEC, including our annual report on Form 10-K, quarterly reports on Form +10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities +Exchange Act of 1934 (the "Exchange Act") as soon as reasonably practicable after electronically filing such materials with, +or furnishing them to, the SEC. In addition, the SEC maintains an Internet website, www.sec.gov, that contains reports, proxy and information +statements and other information that we file electronically with the SEC. Information contained in, or accessible through, our website +does not constitute part of this prospectus or the registration statement of which it forms a part and inclusions of our website address +in this prospectus or the registration statement are inactive textual references only. You should not rely on any such information in +making your decision whether to purchase our securities. + + + + We +are a "smaller reporting company" as defined in Rule 12b-2 of the Exchange Act and may rely on exemptions from certain disclosure +requirements that are available to smaller reporting companies under the Exchange Act. + + + + 10 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/BOW_bowhead_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/BOW_bowhead_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/BOW_bowhead_prospectus_summary.txt @@ -0,0 +1 @@ +Prospectus Summary 1 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CAPNR_cayson_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CAPNR_cayson_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..a038e6f0f7a02efd5fbaec274c91d4936dbf3dcd --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CAPNR_cayson_prospectus_summary.txt @@ -0,0 +1 @@ +summary only highlights the more detailed information appearing elsewhere in this prospectus. As this is a summary, it does not contain all of the information that you should consider in making an investment decision. You should read this entire prospectus carefully, including the information under the section of this prospectus entitled "Risk Factors" and our financial statements and the related notes included elsewhere in this prospectus, before investing. Unless otherwise stated in this prospectus, or the context otherwise requires, references to: "amended and restated memorandum and articles of association" are to our memorandum and articles of association to be in effect upon completion of this offering; "board of directors" are to our board of directors; "Companies Act" are to the Companies Act (Revised) of the Cayman Islands as the same may be amended from time to time; "company," "our company" "we," "us" or "our" are to Cayson Acquisition Corp, a Cayman Islands exempted company; "EBC" or "representative" are to EarlyBirdCapital, Inc., the representative of the underwriters in this offering; "EBC founder shares" or "EBC Founder Shares" are to 100,000 ordinary shares that we issued to EarlyBirdCapital, Inc. for an aggregate purchase price of $1,450 in a private placement prior to this offering (for the avoidance of doubt, such ordinary shares will not be "public shares"); "equity-linked securities" are to any securities of our company which are convertible into or exchangeable or exercisable for, ordinary shares of our company, including but not limited to equity or debt securities issued in a private placement; "founder shares" are to 1,725,000 ordinary shares that we have issued to our sponsors for an aggregate price of $25,000 in a private placement prior to this offering (for the avoidance of doubt, such ordinary shares will not be "public shares"); "initial shareholders" are to our sponsors and the other holders of our founder shares prior to this offering, but excluding the holders of the EBC founder shares; "management" or our "management team" are to our officers and directors; "ordinary shares" are to our ordinary shares, par value $0.0001 per share; "private rights" are to the rights included in the private units, which are identical to the public rights, subject to certain exceptions; "private shares" are to our ordinary shares included in the private units, which are identical to the public shares, subject to certain exceptions; "private units" are to the units that are being issued to our sponsors and/or their designees in a private placement simultaneously with the closing of this offering, as well as any units that may be issued upon conversion of the working capital loans, which are identical to the public units, subject to certain exceptions; "public rights" are to the rights to receive one-tenth of one ordinary share upon the consummation of an initial business combination that are being sold as part of the units in this offering "public shares" are to our ordinary shares that are being sold as part of the units in this offering; "public shareholders" are to the holders of our public shares, including our initial shareholders and/or members of our management team to the extent our initial shareholders and/or members of our management team purchase public shares, provided that each initial shareholder s and/or member of our management team s status as a "public shareholder" shall only exist with respect to such public shares; "public units" are to the units that are being sold in this offering, each consisting of one ordinary share and one right; "rights" are to the public rights and the private rights; "sponsors" are to Yawei Cao and Cayson Holding LP, a Delaware limited partnership; and "units" are to the public units and the private units. Registered trademarks referred to in this prospectus are the property of their respective owners. Unless we tell you otherwise, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option. Any forfeiture of shares described in this prospectus will take effect as a surrender of shares for no consideration of such shares as a matter of Cayman Islands law. Any share dividends described in this prospectus will take effect as a share capitalization as a matter of Cayman Islands law. 1 PROPOSED BUSINESS Our Company We are a blank check company incorporated on May 27, 2024, as a Cayman Islands exempted company for the purpose of effecting a merger, stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, which we refer to throughout this prospectus as our "business combination" or "initial business combination," with one or more businesses or entities, which we refer to throughout this prospectus as a "target business" or "target businesses". Although we are not limited to target businesses in any specific industry or geographic location, we intend to initially focus our search on target businesses in Asia. However, we will not consummate our initial business combination with an entity or business with China operations consolidated through a variable interest entity ("VIE") structure. The ownership of our securities by U.S. investors may limit the pool of acquisition candidates we may acquire in China, in particular, due to the relevant PRC laws and regulations against foreign ownership of and investment in certain assets and industries, known as restricted industries. The approval of PRC regulatory agencies may be required in connection with our initial business combination, and if required, we may not be able to obtain such approval. See "Risk Factors – Risks Related to Acquiring and Operating a Business Outside of the United States." We have generated no revenues to date and we do not expect that we will generate operating revenues until, at the earliest, we consummate our initial business combination. Our management team is continuously made aware of potential business opportunities, one or more of which we may desire to pursue for an initial business combination. However, we have not selected any specific target business and we have not, nor has anyone on our behalf, engaged in any substantive discussions, directly or indirectly, with any target business with respect to an initial business combination with us. We may retain all of our available funds and any future earnings following an initial business combination to fund the development and growth of our business. As a result, we may not pay any cash dividends in the foreseeable future. If we were to consummate an initial business combination with a China-based target, we will be permitted under PRC laws and regulations to make loans or capital contributions to our PRC subsidiaries through intermediate holding companies only if we satisfy the applicable government registration and approval requirements. See "Risk Factors— Risks Related to Acquiring and Operating a Business Outside of the United States — If we merge with a China-based operating company, then PRC regulation on loans to, and direct investment in, PRC entities by offshore holding companies and governmental control in currency conversion may delay or prevent us from making loans to or making additional capital contributions to the PRC entity, if any, which could materially and adversely affect our liquidity and our ability to fund and expand our business." If we were to consummate an initial business combination with a China-based target, our PRC subsidiaries may be permitted to pay dividends only out of their accumulated profits. Moreover, such PRC subsidiaries are required to set aside at least 10% of their after-tax profits each year, after making up for previous year s accumulated losses, if any, to fund certain statutory reserves, until the aggregate amount of such funds reaches 50% of their registered capital. This portion of such PRC subsidiaries respective net assets are prohibited from being distributed to their shareholders as dividends. See also "Risk Factors – Risks Related to Acquiring and Operating a Business Outside of the United States – If we successfully consummate a business combination with a target business with primary operations in the PRC, we will be subject to restrictions on dividend payments following consummation of our initial business combination." In addition, the PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Assuming we consummate an initial business combination with a China-based target, if the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders. See "Risk Factors – Risks Related to Acquiring and Operating a Business Outside of the United States – Governmental control of currency conversion may limit our ability to utilize our net revenue effectively and affect the value of your investment." If we were to consummate an initial business combination with a China-based target, a 10% PRC tax is applicable to dividends payable to investors that are non-resident enterprises, which will be withheld if such gain is regarded as income derived from sources within the PRC. Any gain realized on the transfer of securities by such investors is also subject to PRC tax at a current rate of 10%. See also \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CEP_cantor_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CEP_cantor_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..685cf65a15c72e9e9a226a74649f9ae93d66699d --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CEP_cantor_prospectus_summary.txt @@ -0,0 +1 @@ +This Registration Statement contains a prospectus relating to the initial public offering of Class A ordinary shares of Cantor Equity Partners, Inc. for $10.00 per share. This Registration Statement also contains a prospectus relating to offers and sales of Class A ordinary shares of Cantor Equity Partners, Inc. in connection with certain market making transactions that may be effected by Cantor Fitzgerald & Co. in the secondary market for 30 days following the date of this prospectus. The complete prospectus relating to the initial public offering of our Class A ordinary shares (the IPO Prospectus ) follows immediately after this Explanatory Note. Following the IPO Prospectus are certain pages of the prospectus relating solely to such market making transactions (together with the remainder of the prospectus as modified as indicated below, the Market Making Prospectus ), including an alternate front and back cover page, an alternate table of contents and alternate sections entitled Summary The Offering, Use of Proceeds and Plan of Distribution. Each of such alternate pages has been marked Alternate Page for Market Making Prospectus. The Market Making Prospectus will not include the information in the sections of the IPO Prospectus entitled Risk Factors Our sponsor paid an aggregate of $25,000 for the founder shares, or approximately $0.01 per founder share, and, accordingly, you will experience immediate and substantial dilution from the purchase of our Class B ordinary shares., Risk Factors The determination of the offering price of our Class A ordinary shares and the size of this offering is more arbitrary than the pricing of securities and size of an offering of an operating company in a particular industry. You may have less assurance, therefore, that the offering price of our Class A ordinary shares properly reflects the value of such Class A ordinary shares than you would have in a typical offering of an operating company., Dilution, Capitalization, Use of Proceeds and Underwriting (Conflict of Interest). All other sections of the IPO Prospectus are to be used in the Market Making Prospectus. A complete version of each of the IPO Prospectus and the Market Making Prospectus will be filed with the U.S. Securities and Exchange Commission in accordance with Rule 424 under the Securities Act of 1933, as amended (the Securities Act ). Table of Contents The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED AUGUST 6, 2024 $100,000,000 Cantor Equity Partners, Inc. 10,000,000 Class A Ordinary Shares _________________ Cantor Equity Partners, Inc. is a blank check company incorporated as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses, which we refer to as our initial business combination. We have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any discussions, directly or indirectly, with any business combination target regarding an initial business combination with our company. This is an initial public offering of our Class A ordinary shares at an offering price of $10.00 per share. The underwriters have a 45-day option from the date of this prospectus to purchase up to an additional 1,500,000 Class A ordinary shares to cover over-allotments, if any. Unlike in the initial public offerings by certain other special purpose acquisition companies, this is not an offering of units and investors will not receive warrants that would become exercisable following the completion of our initial business combination. We have until the date that is 24 months from the closing of this offering or until such earlier liquidation date as our board of directors may approve, to consummate our initial business combination. If we are unable to complete our initial business combination within 24 months from the closing of this offering and we do not seek shareholder approval to amend our amended and restated memorandum and articles of association to extend the date by which we must consummate our initial business combination, or by such earlier liquidation date as our board of directors may approve, we will redeem 100% of the Class A ordinary shares sold in this offering at a per share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest earned thereon (less taxes paid and payable), divided by the number of then issued and outstanding public shares, subject to applicable law and certain conditions as further described herein. Our sponsor, Cantor EP Holdings, LLC, has agreed to purchase 300,000 Class A ordinary shares at a price of $10.00 per share ($3,000,000 in the aggregate) in a private placement that will close simultaneously with the closing of this offering. These Class A ordinary shares are identical to the Class A ordinary shares sold in this offering, subject to certain limited exceptions as described in this prospectus. Our initial shareholders own 2,875,000 Class B ordinary shares (up to 375,000 shares of which are subject to forfeiture by our sponsor depending on the extent to which the underwriters over-allotment option is exercised), which will automatically convert into non-redeemable Class A ordinary shares in connection with the consummation of our initial business combination or at any time and from time to time at the option of the holder thereof, as described herein. Prior to the closing of our initial business combination, only holders of our Class B ordinary shares (i) will have the right to appoint and remove directors prior to or in connection with the completion of our initial business combination and (ii) will be entitled to vote on continuing our company in a jurisdiction outside the Cayman Islands (including any special resolution required to adopt new constitutional documents as a result of our approving a transfer by way of continuation to a jurisdiction outside the Cayman Islands). On any other matters submitted to a vote of our shareholders prior to or in connection with the completion of our initial business combination, holders of our Class B ordinary shares and holders of our Class A ordinary shares will vote together as a single class, except as required by law. Class A ordinary shares issued in connection with the conversion of our Class B ordinary shares issued prior to the consummation of our initial business combination are subject to the same restrictions as applicable to the Class B ordinary shares prior to such conversion including, among other things, certain transfer restrictions, waiver of redemption rights and the obligation to vote in favor of an initial business combination as described elsewhere in this prospectus. Our sponsor has also agreed to lend us up to $1,500,000, which we refer to herein as the sponsor note, which sponsor note will be drawn by us in connection with the consummation of our business combination, an extension of time for us to consummate a business combination or our liquidation (each, a Redemption Event ), such that an amount equal to $0.15 per public share being redeemed in connection with the applicable Redemption Event will be added to the trust account and paid to the holders of the applicable redeemed shares on such Redemption Event. Upon consummation of our initial business combination, the outstanding amounts under the sponsor note will be repaid by us. If we are unable to consummate an initial business combination, the outstanding amounts under the sponsor note would be repaid only out of funds held outside of the trust account. Currently, there is no public market for our Class A ordinary shares. We intend to apply to list our Class A ordinary shares on the Nasdaq Global Market, or Nasdaq, under the symbol CEP . We expect that our Class A ordinary shares will be listed on the Nasdaq Global Market on or promptly after the date of this prospectus. We cannot guarantee that our Class A ordinary shares will be approved for listing on Nasdaq. We are an emerging growth company and a smaller reporting company under applicable federal securities laws and will be subject to reduced public company reporting requirements. Investing in our securities involves a high degree of risk. See Risk Factors beginning on page 33 for a discussion of information that should be considered in connection with an investment in our securities. Investors will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. No offer or invitation, whether directly or indirectly, is being or may be made to the public in the Cayman Islands to subscribe for any of our securities. Per Share Total Public offering price $ 10.00 $ 100,000,000 Underwriting discounts and commissions(1) $ 0.20 $ 2,000,000 Proceeds, before expenses, to Cantor Equity Partners, Inc. $ 9.80 $ 98,000,000 ____________ (1) No commissions will be paid on any Class A ordinary shares sold pursuant to the underwriters over-allotment option. We will also pay $100,000 to Odeon Capital Group LLC for acting as a qualified independent underwriter in this offering. See the section of this prospectus entitled Underwriting (Conflicts of Interest) beginning on page 161 for a description of compensation and other items of value payable to the underwriters. Of the proceeds we receive from this offering and the sale of the private placement shares, $100,000,000 or $115,000,000 if the underwriters over-allotment option is exercised in full ($10.00 per public share in either case) will be deposited into a trust account in the United States at J.P. Morgan Chase Bank, N.A., with Continental Stock Transfer & Trust Company acting as trustee, and $1,000,000, together with $1,750,000 of additional committed loans by our sponsor, will be available to pay fees and expenses in connection with the closing of this offering and for working capital following the closing of this offering. The underwriters are offering the Class A ordinary shares for sale on a firm commitment basis. The underwriters expect to deliver the Class A ordinary shares to the purchasers on or about , 2024. Sole Book-Running Manager Cantor , 2024 Table of Contents TABLE OF CONTENTS Page Summary 1 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CHARU_charlton_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CHARU_charlton_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CHARU_charlton_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY 1 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0000005108_american_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0000005108_american_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..8ac17fe8546b1b566abfb1cc5589c7290d99567f --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0000005108_american_prospectus_summary.txt @@ -0,0 +1 @@ +The Corebridge MarketLock Annuity is a single purchase payment deferred registered index-linked annuity contract that is designed to help you invest on a tax-deferred basis, meet long-term financial goals, and plan for your retirement. This Contract may be appropriate for you if you have a long investment time horizon and the Contract s terms and conditions are consistent with your financial goals. It is not intended for people whose liquidity needs require early or frequent withdrawals. There could be significant loss of your principal investment under a Contract. You should discuss with your financial representative whether an index-linked annuity contract is appropriate for you. An annuity is a contract between you (the Owner) and an insurance company (in this case, us), where the insurance company promises to pay you an income in the form of annuity income payments. Commencement of these payments is referred to as annuitizing your Contract. Prior to annuitizing, your Contract is in the Accumulation Phase and the earnings (if any) are generally tax deferred. Tax deferral means you are not taxed until you take money out of your annuity. Once your Contract is annuitized, your annuity switches to the Income Phase. The Contract is a single purchase payment annuity because only one Purchase Payment is allowed under the Contract. We may agree to accept multiple payments as part of a single Purchase Payment subject to certain limitations outlined in this prospectus. After the Contract is issued, additional Purchase Payments are not allowed. Under the Contract, you may allocate your Purchase Payment to one or more Allocation Accounts. The available Allocations Accounts are (i) Strategy Account Options that credit returns based on the performance of a specific Index or Indices during a Term and (ii) the Fixed Account Option. Each Strategy Account Option is made up of an Upside Parameter and a Buffer which determines the extent of a gain or loss credited at the end of a Term. The available Allocation Accounts are: Strategy Account Options 1-Year Strategy Account Options Without Lock Upside Parameter Term Index Buffer Rate Upside Parameter Guaranteed Limit on Upside Parameter Rates Performance Capture (Manual/Automatic) 1-Year S&P 500 10% Cap Cap Rate: No Lower than 2% Manual / Automatic 1-Year S&P 500 20% Cap Cap Rate: No Lower than 2% Manual / Automatic 1-Year S&P 500 10% Trigger Trigger Rate: No Lower than 2% Manual 1-Year S&P 500 10% Dual Direction with Cap Cap Rate: No Lower than 2% Manual / Automatic 1-Year NASDAQ-100 10% Cap Cap Rate: No Lower than 2% Manual / Automatic 1-Year NASDAQ-100 10% Trigger Trigger Rate: No Lower than 2% Manual 1-Year NASDAQ-100 10% Dual Direction with Cap Cap Rate: No Lower than 2% Manual / Automatic 3-Year Strategy Account Options With Lock Upside Parameter Term Index Buffer Rate Upside Parameter Guaranteed Limit on Lock Buffer Rates Performance Capture (Manual/Automatic) 3-Year S&P 500 Lock Buffer Rate: 10% Lock 30 Lock Buffer Rate: No Lower than 1% N/A 3-Year S&P 500 Lock Buffer Rate: 10% Lock 40 Lock Buffer Rate: No Lower than 1% N/A 3-Year S&P 500 Lock Buffer Rate: 10% Lock 50 Lock Buffer Rate: No Lower than 1% N/A Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY STATUTORY STATEMENTS OF CASH FLOWS December 31, (in millions) 2023 2022 2021 Non-cash activities, excluded from above: Non-cash transfer from separate to general account $ 4,068 $ $ Non-cash transfer from general to separate account 1,002 Non-cash AGLIC -Bermuda redemption 642 Non-cash transfer from other invested assets to bonds 456 Non-cash transfer from other invested assets to mortgage loans 425 12 154 Non-cash Modco to FRL settlements 274 204 448 Non-cash Hannover reinsurance transaction 253 Non-cash Modco adjustment on assumed reinsurance 22,924 Non-cash transfer from other invested assets to common stocks 1 34 Non-cash pension risk transfer premiums 1,159 1,809 Settlement of non-cash dividends payable 295 See accompanying Notes to Statutory Financial Statements. 6-Year Strategy Account Options Without Lock Upside Parameter Term Index Buffer Rate Upside Parameter Guaranteed Limit on Upside Parameter Rates Performance Capture (Manual/Automatic) 6-Year S&P 500 10% Cap Cap Rate: No Lower than 2% Manual / Automatic 6-Year S&P 500 20% Cap Cap Rate: No Lower than 2% Manual / Automatic 6-Year S&P 500 10% Participation Participation Rate: No Lower than 10% Manual / Automatic 6-Year S&P 500 20% Participation Participation Rate: No Lower than 10% Manual / Automatic 6-Year S&P 500 10% Dual Direction with Cap Cap Rate: No Lower than 2% Manual / Automatic 6-Year S&P 500 20% Dual Direction with Cap Cap Rate: No Lower than 2% Manual / Automatic 6-Year S&P 500 10% Cap Secure Cap Secure Rate: No Lower than 2% Manual 6-Year Strategy Account Options With Lock Upside Parameter Term Index Buffer Rate Upside Parameter Guaranteed Limit on Lock Buffer Rates Performance Capture (Manual/Automatic) 6-Year S&P 500 Lock Buffer Rate: 10% Lock 50 Lock Buffer Rate: No Lower than 1% N/A 6-Year S&P 500 Lock Buffer Rate: 10% Lock 75 Lock Buffer Rate: No Lower than 1% N/A 6-Year S&P 500 Lock Buffer Rate: 10% Lock 100 Lock Buffer Rate: No Lower than 1% N/A In certain market conditions, we may offer a Participation Rate that is greater than 100% on our 6-Year Strategy Account Options with Participation. In growing markets, the 6-Year Strategy Account Options with Participation will always outperform the 6-Year Strategy Account Options with Cap. However, in market downturns, the 6-Year Strategy Account Options with Participation will not outperform the 6-Year Strategy Account Options with Cap. You should consult with your financial representative about how market conditions may impact your investment decisions under the Contract. Upside Parameters, except Lock, including applicable rates, can change from one Term to the next subject to above-stated minimum guaranteed rates that may be established under the Contract. The Lock Thresholds stated under the Upside Parameters column for Strategy Account Options with Lock Upside Parameter are guaranteed minimum rates under the Contract and will not change from one Term to the next. The above-stated Lock Threshold figures are percentages. The minimum guaranteed Buffer Rate that we will offer under any Strategy Account Options other than those with Lock Upside Parameter is 10%. The above-stated Buffer Rates for all Strategy Account Options other than those with Lock Upside Parameter will not change from one Term to the next. The Lock Buffer Rates can change from one Term to the next subject to the minimum guaranteed Lock Buffer Rate of 1%. Current Upside Parameter rates will be available from your financial representative and are always available online at www.corebridgefinancial.com/rila-rates. The rates applicable to your Purchase Payment will be stated in your Contract. The Contract includes a Performance Capture feature for Strategy Account Options other than those with a Lock Upside Parameter that allows you to capture the Interim Value of a Strategy Account Option prior to the Term End Date. If you exercise the Performance Capture feature, your Interim Value on the Performance Capture Date will be captured. It is important to understand, however, that you will not know the Interim Value at the time Performance Capture occurs, and you may be capturing a loss. Fixed Account Option Term Guaranteed Minimum Interest Rate 1 Year 0.25% For all Strategy Account Options other than those with Lock Upside Parameter, you will receive an Index Credit Rate reflecting a percentage gain or loss on the Term End Date. Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS American General Life Insurance Company ( AGL or the Company ), including its wholly owned subsidiaries, is a wholly owned subsidiary of AGC Life Insurance Company ( AGC Life or the Parent ), a Missouri-domiciled life insurance company, which is wholly owned by Corebridge Life Holdings, Inc. (formerly known as AIG Life Holdings, Inc.) ( Corebridge Life Holdings ). Corebridge Life Holdings is wholly owned by Corebridge Financial, Inc. ( Corebridge ), which American International Group, Inc. ( AIG ) owns 52.2% of their outstanding common stock as of December 31, 2023. AIG is a holding company, which through its subsidiaries provides a wide range of property casualty insurance, life insurance, retirement products and other financial services to commercial and individual customers in more than 190 countries and jurisdictions. The term AIG means American International Group, Inc. and not any of AIG s consolidated subsidiaries. The Company is a stock life insurance company domiciled and licensed under the laws of the State of Texas and is subject to regulation by the Texas Department of Insurance ( TDI ). The Company is also subject to regulation by the states in which it is authorized to transact business. The Company is licensed in 49 states and the District of Columbia. The Company is a leading provider in the United States of individual term and universal life insurance solutions to middle-income and high-net-worth customers, as well as a leading provider in the United States of fixed and variable annuities. The Company s primary products include term life insurance, universal, variable universal and whole life insurance, accident and health insurance, single- and flexible-premium deferred fixed and variable annuities, fixed index deferred annuities, single-premium immediate and delayed-income annuities, private placement variable annuities, private placement variable universal life, structured settlements, corporate- and bank-owned life insurance, pension risk transfer annuities, guaranteed investment contracts, funding agreements, stable value wrap products and group benefits. The Company distributes its products through a broad multi-channel distribution network, which includes independent marketing organizations, independent insurance agents and financial advisors, banks, broker dealers, structured settlement brokers and benefit consultants and direct-to-consumer through Corebridge Direct Insurance Services, Inc. (formerly known as AIG Direct Insurance, Inc.) ( Corebridge Direct ). For Strategy Account Options with Lock Upside Parameter, if positive Index Change meets or exceeds the Lock Threshold at Market Close on any day during the Term, you will receive an Index Credit Rate equal to the Lock Threshold as of that date, and thereafter will be credited with the Lock Fixed Rate until the next Contract Anniversary. Once the Index Change meets or exceeds the Lock Threshold and you are being credited with the Lock Fixed Rate until the next Contract Anniversary, the value within the Strategy Account Option will no longer be tied to Index performance. If the Index Change does not meet or exceed the Lock Threshold at Market Close on any day during the Term, you will receive an Index Credit Rate reflecting the positive or negative Index performance on the Term End Date, subject to the Buffer. On the Term End Date (or a Contract Anniversary after Performance Capture or a Lock Threshold is met), you may transfer Contract Value among the available Allocation Accounts, free of charge, for a new Term, if available. Transfer requests must be provided before Market Close on the Term End Date (or next Contract Anniversary after a Performance Capture). If the Term End Date (or next Contract Anniversary after a Performance Capture) is not a Business Day, we must receive your instructions before Market Close on the Business Day before the Term End Date (or the next Contract Anniversary after a Performance Capture). If we do not receive transfer instructions from you within the appropriate time frame, we will automatically transfer or renew, as applicable, your Strategy Account Option and/or Fixed Account Option Value as follows: Your Contract Value in any expiring Strategy Account Option with a 1-year Term will remain in its current allocation for the next Term, subject to the Upside Parameter rates and Lock Buffer Rates, if applicable, declared for that Term unless otherwise instructed. If your Contract Value is invested in a Strategy Account Option with a 1-year Term that will no longer be available for investment after the Term End Date, the Contract Value remaining in that Strategy Account Option will automatically be transferred to the Fixed Option Account on the Term End Date, subject to the renewal interest rate, and will remain there until the next Contract Anniversary after you provide transfer instructions. The Contact Value automatically transferred to the Fixed Account Option in the absence of transfer instructions cannot be transferred to another available Strategy Account Option until the next Contract Anniversary. Any Contract Value in an expiring Strategy Account Option with a multi-year Term or Fixed Account Option will automatically be transferred or renewed to the Fixed Account Option, subject to the applicable renewal interest rates. Amounts that are automatically renewed or transferred in the absence of transfer instructions cannot be transferred until the next Contract Anniversary. See TRANSFERS BETWEEN ALLOCATION ACCOUNTS. The Contract is index-linked because the value of each Strategy Account Option is linked to the performance of an Index. If you invest in one or more Strategy Account Options, the amount of money you accumulate under your Contract depends (at least in part) upon the performance of the applicable Index. You could lose a significant amount of money that you allocate to the Strategy Account Option(s). The Contract is an insurance contract and involves risks, including potentially significant loss of principal. You should speak with your financial representative about the Contract s features, benefits, risks, and fees. An investment in the Strategy Account Options of this Contract is subject to its own unique risks, including the possible loss of all or a significant portion of your principal investment. This loss could be greater if you take a Withdrawal or Surrender your Contract due to the application of Withdrawal Charges, if applicable, and possible negative tax consequences, including federal income tax on the taxable portion, and a tax penalty of 10% if you have not reached age 59 . If you make a Withdrawal or Surrender your Contract within six years after the Contract Issue Date, you may be assessed a Withdrawal Charge of up to 8% of the amount withdrawn in excess of the 10% annual free Withdrawal amount. In addition, if you take a Withdrawal or Surrender before the Term End Date of a Strategy Account Option, or if you annuitize your Contract, or if the death benefit is paid, the transaction will reduce the Interim Value of your investment in that Strategy Account Option. Please see RISK FACTORS on page 21 for more information. The Interim Value is the amount in the Strategy Account Option that is available for transactions that occur during the Term, including Withdrawals (including RMDs, Surrenders, Withdrawals under free look in states where a refund of Contract Value rather than a refund of the Purchase Payment is required, free Withdrawal amounts, Performance Captures, optional death benefit fees, death benefit payments, and annuitization). The Interim Value could be less than your investment in a Strategy Account Option even if the Index has had positive performance since the Term Start Date. Withdrawals or Surrenders that cause the Interim Value to be recalculated could result in the loss of principal investment and previously applied Index Credit Rates, and such losses could be as high as 100%. However, your Surrender of the Contract would be subject to the Minimum Withdrawal Value. All Withdrawals taken, and fees and charges deducted, from a Strategy Account Option before the Term End Date (including fees and charges that are periodically deducted from your Contract) will reduce the Contract Value death benefit on a dollar-for-dollar basis and will trigger a Negative Adjustment which will lower your Strategy Base in the Strategy Account Option in the same proportion that the Interim Value is reduced (rather than on a dollar-for-dollar Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements of the Company are presented on the basis of accounting practices prescribed or permitted by the TDI. These accounting practices vary in certain respects from accounting principles generally accepted in the United States of America ( U.S. GAAP ), as described herein. The TDI recognizes only statutory accounting practices ( SAP ) prescribed or permitted by the State of Texas for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under the Texas Insurance Law. The National Association of Insurance Commissioners ( NAIC ) Accounting Practices and Procedures Manual ( NAIC SAP ) has been adopted as a component of prescribed or permitted practices by the State of Texas. The Insurance Commissioner of the State of Texas has the right to permit other specific practices that deviate from prescribed practices. At December 31, 2023, 2022 and 2021, the Company used the following permitted practices that resulted in reported statutory surplus or risk-based capital that is different from the statutory surplus or risk-based capital that would have been reported had NAIC statutory accounting practices or the prescribed regulatory accounting practices of the TDI been followed in all respects: Effective December 31, 2020 and periods through September 30, 2023, the Company renewed a permitted statutory accounting practice to recognize an admitted asset related to the notional value of coverage defined in an excess of loss ( XOL ) reinsurance agreement with a 20-year term that provides coverage to the Company for aggregate claims incurred during the agreement term associated with guaranteed living benefits on certain fixed index annuities generally issued prior to April 2019 ( Block 1 ) exceeding an attachment point as defined in the agreement. This permitted practice was previously expanded on October 1, 2020 to similarly recognize an additional admitted asset related to the net notional value of coverage as defined in a separate XOL reinsurance agreement with a 25-year term that provides coverage to the Company for aggregate XOL claims associated with guaranteed living benefits on a block of fixed index annuities generally issued in April 2019 or later, including certain new business issued after the effective date of October 1, 2020 ( Block 2 ). Effective September 30, 2023, the permitted practice for Block 1 and Block 2 was extended through September 30, 2026 and the maximum notional value of Block 2 was increased for certain new business. Effective October 1, 2022 and periods through September 30, 2023, this permitted practice was expanded to similarly recognize an additional admitted asset related to the net notional value of coverage as defined in a separate XOL agreement with a 25-year term that provides coverage to the Company for aggregate XOL claims associated with the base contract along with the guaranteed living benefits rider on a block of fixed annuities inforce on October 1, 2022, including certain new business issued after the effective date of October 1, 2022 ( Block 3 ). Effective September 30, 2023, the permitted practice for Block 3 was extended through September 30, 2026 and the maximum notional value was increased for certain new business. The value of the assets subject to the above permitted practices was approximately $1,742 million, $1,017 million and $584 million in total at December 31, 2023, 2022 and 2021 respectively and are reported in Other assets. SPECIAL TERMS basis) which may proportionately reduce the Optional Return of Purchase Payment Death Benefit if elected. Such a reduction will reduce your Strategy Base for the remainder of the Term and the proportionate reduction may be greater than the dollar amount of the amount withdrawn, or the fee or charge deducted. Withdrawals could result in significant reductions to your Contract Value and to the death benefit, perhaps by more than the amount withdrawn. Withdrawals taken before the Term End Date of a Strategy Account Option could also significantly reduce any Index Credit Rate applied at the Term End Date. The Upside Parameters and Buffer are not applied until the Term End Date. The Contract may not be appropriate if you intend to take Withdrawals from a Strategy Account Option prior to the Term End Date or from the Contract during the first six Contract Years, particularly ongoing Withdrawals such as systematic Withdrawals and RMDs. You should consult with your financial representative before making a Withdrawal. We guarantee that we will always offer at least one Strategy Account Option that is either currently offered or is substantially similar to one that is currently offered as of the date of this prospectus. For example, a Strategy Account Option will always have a Buffer, but, subject to the minimum guaranteed Buffer Rate, will not necessarily have the same Buffer Rate as stated in this prospectus. Please note the Index for that Strategy Account Option remains subject to our right of substitution. Each Strategy Account Option has an applicable Upside Parameter designed to limit participation in positive Index performance. The Upside Parameters (except Lock), including their applicable rates, can change from one Term to the next, however, each Upside Parameter is subject to minimum guaranteed rates stated above. Each Strategy Account Option also has an applicable Buffer Rate that provides limited protection from negative Index performance. If negative Index performance exceeds the Buffer Rate, your negative Index performance will equal the negative Index performance in excess of the Buffer Rate. For example, with a Buffer Rate of 10%, in extreme circumstances you could lose 90% of your investment in the Strategy Account Option if negative Index performance on the Term End Date is 100%. The minimum guaranteed Buffer Rate that we will offer for any Strategy Account Options other than those with Lock Upside Parameter is 10%. Buffer Rates for all Strategy Account Options other than those with Lock Upside Parameter will not change from one Term to the next. The Lock Buffer Rates will change from one Term to the next, subject to the minimum guaranteed Lock Buffer Rate of 1%. We reserve the right to add, replace or remove Strategy Account Options offered, change the Indices, and limit the number of offered Strategy Account Options to only one. If only one Strategy Account Option is available, you will be limited to investing in only that Strategy Account Option with terms that may not be acceptable to you. We may change the Strategy Account Options, the Upside Parameters rates and Lock Buffer Rates subject to the stated guaranteed minimum rates. There is no guarantee that a particular Strategy Account Option or Index will be available during the entire time that you own your Contract. If you choose to Surrender the Contract, you may be subject to Withdrawal Charges, Interim Value adjustments, taxes, and tax penalties. Similarly, if you replace the Contract with another retirement vehicle, it may have different features, fees, and risks than the Contract. The Contract includes a Performance Capture feature for certain Strategy Account Options other than those with a Lock Upside Parameter. If you elect a Strategy Account Options with Performance Capture, the Interim Value for the Strategy Account Option may be captured on a date prior to the Term End Date. Once a Performance Capture occurs during a Term, the captured value of your investment in the Strategy Account Option will earn an annual rate with a daily credited interest at the Performance Capture Fixed Rate until the next Contract Anniversary. You should fully understand the operation and impact of the Performance Capture before choosing to exercise this feature. You will not know the Interim Value at the time Performance Capture occurs, and you may be capturing a loss. The loss may be significant. You should speak with your financial representative before exercising Performance Capture. See VALUING YOUR INVESTMENT IN A STRATEGY ACCOUNT OPTION - PERFORMANCE CAPTURE and RISK FACTORS PERFORMANCE CAPTURE RISK. The Performance Capture feature is different from the Lock Upside Parameter. Also, the Strategy Account Options for which the Performance Capture feature is available are different from the Strategy Account Options that use Lock as an Upside Parameter. The Contract has two phases: (1) the Accumulation Phase (savings) and (2) the Income Phase (income). Accumulation Phase. During the Accumulation Phase, you invest the money under your Contract in one or more Allocation Account(s) to help you build assets on a tax-deferred basis. Income Phase. When you are ready to receive guaranteed income under the Contract, you can switch to the Income Phase, at which time you will start to receive annuity income payments from us. This is also referred to as annuitizing your Contract. You generally decide when to annuitize your Contract, although there are restrictions on the earliest and latest times that your Contract may be annuitized. If you do not annuitize or Surrender your Contract before the Latest Annuity Date, your Contract will be automatically annuitized. Once your Contract is annuitized, you will no longer be able to Surrender, take Withdrawals Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) The following table presents a reconciliation of the Company s net income and capital and surplus between NAIC SAP and practices prescribed or permitted by the State of Texas: December 31, (in millions) SSAP# 2023 2022 2021 NET INCOME State basis $ 144 $ 791 $ 2,244 Net (loss) income, NAIC SAP $ 144 $ 791 $ 2,244 SURPLUS State basis $ 8,929 $ 9,750 $ 8,532 State permitted practices that increase (decrease) NAIC SAP: XoL reinsurance agreement 4 (1,742) (1,017 ) (584) Statutory capital and surplus, NAIC SAP $ 7,187 $ 8,733 $ 7,948 In the event the Company had not employed any or all of these permitted and prescribed practices, the Company s risk-based capital ( RBC ) would not have triggered a regulatory event. Certain prior year amounts have been reclassified to conform to the current year presentation. The statement of cash flows in this report has balances that are different from those in the annual statement filed with the NAIC. The annual statement for 2023 had net cash provided by operations, investments and financing of $6.3 billion, $(12.9) billion and $6.5 billion, respectively, while this report has $6.8 billion, $(13.5) billion and $6.7 billion, respectively. Use of Estimates The preparation of financial statements in conformity with accounting practices prescribed or permitted by the TDI requires management to make estimates and assumptions that affect the reported amounts in the statutory financial statements and the accompanying notes. It also requires disclosure of contingent assets and liabilities at the date of the statutory financial statements and the reported amounts of revenue and expense during the period. The areas of significant judgments and estimates include the following: application of other-than-temporary impairments; estimates with respect to income taxes, including recoverability of deferred tax assets; fair value measurements of certain financial assets; and policy reserves for life, annuity and accident and health insurance contracts, including guarantees. These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, the Company s Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus, Statutory Statements of Operations and Statutory Statements of Cash Flows could be materially affected. Significant Accounting Policies Bonds not backed by other loans are carried at amortized cost except for those with a NAIC designation of 6 or 6* . Bonds with a NAIC 6 designation are carried at the lower of amortized cost or fair value, with unrealized losses charged directly to unassigned surplus. Bonds that have not been filed and have not received a designation in over one year from the NAIC s Investment Analysis Office ( IAO ) receive a 6* designation and are carried at zero, with the unrealized loss charged directly to unassigned surplus. Bonds filed with the IAO which receive a 6* designation may carry a value greater than zero. Securities are assigned a NAIC 5* designation if the Company certifies that (1) the documentation necessary to permit a full credit analysis does not exist, (2) the issuer or obligor is current on all contracted interest and principal payments and (3) the Company has an actual expectation of ultimate repayment of all contracted interest and principal. Securities with NAIC 5* designations are deemed to possess the credit characteristics of securities assigned a NAIC 5 designation. The discount or premium on bonds is amortized using the effective yield method. of Contract Value and all other features and benefits of your Contract, including the death benefit, will terminate. You can choose from the available annuity income options, which may provide income for life, for an available time period, or a combination of both. There is no death benefit during the Income Phase. Annuity income payments may be payable after death if you select a period certain annuity income option. The Contract offers a standard death benefit as well as an optional death benefit available for an additional charge. Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) Loan-backed and structured securities ( LBaSS ) include residential mortgage-backed securities ( RMBS ), commercial mortgage-backed securities ( CMBS ), asset-backed securities ( ABS ), pass-thru securities, lease-backed securities, equipment trust certificates, loan-backed securities issued by special purpose corporations or trusts, and securities where there is not direct recourse to the issuer. LBaSS are carried on a basis consistent with that of bonds not backed by loans. Income recognition for LBaSS is determined using the effective yield method and estimated cash flows. Prepayment assumptions for single-class and multi-class mortgage-backed securities ( MBS ) and ABS were obtained from an outside vendor or internal estimates. The Company uses independent pricing services and broker quotes in determining the fair value of its LBaSS. The Company uses the retrospective adjustment method to account for the effect of unscheduled payments affecting high credit quality securities, while securities with less than high credit quality and securities for which the collection of all contractual cash flows is not probable are both accounted for using the prospective adjustment method. Reference to non-rated residual tranches or interests intends to capture securitization tranches, beneficial interests, interests of structured finance investments, as well as other structures, that reflect loss layers without contractual interest or principal payments. Payments to holders of these investments occur after contractual interest and principal payments have been made to other tranches or interests and are based on the remaining available funds. Although payments to holders can occur throughout an investment s duration (and not just at maturity), such instances still reflect the residual amount permitted to be distributed after other holders have received contractual interest and principal payments. NAIC designations are determined with a multi-step approach. The initial designation is used to determine the carrying value of the security. The final NAIC designation is used for reporting and affects RBC. The final NAIC designation is determined for most RMBS and CMBS by financial modeling conducted by BlackRock. For credit tenant loans, equipment trust certificates, any corporate-like securities rated by the IAO, interest-only securities, and those securities with an original NAIC designation of 5, 5*, 6, or 6*, the final NAIC designation is based on the IAO or Credit Rating Provider rating and is not subject to financial modeling. Redeemable preferred stocks with NAIC designations of 1 through 3 are carried at amortized cost. All other redeemable preferred stocks are stated at the lower of cost, amortized cost or fair value, with unrealized capital losses charged directly to unassigned surplus. Perpetual preferred stocks are valued at fair value, not to exceed any currently effective call price. Provisions made for impairment are recorded as realized capital losses when declines in fair value are determined to be other than temporary. Unaffiliated common stocks are carried at fair value, with unrealized capital gains and losses credited or charged directly to unassigned surplus. Provisions made for impairment are recorded as realized capital losses when declines in fair value are determined to be other than temporary. For Federal Home Loan Bank ( FHLB ) capital stock, which is only redeemable at par, the fair value shall be presumed to be par, unless considered other-than-temporarily impaired. Subsidiary, controlled, and affiliated ( SCA ) entities: The Company has no investments in insurance SCA entities. Investments in non-insurance SCA entities are recorded based on the equity of the investee per audited financial statements prepared pursuant to U.S. GAAP, which is adjusted to a statutory basis of accounting, if applicable. All investments in non-insurance SCA entities for which audited U.S. GAAP financial statements are not available are non-admitted as assets. Undistributed equity in earnings of affiliates is included in unassigned surplus as a component of unrealized capital gains or losses. Dividends received from such affiliates are recorded as investment income when declared. Mortgage and mezzanine real estate loans are carried at unpaid principal balances less allowances for credit losses and plus or minus adjustments for the accretion or amortization of discount or premium. Interest income on performing loans is accrued as earned. Mortgage and mezzanine real estate loans are considered impaired when collection of all amounts due under contractual terms is not probable. Impairment is measured using either i) the present value of expected future cash flows discounted at the loan s effective interest rate, ii) the loan s observable market price, if available, or iii) the fair value of the collateral if the loan is collateral dependent. An allowance is typically established for the difference between the impaired value of the loan and its current carrying amount. Additional allowance amounts are established for incurred but not specifically identified impairments, based on statistical models primarily driven by past due status, debt service coverage, loan-to-value ratio, property occupancy, profile of the borrower and of the major property tenants, and KEY FEATURES LOCATION IN PROSPECTUS Purchase Payment Your Purchase Payment must be at least $25,000. Company approval is required before making a Purchase Payment in excess of $2,000,000. For purposes of this limit, the aggregate Purchase Payments are based on all contracts issued by AGL and/or The United States Life Insurance Company in the City of New York ( US Life ) to the same Owner and/or Annuitant. After your Contract Issue Date, additional Purchase Payments are not allowed. Purchasing a Corebridge MarketLock Annuity Allocation of Purchase Payment Initial Hold on Rates The initial hold on rates ensures you receive the best available rates in effect (among the application-signed date, electronic order submission date, or Contract Issue Date) if the Contract is issued within 60 days of the earlier of application-signed date or electronic order submission date. On your Contract Issue Date, we will apply the Fixed Account Option interest rates, Upside Parameter rates and Lock Buffer Rates applicable to your Contract, for your initial Allocation Account elections. The initial Upside Parameter rates and Lock Buffer Rates, as applicable, applied on your Contract Issue Date are guaranteed for the length of the initial Term. The initial Fixed Account Option interest rate is guaranteed for one Contract Year. The initial interest rates, Upside Parameter rates and Lock Buffer Rates are determined as follows: If the Contract is issued within 60 days from the earlier of the application signed date or the electronic order submission date, rates will be the better of the rates in effect on: (1) the application-signed date, or (2) electronic order submission date, or (3) the Contract Issue Date. If the Contract Issue Date is not within the 60th day after the earlier of application signed date or the electronic order submission date, then rates will be those in effect on the Contract Issue Date. This initial hold applies to all rates except guaranteed minimum interest rates, the Performance Capture Fixed Rates or the Lock Fixed Rates. Purchasing a Corebridge MarketLock Annuity Initial Hold on Rates Allocation Accounts You can invest your Purchase Payment and Contract Value among the available Allocation Accounts under the Contract, which include the Strategy Account Options and the Fixed Account Option. Strategy Account Option: Strategy Account Option(s) apply an Index Credit Rate based on the performance of an Index over the Term. The Index Credit Rate may be positive, negative or zero. Positive returns may be limited based on the applicable Upside Parameter, and negative returns may be limited based on the Buffer, which provides limited protection from negative Index performance. Fixed Account Option: The Fixed Account Option credits a fixed rate of interest that is guaranteed for 1-year Terms, subject to a guaranteed minimum interest rate of 0.25%. Allocation Accounts Indices We currently offer the following reference Indices: S&P 500 NASDAQ-100 The Indices Strategy Account Option Terms We currently offer 1-year, 3-year and 6-year Terms. Allocation Accounts Strategy Account Options Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) economic trends in the market where the property is located. When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the carrying amount of the loan is charged off against the allowance. Real estate consists of properties occupied by the Company, properties held for the production of income and properties held for sale. Properties occupied by the Company and held for the production of income are carried at depreciated cost, less encumbrances, unless events or circumstances indicate the carrying amount of the asset (amount prior to reduction for encumbrances) may not be recoverable. Properties held for sale are carried at the lower of its depreciated cost or fair value less estimated costs to sell the property and net of encumbrances. Real estate obtained through foreclosure, in satisfaction of a loan, is recorded at the time of foreclosure at the lower of fair value as determined by acceptable appraisal methodologies, or the carrying amount of the related loan. Land is reported at cost. Cash, cash equivalents and short-term investments include cash on hand and amounts due from banks, highly liquid debt instruments that have original maturities within one year of date of purchase and are carried at amortized cost, interest-bearing money market funds, investment pools and other investments with original maturities within one year from the date of purchase. Contract loans are carried at unpaid balances, which include unpaid principal plus accrued interest, including 90 days or more past due. All loan amounts in excess of the contract cash surrender value are considered non-admitted assets. Derivative instruments used in hedging transactions that meet the criteria of a highly effective hedge are reported in a manner consistent with the hedged asset or liability ( hedge accounting ). Changes in statement value or cash flow of derivatives that qualify for hedge accounting are recorded consistently with how the changes in the statement value or cash flow of the hedged asset or liability are recorded. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge ( ineffective hedges ) are accounted for at fair value and the changes in fair value are recorded as unrealized gains or losses. Statement of Statutory Accounting Principles ( SSAP ) 108, Derivatives Hedging Variable Annuity Guarantees, was used as allowed. SSAP 108 allows special accounting treatment for limited derivatives hedging variable annuity guarantee benefits subject to fluctuation as a result of interest rate sensitivity. Starting in 2022 the Company designated, under SSAP 86, Derivatives, certain foreign exchange derivatives as effective hedges of certain invested assets. During 2023, the Company also designated certain interest rate swaps as effective cash flow hedges of floating-rate investment assets. Other invested assets principally consist of investments in limited partnerships and limited liability companies. Investments in these assets, except for joint ventures, partnerships and limited liability companies with a minor ownership interest, are reported using the equity method. Under SAP, such investments are generally reported based on audited U.S. GAAP equity of the investee, with subsequent adjustment to a statutory basis of accounting, if applicable. Joint ventures, partnerships and limited liability companies in which the Company has a minor ownership interest (i.e., less than 10 percent) or lacks control, are generally recorded based on the underlying audited U.S. GAAP equity of the investee, with some prescribed exceptions. SAP allows the use of (a) the U.S. GAAP equity as set forth in the footnote reconciliation of foreign GAAP equity and income to U.S. GAAP within audited foreign GAAP financial statements or (b) the International Financial Reporting Standards ( IFRS ) basis equity in audited IFRS financial statements as an acceptable basis for the valuation of minor/non-controlled investments. The audited U.S. tax basis equity may also be used in certain circumstances. All other investments in entities for which audited U.S. GAAP financial statements, or another acceptable audited basis of accounting as described above were not available have been non-admitted as assets. Undistributed accumulated earnings of such entities are included in unassigned surplus as a component of unrealized capital gains or losses. Distributions received that are not in excess of the undistributed accumulated earnings are recognized as investment income. Impairments that are determined to be other than temporary are recognized as realized capital losses. Securities lending and repurchase agreements: The Company has a securities lending program, which was approved by its Board of Directors, and lends securities from its investment portfolio to supplement liquidity or for other uses as deemed appropriate by management. Under the program, securities are lent to financial institutions, and in return the Company receives cash as collateral equal to 102 percent of the fair value of the loaned securities. The cash collateral received is invested in cash and/or short-term investments that may be sold or repledged or partially used for short-term liquidity purposes based on conservative cash flow forecasts. Securities lent by the Company under these KEY FEATURES LOCATION IN PROSPECTUS Downside Parameter - the Buffer The Buffer is a component of each Strategy Account Option that determines the Index Credit Rate that will be applied to your Strategy Account Option Value on the Term End Date (and the annual performance on each Contract Anniversary for Strategy Account Options with Cap Secure) if the Index performance is negative. It provides a limited level of protection from loss. You will incur a loss if negative Index performance is greater than the Buffer Rate on the Term End Date (and on each Contract Anniversary for Strategy Account Options with Cap Secure). For example, if the Index Change is negative 15% and your Buffer Rate is 10%, your Index Credit Rate would be negative 5% (for Strategy Account Options with Cap Secure, the annual measured performance on that Contract Anniversary would be negative 5%). For Dual Direction with Cap, the Buffer provides a gain equal to the absolute value of the negative Index Change, not limited by the Cap Rate, if the negative Index performance is up to and including the Buffer Rate. If the absolute value of the negative Index performance exceeds the Buffer Rate, your negative Index Credit Rate will equal the negative Index performance in excess of the Buffer Rate. For example, if the Index Change is negative 15% and your Buffer Rate is 10%, your Index Credit Rate would be negative 5%. However, if the Index Change is negative 8% and your Buffer Rate is 10%, your Index Credit Rate would be positive 8%. The minimum guaranteed Buffer Rate that we will offer for any Strategy Account Options other than those with Lock Upside Parameter is 10%. Buffer Rates for all Strategy Account Options other than those with Lock Upside Parameter will not change from one Term to the next. The Lock Buffer Rates can change from one Term to the next subject to the minimum guaranteed Lock Buffer Rate of 1%. If negative Index performance exceeds the Buffer Rate, your negative index performance will equal the negative Index performance in excess of the Buffer Rate. For example, with a Buffer Rate of 10%, in extreme circumstances, you could lose 90% of your investment in the Strategy Account Option if negative Index performance on the Term End Date is 100%. Please see ALLOCATION ACCOUNTS in this prospectus for further examples of the Buffer. Allocation Accounts Strategy Account Options Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) transactions may be sold or repledged by the counterparties. The liability for cash collateral received would be reported in payable for securities lending in the Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus. The Company monitors the fair value of securities loaned and obtains additional collateral as necessary. At the termination of the transactions, the Company and its counterparties are obligated to return the collateral provided and the securities lent, respectively. These transactions are treated as secured financing arrangements. In addition, the Company is a party to secured financing transactions involving securities sold under agreements to repurchase (repurchase agreements), in which the Company transfers securities in exchange for cash, with an agreement by the Company to repurchase the same or substantially similar securities on agreed upon dates specified in the agreements. Investment income due and accrued is non-admitted from investment income for bonds and other invested assets when collection of interest is overdue by more than 90 days, or is uncertain, and for mortgage loans when loans are foreclosed, or delinquent in payment for greater than 180 days, or when collection of interest is uncertain. Net realized capital gains and losses, which are determined by using the specific identification method, are reflected in income net of applicable federal income taxes and transfers to the interest maintenance reserve. The Company regularly evaluates its investments for other-than-temporary impairment ( OTTI ) in value. The determination that a security has incurred an OTTI in value and the amount of any loss recognition requires the judgment of the Company s management and a continual review of its investments. For bonds, other than LBaSS, an OTTI shall be considered to have occurred if it is probable that the Company will not be able to collect all amounts due under the contractual terms in effect at the acquisition date of the debt security. If it is determined an OTTI has occurred, the cost basis of bonds are written down to fair value and the amount of the write-down is recognized as a realized capital loss. For LBaSS, a non-interest related OTTI resulting from a decline in value due to fundamental credit problems of the issuer is recognized when the projected discounted cash flows for a particular security are less than its amortized cost. When a non-interest related OTTI occurs, the LBaSS is written down to the present value of future cash flows expected to be collected. An OTTI is also deemed to have occurred if the Company intends to sell the LBaSS or does not have the intent and ability to retain the LBaSS until recovery. If the decline is interest-related, the LBaSS is written down to fair value. In periods subsequent to the recognition of an OTTI loss, the Company generally accretes the difference between the new cost basis and the future cash flows expected to be collected, if applicable, as interest income over the remaining life of the security based on the amount and timing of estimated future cash flows. Non-admitted assets are excluded from admitted assets and the change in the aggregate amount of such assets is reflected as a separate component of unassigned surplus. Non-admitted assets include all assets specifically designated as non-admitted and assets not designated as admitted, such as a certain portion of DTAs, prepaid expenses, electronic data processing ( EDP ) equipment assets, agents balances or other receivables over 90 days. Non-admitted assets were $4.6 billion and $4.6 billion at December 31, 2023 and 2022, respectively. Interest maintenance reserve ( IMR ) is calculated based on methods prescribed by the NAIC and was established to prevent large fluctuations in interest-related investment gains and losses resulting from sales (net of taxes) and interest-related OTTI (net of taxes). IMR applies to all types of fixed maturity investments, including bonds, preferred stocks, MBS, ABS and mortgage loans. An OTTI occurs when the Company, at the reporting date, has the intent to sell an investment or does not have the intent and ability to hold the security before recovery of the cost of the investment. For LBaSS, if the Company recognizes an interest-related OTTI, the non-interest-related OTTI is recorded to the asset valuation reserve, and the interest-related portion to IMR. Such gains and losses are deferred into the IMR and amortized into income using the grouped method over the remaining contractual lives of the securities sold. Asset valuation reserve ( AVR ) is used to stabilize surplus from fluctuations in the market value of bonds, stocks, mortgage loans, real estate, limited partnerships and other investments. Changes in the AVR are recorded as direct increases or decreases in surplus. Separate account assets and liabilities generally represent funds for which the contract holder, rather than the Company, bears the investment risk. Separate account contract holders have no claim against the assets of the general account of the Company, except for certain guaranteed products. Separate account assets are generally reported at fair KEY FEATURES LOCATION IN PROSPECTUS Upside Parameters An Upside Parameter is a component of each Strategy Account Option that determines the Index Credit Rate that will be applied to your Strategy Account Option Value on the Term End Date if the Index performance is positive (or greater than or equal to zero for Trigger). We currently offer the following Upside Parameters: Cap: The Cap limits your participation in positive Index performance on the Term End Date up to and including the Cap Rate. If you select a Strategy Account Option with a Cap, and Index performance exceeds the Cap Rate, you will receive the Cap Rate. For example, if the Index Change is 15% and your Cap Rate is 10%, you will receive an Index Credit Rate of 10% on the Term End Date. Cap Secure: Cap Secure limits your participation in positive Index performance each Contract Anniversary of a multi-year Term Strategy Account Option up to and including the Cap Secure Rate. The Cap Secure Rate will remain the same for the entire multi-year Term. If you select a Strategy Account Option with a Cap Secure, and Index performance exceeds the Cap Secure Rate in any year, only the Cap Secure Rate will apply for that year. The Index Credit Rate is applied at the Term End Date based upon the values measured on each Contract Anniversary (including the Term End Date). For example, if the annual Index Change is 15% and your Cap Secure Rate is 8%, your adjusted annual Index performance is 8% on that Contract Anniversary. The adjusted annual Index performance on each Contract Anniversary within the multi- year term would be compounded to establish the Index Credit Rate on the Term End Date. For example, if the adjusted annual Index performance is 5% on each Contract Anniversary for a six-year term, the Index Credit Rate on the Term End Date would be 34.01% ({(1+5%)6}-1=34.01%). Participation: Participation limits your participation in positive Index performance on the Term End Date at a percentage equal to the Participation Rate. If Index performance is positive on the Term End Date, the Participation Rate is multiplied by Index Change to determine the Index Credit Rate. For example, with a 100% Participation Rate, if the Index Change is 10% on the Term End Date, you will receive an Index Credit Rate of 10%. Alternatively, with an 80% Participation Rate, if the Index Change is 10% on the Term End Date, you will receive an Index Credit Rate of 8%. Dual Direction with Cap: Dual Direction with Cap allows you to participate in positive Index performance on the Term End Date up to the Cap Rate, or the absolute value of any negative Index performance up to and including the Buffer Rate. If the positive Index performance exceeds the Cap Rate, your positive Index performance will equal the Cap Rate. For example, if the Index Change is 11% and your Cap Rate is 8%, your Index Credit Rate would be 8%. Since the Index Change was positive, the Buffer would not come into play. If the negative Index performance was within or equal to the Buffer Rate, you gain the absolute value of the negative Index performance. For example, if the Index Change is 10% and your Buffer Rate is 10%, your Index Credit Rate would be 10%. Alternatively, if the Index Change is -13% and your Buffer Rate is 10%, your Index Credit Rate would be -3%. Trigger: Trigger allows you to receive an Index Credit Rate equal to the Trigger Rate if Index performance is greater than or equal to zero on the Term End Date. If you select a Strategy Account option with a Trigger, and Index performance exceeds the Trigger Rate, you will receive the Trigger Rate. For example, if the Index Change is 2% and the Trigger Rate is 4%, your Index Credit Rate would be 4% because the Index Change was greater than zero. However, if the Index Change is 12% and the Trigger Rate is 4%, your Index Credit Rate would be 4% because the Index Change was greater than the Trigger Rate. Lock: Lock allows you to receive an Index Credit Rate equal to the Lock Threshold as of that date, if the Index Change meets or exceeds the Lock Threshold at Market Close on any day during the Term. For example, if the Lock Threshold is 50% and the Index Change at Market Close on any day during the Term is 50% or greater, you will receive an Index Credit Rate equal to 50%. After we apply the Index Credit Rate, you will be credited with the Lock Fixed Rate until the next Contract Anniversary. If the Index Change does not meet or exceed the Lock Threshold at Market Close on any day during the Term, but is positive on the Term End Date, you will receive an Index Credit Rate equal to the Index Change on the Term End Date. Allocation Accounts Strategy Account Options Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) value. In addition, certain products with fixed guarantees and market-value-adjusted ( MVA ) fixed annuity contracts in which the assets are generally carried at amortized cost are required by certain states to be carried in a separate account. The operations of the separate accounts are excluded from the Statutory Statements of Operations and Statutory Statements of Cash Flows of the Company. The Company receives fees for assuming mortality and certain expense risks. Such fees are included in separate account fees in the Statutory Statements of Operations. Reserves for variable annuity contracts are provided in accordance with the Variable Annuity Commissioners Annuity Reserve Valuation Method ( VACARVM ) under subsection 21 of the Valuation Manual ( VM-21 ). Reserves for variable universal life accounts are provided in accordance with subsection 20 of the Valuation Manual ( VM-20 ) for new business issued beginning in 2020, and in accordance with the Commissioners Reserve Valuation Method ( CRVM ) for policies issued prior to 2020. Policy reserves are established according to different methods. Life, annuity, and health reserves are developed by actuarial methods and are generally determined based on published tables using specified interest rates, mortality or morbidity assumptions, and valuation methods prescribed or permitted by statutes that will provide, in the aggregate, reserves that are greater than or equal to the minimum or guaranteed policy cash values or the amounts required by the TDI. Principle-based reserving ( PBR ) is designed to tailor the reserving process to more closely reflect the risks of specific products, rather than the previous prescribed approach. Reserve requirements for the Company s life insurance policies issued after January 1, 2020 are contained in VM-20, Requirements for Principle-Based Reserves for Life Products, policies issued prior to 2020 are reserved for using the CRVM. Under VM-20, these reserves are generally more sensitive to changes in actuarial assumptions. The Company waives the deduction of deferred fractional premiums on the death of the life and annuity policy insured and returns any premium beyond the date of death. The Company reported additional reserves for surrender values in excess of the corresponding policy reserves. The Company performs annual cash flow testing in accordance with the Actuarial Opinion and Memorandum Regulation to ensure adequacy of the reserves. Additional reserves are established where the results of cash flow testing under various interest rate scenarios indicate the need for such reserves or where the net premiums exceed the gross premiums on any insurance in force. Total cash flow testing reserves were $175 million and $175 million at December 31, 2023 and 2022, respectively. A majority of the Company s variable annuity products are issued with a guaranteed minimum death benefit ( GMDB ) which provides that, upon the death of a contractholder, the contractholder s beneficiary will receive the greater of (1) the contractholder s account value, or (2) a GMDB that varies by product. Depending on the product, the GMDB may equal the principal invested, adjusted for withdrawals; or the greatest contract value, adjusted for withdrawals, at the specified contract anniversaries; or the principal invested, adjusted for withdrawals, accumulated at the specified rate per annum. These benefits have issue age and other restrictions to reduce mortality risk exposure. The Company bears the risk that death claims following a decline in the financial markets may exceed contract holder account balances, and that the fees collected under the contract are insufficient to cover the costs of the benefit to be provided. Death benefits on GMDB policies generally reduce on a proportional basis or on a dollar-for-dollar basis when a partial withdrawal occurs. Reserves for GMDB benefits are included in the VACARVM reserve. PBR is designed to tailor the reserving process to more closely reflect the risks of specific products, rather than the factor-based approach typically employed historically. Variable Annuity ( VA ) reserving requirements are contained in VM-21, Reserves for Variable Requirements for Principle-Based Annuities. Life policies underwritten as substandard are charged extra premiums. Reserves are computed for a substandard policy by adding the reserve for an otherwise identical non-substandard policy plus a factor times the extra premium charge for the year. The factor varies by duration, type of plan, and underwriting. In addition, an extra mortality reserve is reported for ordinary life insurance policies classified as group conversions. Substandard structured settlement annuity reserves are determined by making a constant addition to the mortality rate of the applicable valuation mortality table so that the life expectancy on the adjusted table is equal to the life expectancy determined by the Company s underwriters at issue. Tabular interest, tabular less actual reserves released, and tabular cost have been determined by formula, except for universal life insurance and deferred annuity reserves, which include fund accumulations for which tabular interest has KEY FEATURES LOCATION IN PROSPECTUS Upside Parameters (continued) Please see ALLOCATION ACCOUNTS in this prospectus for further examples of the Upside Parameters. The Upside Parameters, with the exception of Lock, including their applicable rates, can change from one Term to the next, however, each Upside Parameter rate is subject to minimum guaranteed rates. The minimum guaranteed rates that may be established under the Contract for each of the Upside Parameters (other than Lock) are: Cap Rate: No lower than 2% Cap Secure Rate: No lower than 2% Participation Rate: No lower than 10% Trigger Rate: No lower than 2% The Lock Threshold for a Strategy Account Option with Lock are guaranteed minimum rates under the Contract and will not change from one Term to the next. The Lock Threshold percentages available are: 30, 40, 50, 75, and 100. Allocation Accounts Strategy Account Options Performance Capture If available, Performance Capture allows you to capture the Interim Value of a Strategy Account Option prior to the Term End Date. The Performance Capture feature may not be available on all Strategy Account Options including those with Lock Upside Parameter. Once a Performance Capture occurs, the Strategy Account Option will earn an annual rate with daily credited interest at the Performance Capture Fixed Rate until the next Contract Anniversary. There are risks associated with the Performance Capture. Once a Performance Capture occurs, the Interim Value within the Strategy Account Option will no longer be tied to Index performance, and you will not receive an Index Credit Rate on the Term End Date. The captured Interim Value cannot be transferred to a new Allocation Account or a new Term in the same Strategy Account Option until the next Contract Anniversary. You may only exercise the Performance Capture once during a Term on the full amount allocated to an applicable Strategy Account Option, and the exercise is irrevocable. You will not know the Interim Value at the time Performance Capture occurs and you may be capturing a loss. The loss may be significant and could be as high as 100%. You should speak with your financial representative before exercising Performance Capture. Valuing Your Investment in A Strategy Account Option Performance Capture Contract Value/Cash Value Contract Value. Prior to annuitization, your Contract Value represents the value of your investment in your Allocation Accounts, which may include the Fixed Account Option and one or more Strategy Account Option(s). If you invest in a Strategy Account Option, your Contract Value will reflect the Interim Values of your investment on any day other than the Term Start Date or the Term End Date. On any day during the Accumulation Phase, your total Contract Value is equal to: Your Purchase Payment; minus Your total gross Withdrawals from the Contract (including any applicable amounts deducted for Withdrawal Charges); plus Your accumulated gains on amounts allocated to Strategy Account Option(s); minus Your accumulated losses on amounts allocated to Strategy Account Option(s); plus Interest credited on amounts allocated to the Fixed Account Option; minus Amounts deducted for fees, charges, and taxes, if any. Upon annuitization, you will no longer be able to take Withdrawals of Contract Value and all other features and benefits of your Contract will terminate, including your ability to Surrender your Contract. Cash Value. Prior to annuitization, your Cash Value represents the total amount that is available for Withdrawal or Surrender. Your Cash Value is equal to the Contract Value after adjustment for any applicable Withdrawal Charges and fees. Your Cash Value may be less than or equal to your Contract Value. Your Cash Value will never be less than the Minimum Withdrawal Value. Upon annuitization, your Contract does not have a Cash Value. Contract Value and Cash Value Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) been determined from basic data. For the determination of tabular interest on funds not involving life contingencies, the actual credited interest is used. Liabilities for deposit-type contracts, which include supplementary contracts without life contingencies and annuities certain, are based on the discounting of future payments at an annual statutory effective rate. Tabular interest on other funds not involving life contingencies is based on the interest rate at which the liability accrues. Policy and contract claims represent the ultimate net cost of all reported and unreported claims incurred during the year. Reserves for unpaid claims are estimated using individual case-basis valuations and statistical analyses. Those estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary, as experience develops or new information becomes known; such adjustments are included in current operations. Reserves for future policy benefits to be paid on life and accident and health policies, incurred in the statement period, but not yet reported, were established using historical data from claim lag experience. The data is aggregated from product specific studies performed on the Company s business. Premiums and annuity considerations and related expenses are recognized over different periods. Life premiums are recognized as income over the premium paying periods of the related policies. Annuity considerations are recognized as revenue when received. Premiums for deposit-type products are credited directly to the respective reserves and are not recorded in the Statutory Statement of Operations. Health premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. Acquisition costs such as commissions and other expenses related to the production of new business are charged to the Statutory Statements of Operations as incurred. Reinsurance premiums and benefits paid or provided are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Annuity and deposit-type contract surrender benefits are reported on a cash basis, and include annuity benefits, payments under supplementary contracts with life contingencies, surrenders and withdrawals. Withdrawals from deposit-type contracts directly reduce the liability for deposit-type contracts and are not reported in the Statutory Statements of Operations. General insurance expenses include allocated expenses pursuant to cost allocation agreements. The Company purchases administrative, accounting, marketing and data processing services from AIG, Corebridge and affiliates and is charged based on estimated levels of usage, transactions or time incurred in providing the respective services. The allocation of costs for investment management services purchased from affiliates is based on the level of assets under management. Federal income tax expense (benefit) is recognized and computed on a separate company basis pursuant to tax sharing agreements, because the Company is included in the consolidated federal income tax returns of its parent company filing group. For the period prior to the Corebridge initial public offering (the IPO ) on September 19, 2022, the Company joined in the filing of a consolidated federal income tax return with AIG. For the period following the IPO, the Company will join with AGC Life, Variable Annuity Life Insurance Company ( VALIC ), United States Life Insurance Company in the City of New York ( USL ), and Corebridge Insurance Company of Bermuda, Ltd. (formerly AIG Life of Bermuda, Ltd.) ( Corebridge Bermuda ), in filing a consolidated life company federal income tax return. To the extent that benefits for net operating losses, foreign tax credits, corporate alternative minimum tax ( CAMT ) credits or net capital losses are utilized on a consolidated basis, the Company would recognize tax benefits based upon the amount of those deductions and credits utilized in the consolidated federal income tax return. The federal income tax expense or benefit reflected in the Statutory Statements of Operations represents income taxes provided on income that is currently taxable, but excludes tax on the net realized capital gains or losses. Income taxes on capital gains or losses reflect differences in the recognition of capital gains or losses on a statutory accounting basis versus a tax accounting basis. The most significant of such differences involve impairments of investments, which are recorded as realized losses in the Statutory Statements of Operations but are not recognized for tax purposes, and the deferral of net capital gains and losses into the IMR for statutory income but not for taxable income. Capital gains and losses on certain related-party transactions are recognized for statutory financial reporting purposes but are deferred for income tax reporting purposes until the security is sold to an outside party. KEY FEATURES LOCATION IN PROSPECTUS Death Benefit Contract Value Death Benefit: The Contract provides a Contract Value death benefit at no additional charge. The Contract Value death benefit is equal to the greater of the Contract Value or the Minimum Withdrawal Value on the Business Day we receive all required documentation in Good Order. Optional Return of Purchase Payment Death Benefit: For an additional fee, you may elect the Return of Purchase Payment Death Benefit which can provide greater protection for your Beneficiaries. You may only elect the Return of Purchase Payment Death Benefit at the time you purchase your Contract, and you cannot change your election thereafter at any time. The fee for the Return of Purchase Payment Death Benefit is 0.20% (annually based on remaining Net Purchase Payments). The fee will be deducted proportionally from all Allocation Account Option(s) and charged on each Contract Anniversary. The fee is pro-rated upon death or Surrender. You may pay for the optional Return of Purchase Payment Death Benefit and your Beneficiary may never receive the benefit once you begin the Income Phase. The Return of Purchase Payment Death Benefit can only be elected prior to your 76th birthday. The Return of Purchase Payment Death Benefit is the greatest of: 1. Contract Value less applicable fees associated with the Return of Purchase Payment Death Benefit; 2. Minimum Withdrawal Value; or 3. Net Purchase Payments. Withdrawals will reduce Net Purchase Payments, and therefore the Return of Purchase Payment Death Benefit, on a proportionate basis, and this reduction could be more than the amount of the Withdrawal. Death Benefits FEES AND CHARGES Withdrawal Charges You may be subject to charges for early Withdrawals. If you withdraw money from your Contract within six (6) years following the Contract Issue Date, you may be assessed a Withdrawal Charge of up to 8%, as a percentage of the Contract Value withdrawn. Withdrawal Charges do not apply to certain Withdrawals including a Withdrawal up to the annual free Withdrawal amount equal to 10% of the previous Contract Anniversary Contract Value (and if withdrawn in the first Contract Year, the Purchase Payment amount). For example, if you withdraw $100,000 in excess of the free Withdrawal amount during the Withdrawal Charge Period, you could be assessed a Withdrawal Charge of up to $8,000 if your Withdrawal Charge is 8%. Fees and Charges Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) A deferred tax asset ( DTA ) or deferred tax liability ( DTL ) is included in the Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus, which reflects the expected future tax consequences of temporary differences between the statement values of assets and liabilities for statutory financial reporting purposes and the amounts used for income tax reporting purposes. The change in the net DTA or DTL is reflected in a separate component of unassigned surplus. Net DTAs are limited in their admissibility. The CAMT is disregarded when evaluating the need for a valuation allowance for the Company s non-CAMT DTAs. Accounting Changes The Company had no accounting changes during 2023 or 2022. Substantive changes were made to SSAP 26R, Bonds, SSAP 21R, Other Admitted Assets, and SSAP 43R, Loan-Backed and Structured Securities, effective January 1, 2025. The changes provide a new principle-based bond definition to be used for determining which investments are eligible for reporting on Schedule D as a bond. The changes focus on ensuring appropriate consideration of whether an investment qualifies as an issuer credit obligation or asset-backed security prior to reporting as a bond. Correction of Errors SAP requires that corrections of errors related to prior periods be reported as adjustments to unassigned surplus to the extent that they are not material to prior periods. In 2023, two out-of-period errors were identified and corrected, the largest of which was related to an understatement of reserves for variable annuities due to model implementations in 2022. The total of these corrections decreased unassigned surplus by $8 million. In 2022, three out-of-period errors were identified and corrected, which increased unassigned surplus by $72 million. This decreased claims reserved as a result of overstated claim reserves from 2019-2021. In 2021, five out-of-period errors were identified and corrected, which decreased unassigned surplus by $161 million. The most significant of these was a tax correction related to 2013 - 2018. The Company s management does not believe these corrections to be material to the Company s results of operations, financial position, or cash flow for the Company s previously filed annual statement. Differences in Statutory Accounting and U.S. GAAP Accounting The accompanying statutory financial statements have been prepared in accordance with accounting practices prescribed or permitted by the TDI. These accounting practices vary in certain respects from U.S. GAAP. The primary differences between NAIC SAP and U.S. GAAP are as follows. The objectives of U.S. GAAP differ from the objectives of SAP. U.S. GAAP is designed to measure the entity as a going concern and to produce general purpose financial statements to meet the varying needs of the different users of financial statements. SAP is designed to address the accounting requirements of regulators, who are the primary users of statutory-basis financial statements and whose primary objective is to measure solvency. As a result, U.S. GAAP stresses measurement of earnings and financial condition of a business from period to period, while SAP stresses measurement of the ability of the insurer to pay claims in the future. Investments. Under SAP, investments in bonds and redeemable preferred stocks are generally reported at amortized cost. However, if bonds are designated category 6 and redeemable preferred stocks are designated categories 4 6 by the NAIC, these investments are reported at the lesser of amortized cost or fair value with a credit or charge to unrealized investment gains or losses. For U.S. GAAP, such fixed-maturity investments are designated at purchase as held-to-maturity, trading, or available-for-sale. Held-to-maturity fixed-maturity investments are reported at amortized cost, and the remaining fixed-maturity investments are reported at fair value, with unrealized capital gains and losses reported in operations for those designated as trading and as a component of other comprehensive income for those designated as available-for-sale. Under SAP, all single- and multi-class MBS or other ABS (e.g., Collateralized Mortgage Obligations ( CMO ) are adjusted for the effects of changes in prepayment assumptions on the related accretion of discount or amortization of premium with respect to such securities using either the retrospective or prospective method. For LBaSS, if it is FEES AND CHARGES LOCATION IN PROSPECTUS Interim Value The Interim Value is the amount in the Strategy Account Option that is available for transactions that occur during the Term. The Interim Value could be less than your investment in a Strategy Account Option even if the Index is performing positively. Withdrawals or Surrenders that cause the Interim Value to be recalculated could result in the loss of principal investment and previously applied Index Credit Rates, and such losses could be as high as 100%. All Withdrawals taken, and fees and charges deducted, from a Strategy Account Option before the Term End date (including fees and charges that are periodically deducted from your Contract) will reduce your Contract Value death benefit on a dollar-for-dollar basis and will trigger a Negative Adjustment which will lower your Strategy Base in the Strategy Account Option in the same proportion that the Interim Value is reduced (rather than on a dollar-for-dollar basis) which may proportionately reduce the optional Return of Purchase Payment Death Benefit if elected. Such a reduction will reduce your Strategy Base for the remainder of the Term and the proportionate reduction may be greater than the dollar amount withdrawn, or the fee or charge deducted. The following transactions impact the Interim Value of Strategy Account Option: A fee or charge is deducted from the Strategy Account Option; An amount is deducted from the Strategy Account Option due to a Surrender or Withdrawal (including a systematic Withdrawal, RMDs, free Withdrawal amounts or any other Withdrawal); The Contract is annuitized; or The death benefit is paid; You may obtain the Interim Value(s) of your Strategy Account Option(s) online at www.corebridgefinancial.com/annuities or by contacting your financial representative. Valuing Your Investment in a Strategy Account Option Optional Return of Purchase Payment Death Benefit Fee If you elect the optional Return of Purchase Payment Death Benefit at the time you purchase the Contract, you will be subject to an additional fee of 0.20% (annually based on remaining Net Purchase Payments). The fee will be deducted proportionally from all Allocation Account Options and charged on each Contract Anniversary. The fee is pro-rated upon death or Surrender. Deduction of the fee will trigger an Interim Value adjustment and Negative Adjustment. Fees and Charges Premium Taxes Certain states charge the Company a tax on Purchase Payments that ranges from 0% to 3.5%. Some states assess this premium tax when the Contract is issued while other states only assess the tax upon annuitization. The Company may advance any tax amount due, but we will deduct such amount from your Contract Value only when and if you begin the Income Phase (annuitization). See Appendix E: STATE VARIATIONS. Fees and Charges Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) determined that a decline in fair value is other than temporary, the cost basis of the security is written down to the discounted estimated future cash flows. Bonds, other than LBaSS, that are other-than-temporarily impaired are written down to fair value. For U.S. GAAP purposes, all securities, purchased or retained, that represent beneficial interests in securitized assets (e.g., CMO, MBS and ABS securities), other than high credit quality securities, would be adjusted using the prospective method when there is a change in estimated future cash flows. If high-credit quality securities must be adjusted, the retrospective method would be used. For all bonds, if it is determined that a decline in fair value is other-than-temporary, the cost basis of the security would be written down to the discounted estimated future cash flows, while the non-credit portion of the impairment would be recorded as an unrealized loss in other comprehensive income. Under SAP, when it is probable that the insurer will be unable to collect all amounts due according to the contractual terms of the mortgage agreement, allowances are established for temporarily-impaired mortgage loans based on the difference between the unpaid loan balance and the estimated fair value of the underlying real estate, less estimated costs to obtain and sell. The initial allowance and subsequent changes in the allowance for mortgage loans are charged or credited directly to unassigned surplus rather than as a component of earnings as would be required under U.S. GAAP. If the impairment is other-than-temporary, a direct write down is recognized as a realized loss, and a new cost basis is established. Under U.S. GAAP, an allowance for credit losses is based on the expectation of lifetime credit losses. Under SAP, joint ventures, partnerships and limited liability companies in which the insurer has a minor ownership interest (i.e., less than 10 percent) or lacks control are generally recorded based on the underlying audited U.S. GAAP basis equity of the investee. Under U.S. GAAP, joint ventures, partnerships and limited liability companies in which the insurer has a significant ownership interest or is deemed to have control are accounted for under the equity method. Where that is not the case, such investments are carried at fair value with changes in fair value recognized in earnings. Real Estate. Under SAP, investments in real estate are reported net of related obligations; under U.S. GAAP, investments in real estate are reported on a gross basis. Under SAP, real estate owned and occupied by the insurer is included in investments; under U.S. GAAP, real estate owned and occupied by the insurer is reported as an operating asset, and operating income and expenses include rent for the insurer s occupancy of those properties. Derivatives. Under SAP, derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value with the changes in fair value recorded as unrealized capital gains or losses. Under U.S. GAAP, such derivative instruments are accounted for at fair value with the changes in fair value recorded as realized capital gains or losses. Under U.S. GAAP, fair value measurement for free standing derivatives incorporate either counterparty s credit risk for derivative assets or the insurer s credit risk for derivative liabilities by determining the explicit cost to protect against credit exposure. This credit exposure evaluation takes into consideration observable credit default swap rates. Under SAP, non-performance risk (own credit-risk) is not reflected in the fair value calculations for derivative liabilities. Under U.S. GAAP, index life insurance features in indexed universal life contracts and certain guaranteed features of variable annuities are bifurcated and accounted for separately as embedded policy derivatives and market risk benefits, respectively. Under SAP, embedded derivatives and market risk benefits are not bifurcated or accounted for separately from the host contract. Interest Maintenance Reserve. Under SAP, the insurer is required to maintain an IMR. IMR is calculated based on methods prescribed by the NAIC and was established to prevent large fluctuations in interest-related capital gains and losses realized through sales or OTTI. IMR applies to all types of fixed maturity investments, including bonds, preferred stocks, MBS, ABS and mortgage loans. After-tax capital gains or losses realized upon the sale or impairment of such investments resulting from changes in the overall level of interest rates are excluded from current period net income and transferred to the IMR. The transferred after-tax net realized capital gains or losses are then amortized into income over the remaining period to maturity of the divested asset. Realized capital gains and losses are reported net of tax and transfers to the IMR, after net gain from operations. Any negative IMR balance is treated as a non-admitted asset, unless certain criteria are met. This reserve is not required under U.S. GAAP and pre-tax realized capital gains and losses are reported as a component of total revenues, with related taxes included in taxes from operations. Asset Valuation Reserve. Under SAP, the insurer is required to maintain an AVR, which is computed in accordance with a prescribed formula and represents a provision for possible fluctuations in the value of bonds, equity securities, mortgage loans, real estate, and other invested assets. The level of AVR is based on both the type of investment and its RESTRICTIONS LOCATION IN PROSPECTUS Investments Transfer Restrictions. Contract Value allocated to a Strategy Account Option may only be transferred on the Term End Date. Contract Value allocated to the Fixed Account Option may not be transferred until the next Contract Anniversary. If you do not want to remain invested in the Fixed Account Option until the next Contract Anniversary, or in a Strategy Account Option until the Term End Date, your only options will be to take a Withdrawal from or Surrender the Contract, or exercise the Performance Capture feature (if available) and transfer your Strategy Account Option Value on the next Contract Anniversary. If you elect one of these options, the transaction will be based on the Interim Values of the Strategy Account Options. The Interim Value could be substantially less than the amount invested in the Strategy Account Option and could result in significant loss. All Withdrawals taken (and fees and charges deducted from your Contract) will reduce your Contract Value death benefit on a dollar-for-dollar basis and will trigger a Negative Adjustment which will lower your Strategy Base in the Strategy Account Option in the same proportion that the Interim Value is reduced (rather than a dollar-for-dollar basis) which may proportionately reduce the optional Return of Purchase Payment Death Benefit if elected. Such a reduction will reduce your Strategy Base for the remainder of the Term and the proportionate reduction may be greater than the dollar amount withdrawn and the fee or charge deducted. Withdrawals and Surrenders may be subject to Withdrawal Charges, any applicable fees, and taxes (including a 10% Federal tax penalty before age 59 ). Transfer requests must be provided before Market Close on the Term End Date (or Contract Anniversary after a Performance Capture or a Lock Threshold is met). If the Term End Date (or Contract Anniversary after a Performance Capture or a Lock Threshold is met) is not a Business Day, we must receive your instructions before Market Close on the Business Day before the Term End Date (or Contract Anniversary after a Performance Capture or a Lock Threshold is met). If we do not receive transfer instructions from you within the appropriate time frame, we will automatically transfer or renew, as applicable, your Strategy Account Option and/or Fixed Account Option Value as follows: Your Contract Value in any expiring Strategy Account Option with a 1-year Term will remain in its current allocation for the next Term, subject to the Upside Parameter rates and Lock Buffer Rates, if applicable, declared for that Term. If your Contract Value is invested in a Strategy Account Option with a 1-year Term that that will no longer available for investment after the Term End Date, the Contract Value remaining in that Strategy Account Option will automatically be transferred to the Fixed Account Option on the Term End Date, subject to the renewal interest rate, and will remain there until the next Contract Anniversary after you provide transfer instructions. The Contract Value automatically transferred to the Fixed Account Option in the absence of transfer instructions cannot be transferred to another available Strategy Account Option until the next Contract Anniversary. Any Contract Value in an expiring Strategy Account Option with a multi-year Term or Fixed Account Option will automatically be transferred or renewed to the Fixed Account Option, subject to the applicable renewal interest rates. Amounts that are automatically renewed or transferred in the absence of transfer instructions cannot be transferred until the next Contract Anniversary. Performance Capture Restrictions. Manual Performance Capture is not allowed, and automatic Performance Capture settings cannot be changed, during the five (5) days prior to a Term End Date. Once you exercise Performance Capture, it cannot be revoked. Investment Restrictions. Some Strategy Account Options may only be available on Contract Issue Date. On the Term End Date, you will only be able to invest in the Strategy Account Options available at that time. When allocating Contract Value on a Term End Date among the available Allocation Accounts, you may not invest in any Strategy Account Option that has a Term that extends beyond the Latest Annuity Date. If there is no eligible Strategy Account Option, only the Fixed Account Option will be available to you for investment. The Company reserves the right to stop offering all but one Strategy Account Option. We will provide you with written notice before adding, replacing, or removing a Strategy Account Option or Index. Allocation Accounts Transfers between Allocation Accounts Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) credit rating. Under SAP, AVR is included in total adjusted capital for RBC analysis purposes. Changes to AVR are charged or credited directly to unassigned surplus. This reserve is not required under U.S. GAAP. Subsidiaries. Under SAP, investments in insurance subsidiaries are recorded based upon the underlying audited statutory equity of a subsidiary with all undistributed earnings or losses shown as an unrealized capital gain or loss in unassigned surplus. Dividends received by the parent company from its subsidiaries are recorded through net investment income. Under U.S. GAAP, subsidiaries financial statements are combined with the parent company s financial statements through consolidation. All intercompany balances and transactions are eliminated under U.S. GAAP. Dividends received by the parent company from its subsidiaries reduce the parent company s investment in the subsidiaries. Policy Acquisition Costs and Sales Inducements. Under SAP, policy acquisition costs are expensed when incurred. Under U.S. GAAP, acquisition costs that are incremental and directly related to the successful acquisition of new and renewal of existing insurance contracts are deferred as deferred policy acquisition costs ( DAC ). DAC is amortized on a constant level basis (i.e., approximating straight line amortization with adjustments for expected terminations) over the expected term of the related contracts using assumptions consistent with those used in estimating the related liability for future policy benefits, or any other related balances. Under SAP, sales inducements are expensed when incurred. Under U.S. GAAP, certain sales inducements on interest-sensitive life insurance contracts and deferred annuities are deferred and amortized over the life of the contract using the same methodology and assumptions used to amortize DAC. Deferred Premiums. Under SAP, when deferred premiums exist, statutory deferred premiums are held as a statutory asset, while under U.S. GAAP, deferred premiums are held as a contra-liability in the future policy benefits liability. Non-admitted Assets. Certain assets designated as non-admitted, principally any agents balances or unsecured loans or advances to agents, certain DTAs, furniture, equipment and computer software, receivables over 90 days and prepaid expenses, as well as other assets not specifically identified as admitted assets within the NAIC SAP, are excluded from the Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus and are charged directly to unassigned surplus. Under U.S. GAAP, such assets are included in the balance sheet. Universal Life and Annuity Policies. Under SAP, revenues for universal life and annuity policies containing mortality or morbidity risk considerations consist of the entire premium received, and benefits incurred consist of the total of death benefits paid and the change in policy reserves. Payments received on contracts that do not incorporate any mortality or morbidity risk considerations (deposit-type contracts) are credited directly to an appropriate liability for deposit-type contract account without recognizing premium income. Interest credited to deposit-type contracts is recorded as an expense in the Statutory Statements of Operations as incurred. Payments that represent a return of policyholder balances are recorded as a direct reduction of the liability for deposit-type contracts, rather than a benefit expense. Under U.S. GAAP, premiums received in excess of policy charges are not recognized as premium revenue, and benefits represent the excess of benefits paid over the policy account value and interest credited to the account values. Benefit Reserves. Under SAP, loading is the difference between the gross and valuation net premium. Valuation net premium is calculated using valuation assumptions which are different for statutory and U.S. GAAP. Statutory valuation assumptions are set by the insurer within limits as defined by statutory law. U.S. GAAP valuation assumptions are set by the insurer based on management s estimates and judgment. Policyholder funds not involving life contingencies use different valuation assumptions for SAP and U.S. GAAP. Under SAP, prescribed rates of interest related to payout annuities are used in the discounting of expected benefit payments, while under U.S. GAAP, the insurer s best estimates of interest rates are used. Under SAP, the CRVM is used for the majority of individual insurance reserves. Under U.S. GAAP, individual insurance policyholder liabilities for traditional forms of insurance are generally established using the net premium ratio ( NPR ) method. For interest-sensitive policies, a liability for policyholder account balances is established under U.S. GAAP based on the contract value that has accrued to the benefit of the policyholder. Policy assumptions used in the estimation of policyholder liabilities are generally prescribed under SAP. Under U.S. GAAP, policy assumptions are based upon best estimates. Under SAP, the CARVM is used for the majority of individual deferred annuity reserves, while under U.S. GAAP, individual deferred annuity policyholder liabilities are generally equal to the contract value that has accrued to the benefit of the policyholder, together with liabilities for certain contractual guarantees, if applicable. Under SAP, reserves SUMMARY Risk of Loss. Annuities involve risks, including possible loss of principal. Your losses could be significant. This Contract is not a deposit or obligation of, or guaranteed or endorsed by, any bank. This Contract is not federally insured by the federal deposit insurance corporation, the federal reserve board, or any other agency. Short-Term Investment Risk. This Contract is not designed for short-term investing and may not be appropriate for an investor who needs ready access to cash. The benefits of tax deferral and long-term income protections mean that this Contract is more beneficial to investors with a long investment time horizon. Withdrawal Risk. You should carefully consider the risks associated with Withdrawals under the Contract. Withdrawals may be subject to significant Withdrawal Charges. If you make a Withdrawal prior to age 59 , there may be adverse tax consequences, including a 10% Federal tax penalty. A Withdrawal may reduce the value of your standard and optional benefits. For instance, a Withdrawal will reduce the value of the death benefit. A Surrender will result in the termination of your Contract. We may defer payment of Withdrawals or Surrender for up to six months when permitted by law. If you make a Withdrawal or Surrender your Contract within six years after the Contract Issue Date, you may be assessed a Withdrawal Charge of up to 8% of the amount withdrawn in excess of the 10% annual free Withdrawal amount. In addition, Withdrawals during a Term could result in a greater reduction in your Contract Value than if you waited until the Term End Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) for fixed rate deposit-type contracts are based upon their accumulated values, discounted at an annual statutory effective rate, while under U.S. GAAP, reserves for deposit-type contracts are recorded at their accumulated values. Under GAAP, indexed interest credits and guarantees in excess of contract account values are bifurcated from the host contract as embedded derivatives and market risk benefits, respectively, and reported at fair value. Under SAP, embedded derivatives and market risk benefits are not bifurcated and accounted for separately, but rather are included in the benefit reserve valuation for the host contract. Reinsurance. Under SAP, policy and contract liabilities ceded to reinsurers are reported as reductions of the related reserves rather than as assets as required under U.S. GAAP. Under SAP, a liability for reinsurance balances has been provided for unsecured policy reserves, unearned premiums, and unpaid losses ceded to reinsurers not licensed to assume such business. Changes to these amounts are credited or charged directly to unassigned surplus. Under U.S. GAAP, an allowance for amounts deemed uncollectible would be established through a charge to earnings. Under SAP, the criteria used to demonstrate risk transfer varies from U.S. GAAP, which may result in transactions that are accounted for as reinsurance for SAP and deposit accounting for U.S. GAAP. Under SAP, the reserve credit permitted for unauthorized reinsurers is less than or equal to the amount of letter of credit or funds held in trust by the reinsurer. Under U.S. GAAP, assumed and ceded reinsurance is reflected on a gross basis in the balance sheet, and certain commissions allowed by reinsurers on ceded business are deferred and amortized generally on a basis consistent with DAC. Policyholder Dividend Liabilities. Under SAP, policyholder dividends are recognized when declared. Under U.S. GAAP, policyholder dividends are recognized over the term of the related policies. Separate Accounts. Under SAP, separate account surplus created through the use of the CRVM, the VACARVM or other reserving methods is reported by the general account as an unsettled transfer from the separate account. The net change on such transfers is included as a part of the net gain from operations in the general account. This is not required under U.S. GAAP. Separate accounts include certain non-unitized assets which primarily represent MVA fixed options of variable annuity contracts and certain pension risk transfer annuities issued in various states. Under SAP, these contracts are accounted for in the separate account financial statements, while under U.S. GAAP, they are accounted for in the general account. Deferred Income Taxes. Under SAP, statutory DTAs that are more likely than not to be realized are limited to: 1) the amount of federal income taxes paid in prior years that can be recovered through loss carrybacks for existing temporary differences that reverse by the end of the subsequent calendar year, plus 2) the lesser of the remaining gross DTA expected to be realized within a maximum three years of the reporting date or a maximum 15 percent of the capital and surplus excluding any net DTA, EDP equipment and operating software and any net positive goodwill, plus 3) the amount of the remaining gross DTA that can be offset against existing gross DTLs. The remaining DTAs are non-admitted. Deferred taxes do not include amounts for state taxes. Under U.S. GAAP, state taxes are included in the computation of deferred taxes, all DTAs are recorded and a valuation allowance is established if it is more likely than not that some portion of the DTA will not be realized. Under SAP, income tax expense is based upon taxes currently payable. Changes in deferred taxes are reported in surplus and subject to admissibility limits. Under U.S. GAAP, changes in deferred taxes are recorded in income tax expense. Offsetting of Assets and Liabilities. Under SAP, offsetting of assets and liabilities is not permitted when there are master netting agreements unless four requirements for valid right of offset are met. The requirements include 1) each of the two parties owes the other determinable amounts, 2) the reporting party has the right to set off the amount owed with the amount owed by the other party, 3) the reporting party intends to set off, and 4) the right of setoff is enforceable. The prohibition against offsetting extends to derivatives and collateral posted against derivative positions, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions, when the reporting entity does not have the intent to set off. Under U.S. GAAP, these amounts under master netting arrangements may generally be offset and presented on a net basis pursuant to an accounting election, even when the reporting entity does not have the intent to set off. Date. Withdrawals during a Term will proportionately reduce your Strategy Base, which could be significantly more than the dollar amount of your Withdrawal. The application of the Interim Value to Withdrawals taken prior to the Term End Date and proportional reductions to your Strategy Base, together with any Withdrawal Charges, could significantly reduce your Contract Value and reduce any gains on the Term End Date. The Interim Value is the amount in the Strategy Account Option that is available for transactions that occur during the Term, including Withdrawals (including RMDs), Surrenders, Withdrawals under the free look, (in states that require a refund of Contract Value rather than a refund of the Purchase Payment. See Appendix E: State Variations), free Withdrawal amounts, Performance Captures, optional death benefit fees, death benefit payments, and annuitization. The Interim Value could be less than your investment in a Strategy Account Option even if the Index is performing positively. Withdrawals or Surrenders that cause the Interim Value to be recalculated could result in the loss of principal investment and previously applied Index Credit Rates, and such losses could be as high as 100%. However, your Surrender of the Contract would be subject to the Minimum Withdrawal Value. All Withdrawals taken, and fees and charges deducted, from a Strategy Account Option before a Term End Date (including fees and charges that are periodically deducted from your Contract) will reduce your Contract Value death benefit on a dollar-for-dollar basis and will trigger a Negative Adjustment which will lower your Strategy Base in the Strategy Account Option in the same proportion that the Interim Value is reduced (rather than on a dollar-for-dollar basis) which may proportionately reduce the optional Return of Purchase Payment Death Benefit if elected. Such a reduction will reduce your Strategy Base for the remainder of the Term and the proportionate reduction may be greater than the dollar amount of the amount withdrawn, or the fee or charge deducted. Withdrawals could result in significant reductions to your Contract Value and to the death benefit, perhaps by more than the amount withdrawn. Withdrawals taken before the Term End Date of a Strategy Account Option could also significantly reduce any Index Credit Rates applied at the Term End Date. The Upside Parameters and Buffer are not applied until the Term End Date. The Contract may not be appropriate if you intend to take Withdrawals from a Strategy Account Option prior to the Term End Date or from the Contract during the first six years. You should consult with your financial representative before making a Withdrawal. Our Financial Strength and Claims-Paying Ability Risk. Our General Account assets support the guarantees under the Contract and are subject to the claims of our creditors. Therefore, the guarantees under the Contract are subject to our financial strength and claims-paying ability. There is a risk that we may default on those guarantees. The assets in the Separate Account are subject to our creditors. You need to consider our financial strength and claims-paying ability in meeting the guarantees under the Contract. You may obtain information on our financial strength by reviewing our financial statements included in this prospectus. Additionally, information concerning our business and operations is set forth under APPENDIX F: ADDITIONAL INFORMATION ABOUT THE COMPANY AND FINANCIAL STATEMENTS. Business Disruption Risk. Our business is vulnerable to disruptions from natural and man-made disasters and catastrophes, such as but not limited to hurricanes, windstorms, flooding, earthquakes, wildfires, solar storms, war or other military action, acts of terrorism, explosions and fires, pandemics (such as COVID-19) and other highly contagious diseases, mass torts and other catastrophes. A natural or man-made disaster or catastrophe may negatively affect the computer and other systems on which we rely, and may also interfere with our ability to receive, pickup and process mail, to calculate the Index Change or process other Contract-related transactions or have other possible negative impacts. While we have developed and put in place business continuity and disaster recovery plans to mitigate operational risks and potential losses related to business disruptions resulting from natural and man-made disasters and catastrophes, there can be no assurance that we, our agents, the Indices or our service providers will be able to successfully avoid negative impacts resulting from such disasters and catastrophes. Cybersecurity Risk. We rely heavily on interconnected computer systems and digital data to conduct our annuity business activities. Because our annuity business is highly dependent upon the effective operation of our computer systems and those of our business partners and service providers, our business is vulnerable to physical disruptions and utility outages, and susceptible to operational and information security risks resulting from information systems failure (e.g., hardware and software malfunctions) and cyber-attacks. These risks include, among other things, the theft, misuse, corruption, disclosure and destruction of sensitive business data, including personal information, maintained on our or our business partners or service providers systems, interference with or denial of service attacks on websites and other operational disruptions and unauthorized release of confidential customer information. Such systems failures and cyber-attacks affecting us, any third-party administrator, the Index or Index issuers, intermediaries and other affiliated or third-party service providers, as well as our distribution partners, may adversely affect us and your Contract Value. For instance, systems failures and cyber-attacks may interfere with our processing of contract transactions, including the processing of orders from our website, impact our ability to calculate the Index Change, cause the release and possible destruction of confidential customer or business information, impede order processing, subject us and/or our service providers, distribution partners and other Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) 3. INVESTMENTS Bonds and Equity Securities The following table presents the statement value, gross unrealized gain, gross unrealized loss and the estimated fair value of bonds and equity securities by major security type: (in millions) Statement Value Gross Unrealized Gains Gross Unrealized Losses Fair Value December 31, 2023 Bonds: U.S. government obligations $ 1,321 $ 5 $ (214) $ 1,112 All other governments 2,041 21 (249) 1,813 States, territories and possessions 239 2 (23) 218 Political subdivisions of states, territories and possessions 210 4 (12) 202 Special revenue 5,392 39 (532) 4,899 Industrial and miscellaneous 98,249 1,546 (9,929) 89,866 Hybrid securities 377 10 (15) 372 Bank loans 3,937 16 (96) 3,857 Parent, subsidiaries and affiliates 366 366 Total bonds 112,132 1,643 (11,070) 102,705 Preferred stock 80 3 83 Common stock* 266 266 Total equity securities 346 3 349 Total $ 112,478 $ 1,646 $ (11,070 ) $ 103,054 December 31, 2022 Bonds: U.S. government obligations $ 1,314 $ 4 $ (198) $ 1,120 All other government 2,629 20 (385) 2,264 States, territories and possessions 268 2 (30) 240 Political subdivisions of states, territories and possessions 332 8 (21) 319 Special revenue 6,159 35 (710) 5,484 Industrial and miscellaneous 93,378 1,001 (13,217) 81,162 Hybrid securities 435 10 (28) 417 Bank loans 3,580 3 (115) 3,468 Parent, subsidiaries and affiliates 360 360 Total bonds 108,455 1,083 (14,704) 94,834 Preferred stock 93 (4) 89 Common stock* 927 927 Total equity securities 1,020 (4) 1,016 Total $ 109,475 $ 1,083 $ (14,708) $ 95,850 * Common stock includes $73 million and $753 million of investments in affiliates at December 31, 2023 and 2022, respectively. intermediaries to regulatory fines and enforcement action, litigation risks and financial losses and/or cause reputational damage. Cyber security risks may also impact the issuers of securities that comprise the Indices, which may cause the securities making up the Index to lose value. There may be an increased risk of cyber-attacks during periods of geo-political or military conflict. Despite our implementation of policies and procedures, which we believe to be reasonable, that address physical, administrative and technical safeguards and controls and other preventative actions to protect customer information and reduce the risk of cyber-incident, there can be no assurance that we or our distribution partners, the Indices or our service providers will avoid cyber-attacks or information security breaches in the future that may affect your Contract and/or personal information. Allocation Account Availability Risk. We reserve the right to add, remove and replace Allocation Accounts as available investment options. There is no guarantee that an Allocation Account you select for investment will always be available in the future or available with the same rates. There is no guarantee that any Strategy Account Option will always be available in the future. However, we will always offer at least one Strategy Account Option that is either currently offered or is similar to one that is currently offered as of the date of this prospectus. If only one Strategy Account Option is available, you will be limited to investing in only that Strategy Account Option with terms that may not be acceptable to you. We may change the Strategy Account Options, the Upside Parameters rates, and Lock Buffer Rates subject to the stated guaranteed minimum rates. There is no guarantee that a particular Strategy Account Option or Index will be available during the entire time that you own your Contract. Please note the Index for that Strategy Account Option remains subject to our right of substitution. See INDEX SUBSTITUTION RISK . If we remove an Allocation Account, it will be closed such that no transfers will be allowed into that Allocation Account. If you are currently invested in an Allocation Account and it is removed, you may remain in that Allocation Account until the Term End Date. Liquidity Risk. This Contract may be appropriate if you are looking for retirement income or you want to meet other long-term financial objectives. The Contract is not designed to be a short-term investment and may not be appropriate for you if you intend to take early or frequent Withdrawals. Transfer Limitations. The Contract restricts transfers between investment options, which will limit your ability to transfer your Contract Value in response to changes in market conditions or your personal circumstances. You may transfer Contract Value invested in an Allocation Account only on the Term End Date for that Allocation Account (or on the next Contract Anniversary after a Performance Capture occurs). Withdrawal and Surrender Consequences. You may take a Withdrawal or Surrender at any time during the Accumulation Phase; however, there may be significant risks and negative consequences associated with any such Withdrawal or Surrender, including potential Withdrawal Charges, taxes and tax penalties, and negative impacts to the value of your investment. If you take a Withdrawal or Surrender before the Term End Date of a Strategy Account Option, it will reduce the Interim Value of your investment in that Strategy Account Option. All Withdrawals taken, and fees and charges deducted, from a Strategy Account Option before the Term End Date (including fees and charges that are periodically deducted from your Contract) will reduce your Contract Value death benefit on a dollar-for-dollar basis and will trigger a Negative Adjustment which will lower your Strategy Base in the Strategy Account Option in the same proportion that the Interim Value is reduced which may proportionately reduce the optional Return pf Purchase Payment Death Benefit if elected. Such a reduction will reduce your Strategy Base for the remainder of the Term and the proportionate reduction may be greater than the dollar amount of the amount withdrawn, or the fee or charge deducted. Withdrawals could result in significant reductions to your Contract Value and to the death benefit, perhaps by more than the amount withdrawn. Withdrawals taken before the Term End Date of a Strategy Account Option could also result in forfeiture of Index Credit Rates or significantly reduce any Index Credit Rates applied at the Term End Date. See WITHDRAWAL RISK. Interim Values. There may be long periods of time when you can only perform a transaction under the Contract that is based on one or more Interim Values. For as long as you have multiple ongoing Terms for Strategy Account Options, there may be no time that any such transaction can be performed without the application of at least one Interim Value. See INTERIM VALUE RISK. Taxes. Income taxes and certain tax restrictions may apply to any Withdrawal or Surrender. If taken before age 59 , a Withdrawal or Surrender may also be subject to a 10% federal tax penalty. Delays in Payment. We generally make payment of any amount due from the Contract within seven (7) days from the date we receive all required information in Good Order. When permitted by law, however, we may defer payment of any Withdrawal or Surrender proceeds for up to six (6) months from the date we receive your request. Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) Bonds and Equity Securities in Loss Positions The following table summarizes the fair value and gross unrealized losses (where fair value is less than amortized cost) on bonds and equity securities, including amounts on NAIC 6 and 6* bonds, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position: Less than 12 Months 12 Months or More Total (in millions) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses December 31, 2023 Bonds: U.S. government obligations $ 88 $ (6 ) $ 889 $ (208 ) $ 977 $ (214 ) All other government 158 (20 ) 1,344 (227 ) 1,502 (247 ) U.S. States, territories and possessions 32 (1 ) 139 (22 ) 171 (23 ) Political subdivisions of states, territories and possessions 28 (2 ) 82 (11 ) 110 (13 ) Special revenue 1,001 (81 ) 2,977 (450 ) 3,978 (531 ) Industrial and miscellaneous 11,361 (1,080 ) 53,785 (8,851 ) 65,146 (9,931 ) Hybrid securities 40 (1 ) 199 (14 ) 239 (15 ) Bank loans 813 (40 ) 1,695 (62 ) 2,508 (102 ) Parents, subsidiaries & affliates 8 8 Total bonds 13,521 (1,231 ) 61,118 (9,845 ) 74,639 (11,076 ) Preferred stock Common stock Total equity securities Total $ 13,521 $ (1,231 ) $ 61,118 $ (9,845 ) $ 74,639 $ (11,076 ) December 31, 2022 Bonds: U.S. government obligations $ 990 $ (197 ) $ 1 $ $ 991 $ (197 ) All other government 1,953 (389 ) 1,953 (389 ) U.S States, territories and possessions 180 (30 ) 180 (30 ) Political subdivisions of states, territories and possessions 177 (21 ) 177 (21 ) Special revenue 4,565 (694 ) 78 (16 ) 4,643 (710 ) Industrial and miscellaneous 57,098 (10,308 ) 12,196 (2,927 ) 69,294 (13,235 ) Hybrid securities 268 (30 ) 268 (30 ) Bank loans 2,184 (71 ) 897 (47 ) 3,081 (118 ) Total $ 67,415 $ (11,740 ) $ 13,172 $ (2,990 ) $ 80,587 $ (14,730 ) Preferred stock 84 (6 ) 84 (6 ) Common stock 2 2 Total equity securities 86 (6 ) 86 (6 ) Total $ 67,501 $ (11,746 ) $ 13,172 $ (2,990 ) $ 80,673 $ (14,736 ) As of December 31, 2023 and 2022, the number of bonds and equity securities in an unrealized loss position was 7,290 and 8,092, respectively. Bonds comprised 7,288 of the total, of which 5,725 were in a continuous loss position greater than 12 months at December 31, 2023. Bonds comprised 8,010 of the total, of which 1,189 were in a continuous loss position greater than 12 months at December 31, 2022. The Company did not recognize the unrealized losses in earnings on these fixed maturity securities at December 31, 2023 and 2022, respectively, because the Company neither intends to sell the securities nor does the Company believe that it is more likely than not that the Company will be required to sell these securities before recovery of their amortized cost basis. For fixed maturity securities with significant declines, the Company performed fundamental credit analyses on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts and other available market data. Index Risk. Strategy Account Option Value(s) will be impacted by the performance of the reference Index. Although you will not directly invest in the reference Index, you are indirectly exposed to the investment risks associated with an Index, such as market, equity and issuer risks. The following risks related to Index performance apply when you invest in a Strategy Account Option: Negative Index Performance Could Result in Loss. The performance of any Index may fluctuate, sometimes rapidly and unpredictably. Both short-term and sustained negative Index performance, over one or multiple Terms, may cause you to lose principal or previous earnings. The historical performance of an Index does not guarantee future results. It is impossible to predict whether an Index will perform positively or negatively over the course of a Term or multiple Terms. Index Change Calculations. We calculate Index Changes by comparing the value of the Index between two specific points in time, which means the performance of the Index may be negative or flat even if the Index performed positively for certain time periods between those two specific points in time. This is true even for Strategy Account Options with multi-year Terms. Dividends Excluded from Index Values. Each Index is a price return index and therefore Index Values do not include income from any dividends or other distributions paid by a market index s component companies. If dividends and other distributions were included, the Index performance would be higher. No Rights in the Index. You are not investing directly in the Index, and you have no rights with respect to the Index, the Index provider, or any aspect of the Index or any companies whose securities comprise the Index. Evolving and Uncertain Economic Environment. In recent years, the financial markets have experienced periods of significant volatility and negative returns, contributing to an uncertain and evolving economic environment. The performance of the markets has been impacted by several interrelating factors such as, but not limited to, the COVID-19 pandemic, geopolitical turmoil, rising inflation, changes in interest rates, and actions by governmental authorities. It is not possible to predict future performance of the markets. Depending on your individual circumstances, you may experience (perhaps significant) negative returns under the Contract. You should consult with your financial representative about how market conditions may impact your investment decisions under the Contract. Exposure to Investment Risks. When you invest in a Strategy Account Option, you are indirectly exposed to the investment risks that could cause the stocks or other instruments that comprise the Index to decrease in value. The Indices are subject to a variety of investment risks, many of which are complicated and interrelated and all of which may adversely impact Index performance. If you invest in a Strategy Account Option with an Index that exposes you to higher investment risks, your risk of loss may be higher depending on the level of the Strategy Account Option s downside protection. Market Risk. Each Index could decrease in value over short periods due to short-term market movements and over longer periods during more prolonged market downturns. Negative fluctuations in the value of an Index may be significant and unpredictable. Equity Risk. Each Index is comprised of equity securities or other assets considered to represent a particular market or sector. Equity securities are subject to changes in value, and their values may be more volatile than those of other asset classes. Equity securities may underperform in comparison to the general financial markets, a particular market segment, or other asset classes. Issuer Risk. The performance of each Index depends on the performance of individual securities that make-up the Index. Changes in the financial condition or credit rating of an issuer of those securities may cause the value of the securities to decline. Upside Parameter and Buffer Risk. Each Strategy Account Option has an applicable Upside Parameter and Buffer for determining the Index Credit Rate applied to your Strategy Account Option Value. Each Strategy Account Options has an Upside Parameter that provides either a Cap, Cap Secure, Participation, Dual Direction with Cap, Trigger, or a Lock, and downside protection in the form of a Buffer (including the Dual Direction with Cap). The Upside Parameters (except Lock), including their applicable rates, can change from one Term to the next, however, each Upside Parameter is subject to minimum guaranteed rates. The minimum guaranteed rates that may be established under the Contract for each of the Upside Parameters (other than Lock) are: Cap Rate (no lower than 2%), Cap Secure Rate (no lower than 2%), Participation Rate (no lower than 10%), and Trigger Rate (no lower than 2%). The Lock Threshold for a Strategy Account Option with Lock Upside Parameter are guaranteed minimum rates under the Contract and will not change from one Term to the next. The Lock Threshold percentages available are: 30, 40, 50, 75, and 100. Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) Contractual Maturities of Bonds The following table presents the statement value and fair value of bonds by contractual maturity: (in millions) Statement Value Fair Value December 31, 2023 Due in one year or less $ 1,433 $ 1,423 Due after one year through five years 12,717 12,396 Due after five years through ten years 15,311 14,262 Due after ten years 44,241 37,416 LBaSS 38,552 37,330 Total $ 112,254 $ 102,827 Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties. Bonds in or near default as to payment of principal or interest had a statement value of $25 million and $124 million at December 31, 2023 and 2022, respectively, which is the fair value. At December 31, 2023 and 2022, the Company had no income excluded from due and accrued for bonds. December 31, 2023 , the Company s bond portfolio included bonds totaling $6.4 billion not rated investment grade by the NAIC designations (categories 3-6). These bonds accounted for 3 percent of the Company s total assets and 4 percent of invested assets. These below investment grade securities, excluding structured securities, span across 14 industries. At December 31, 2022, the Company s bond portfolio included bonds totaling $7.0 billion not rated investment grade by the NAIC designations (categories 3-6). These bonds accounted for 3 percent of the Company s total assets and 5 percent of invested assets. These below investment grade securities, excluding structured securities, span across 14 industries. December 31, 2023 and 2022 The following table presents the industries that constitute more than 10% of the below investment grade securities: December 31, 2023 2022 Consumer cyclical 17.3% 21.3% Consumer non-cyclical 16.0 16.1 Capital Goods 8.0 8.3 LBaSS The Company determines fair value of LBaSS based on the amount at which a security could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The majority of the Company s ABS, RMBS, CMBS, and collateralized debt obligations ( CDO ) are priced by approved independent third-party valuation service providers and broker dealer quotations. Small portions of the LBaSS that are not traded in active markets are priced by market standard internal valuation methodologies, which include discounted cash flow methodologies and matrix pricing. The estimated fair values are based on available market information and management s judgments. The following table presents the statement value and fair value of LBaSS: December 31, 2023 December 31, 2022 (in millions) Statement Value Fair Value Statement Value Fair Value Loan-backed and structured securities $ 38,552 $ 37,330 $ 30,699 $ 28,853 Prepayment assumptions for single class, multi-class mortgage-backed and ABS were obtained from independent third-party valuation service providers or internal estimates. These assumptions are consistent with the current interest rate and economic environment. Upside Parameter Risk. If you invest Contract Value in a Strategy Account Option, the highest possible Index Credit Rate that you may achieve is limited by the applicable Upside Parameter. Because of these limits, the Index Credit Rate for a Strategy Account Option may be less than the positive Index Change. The Upside Parameters may therefore limit the positive Index Credit Rate, if any, that may be applied to your Contract Value for a given Term. The Upside Parameters benefit us because they limit the amount of positive interest that we may be obligated to credit for any Term. We set the Upside Parameter rates each Term in our discretion, however, they will never be less than the minimum rates set forth in this prospectus. You bear the risk that we will not set the Upside Parameter rates higher than these minimums. Lock Risk. Each Strategy Account Option with Lock Upside Parameter includes an automatic locking-in of an Index Credit Rate that is triggered by a target Index gain that is set on the Term Start Date (the Lock Threshold ). If the Index Change does not meet the Lock Threshold at Market Close on any day during the Term, you will receive an Index Credit Rate equal to the Index Change on the Term End Date, subject to the Buffer. Under such circumstances, the Lock Threshold will have no impact on your gains or losses. If the positive Index Change meets or exceeds the Lock Threshold at Market Close on any day during the Term, you will receive an Index Credit Rate equal to the Lock Threshold as of that date. When that occurs, you will no longer participate in the Index performance, and you will not receive an additional Index Credit Rate on the Term End Date. If the Lock Threshold is met at Market Close on any day during the Term and positive Index performance continues until the next Contract Anniversary, the Lock Threshold limits the positive Index Credit Rate that would otherwise have been applied to your Contract Value. If the Lock Threshold is met at Market Close on any day during the Term, thereafter you will receive the Lock Fixed Rate, which is subject to a guaranteed minimum interest rate of 0.25%, until the next Contract Anniversary. Buffer Risk. The Buffer provides only limited protection against negative Index performance. When you invest Contract Value in a Strategy Account Option, you bear the risk that negative Index performance may cause the Index Credit Rate to be negative even after the application of the Buffer. This would result in a negative Index Credit Rate and reduce your Strategy Account Option Value. Additionally, the Buffer provides downside protection only on the Term End Date, so your exposure to negative Index performance during a Term is greatest before the Term End Date. If negative Index performance exceeds the Buffer Rate, your negative Index performance will equal the negative Index performance in excess of the Buffer Rate. For example, with a Buffer Rate of 10%, you could lose 90% of your investment in the Strategy Account Option if negative Index performance on the Term End Date is 100%. The minimum guaranteed Buffer Rate that we will offer under any Strategy Account Options other than those with Lock Upside Parameter is 10%. Buffer Rates for all Strategy Account Options other than those with Lock Upside Parameter will not change from one Term to the next. The Lock Buffer Rates can change from one Term to another subject to the minimum guaranteed Lock Buffer Rate of 1%. Cap Secure Risk. For a Strategy Account Option with Cap Secure, since the gain or loss is established on the Term End Date based on Index performance on each Contract Anniversary, losses can accumulate so that you could lose a percentage in excess of the Buffer Rate in multiple years of the Term. Dual Direction with Cap Risk. For a Strategy Account Option with Dual Direction with Cap, you should note that, because the absolute value of any negative Index Change up to the Buffer Rate will be credited as a positive rate of interest, a negative Index Change on the Term End Date that is slightly below or slightly above the Buffer Rate can result in very different Index Credit Rates. For example, for a Strategy Account Option with Dual Direction with Cap with a 10% Buffer, if the negative Index Change is 10.00%, the Index Credit Rate will be 10%; whereas if the negative Index Change is -10.01%, the Index Credit Rate will be -0.01%. Performance Capture Risk. The Contract includes a Performance Capture feature for Strategy Account Options other than those with Lock Upside Parameter. If you exercise Performance Capture, your Interim Value for that Strategy Account Option on the Performance Capture Date is captured and will then earn an annual rate of interest credited daily at the Performance Capture Fixed Rate until the next Contract Anniversary. Performance Capture is subject to the following risks: If you exercise Performance Capture, you will be capturing an Interim Value for the applicable Strategy Account Option. Interim Values may be unfavorable to you. See INTERIM VALUE RISK. If you capture an Interim Value that is lower than the amount you invested in that Strategy Account Option on the Term Start Date, you may be capturing a loss. It is possible that you would have realized less loss or no loss if you exercised the Performance Capture at a different time or not at all. On the Performance Capture Date, your Strategy Account Option Value will begin earning an annual rate with daily credited interest at the Performance Capture Fixed Rate until the next Contract Anniversary. Therefore, between the Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) At December 31, 2023 and 2022, the Company had exposure to a variety of LBaSS. These securities could have significant concentrations of credit risk by country, geographical region, property type, servicer or other characteristics. As part of the quarterly surveillance process, the Company takes into account many of these characteristics in making the OTTI assessment. At December 31, 2023 and 2022, the Company did not have any LBaSS with a recognized OTTI due to the intent to sell or an inability or lack of intent to retain the security for a period of time sufficient to recover the amortized cost basis. During 2023, 2022 and 2021, the Company recognized total OTTI of $36 million, $114 million and $13 million, respectively, on LBaSS that were still held by the Company. In addition, at December 31, 2023 and 2022, the Company held loan-backed impaired securities (fair value is less than cost or amortized cost) for which an OTTI had not been recognized in earnings as a realized loss. Such impairments include securities with a recognized OTTI for non-interest (credit) related declines that were recognized in earnings, but for which an associated interest-related decline has not been recognized in earnings as a realized capital loss. The following table summarizes the fair value and aggregate amount of unrealized losses on LBaSS and length of time that individual securities have been in a continuous unrealized loss position: Less than 12 Months 12 Months or More Total (in millions) Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses December 31, 2023 LBaSS $ 7,184 $ (454 ) $ 16,089 $ (1,699 ) $ 23,273 $ (2,153 ) December 31, 2022 LBaSS $ 16,448 $ (1,565 ) $ 6,349 $ (999 ) $ 22,797 $ (2,564 ) In its OTTI assessment, the Company considers all information relevant to the collectability of the security, including past history, current conditions and reasonable forecasts when developing an estimate of future cash flows. Relevant analyst reports and forecasts for the asset class also receive appropriate consideration. The Company also considers how credit enhancements affect the expected performance of the security. In addition, the Company generally considers its cash and working capital requirements and expected cash flows in relation to its business plans and how such forecasts affect the intent and ability to hold such securities to recovery of their amortized cost. The Company does not have any LBaSS for which it is not practicable to estimate fair values. The following table presents the rollforward of non-interest related OTTI for LBaSS: December 31, (in millions) 2023 2022 Balance, beginning of year $ 1,256 $ 1,263 Increases due to: Credit impairment on new securities subject to impairment losses 26 42 Additional credit impairment on previously impaired investments 10 71 Reduction due to: Credit impaired securities fully disposed for which there was no prior intent or requirement to sell 80 120 Balance, end of year $ 1,212 $ 1,256 See Note 4 for a list with each LBaSS at a CUSIP level where the present value of cash flows expected to be collected is less than the amortized cost basis during the current year and a list of the Company s structured notes holding at December 31, 2023. Mortgage Loans Mortgage loans had outstanding principal balances of $30.4 billion and $25.8 billion at December 31, 2023 and 2022, respectively. Contractual interest rates range from 0.00 percent to 35.00 percent. The mortgage loans at December 31, 2023 had maturity dates ranging from 2023 to 2069. Performance Capture Date and the next Contract Anniversary, the value within the Strategy Account Option will no longer be tied to Index performance, and you will not receive an Index Credit Rate. The sooner after the Term Start Date a Performance Capture occurs the longer you will forego participating in Index performance. If you exercise Performance Capture manually, we will capture the next calculated Interim Value after we receive your request in Good Order. Once we receive your request in Good Order, it is irrevocable. You won t know the captured Interim Value in advance. The captured Interim Value may be lower or higher than the Interim Value that was calculated on the last day before you submitted your request. When you exercise Performance Capture automatically, you will not know the captured Interim Value in advance, the captured Interim Value will be triggered by the target Interim Value gain you have instructed us to capture. You may obtain the Interim Value(s) of your Strategy Account Option(s) online at www.corebridgefinancial.com/annuities or by contacting your financial representative. You will not know the Interim Value at the time Performance Capture occurs and you may be capturing a loss. The loss may be significant. You should speak with your financial representative before exercising Performance Capture. The Performance Capture Fixed Rate may change at each Contract Anniversary, subject to a guaranteed minimum interest rate of 0.25%. The annual Performance Capture Fixed Rate will be stated in the Renewal Notice. If you are invested in a Strategy Account Option with a multi-year Term, your Performance Captured Fixed Rate may change from one Contract Anniversary to the next within the Term. We will not provide advice or notify you regarding whether you should exercise the Performance Capture or the best time to do so. We will not warn you if you exercise the Performance Capture at a time that may not be beneficial to you. We are not responsible for any losses related to your decision whether or not to exercise the Performance Capture. There may not be a best time to exercise the Performance Capture during a Term. See VALUING YOUR INVESTMENT IN A STRATEGY ACCOUNT OPTION PERFORMANCE CAPTURE. Index Substitution Risk. During a Term, if an Index is discontinued or if the calculation of the Index is substantially changed by the Index provider, or if Index Values should become unavailable for any reason, we may substitute the Index with a new Index, once we obtain all necessary regulatory approvals. We will notify you of any such substitution in writing. If we substitute an Index, we will select a new Index that we determine in our judgment is comparable to the original Index. You will have no right to reject the substitution of an Index. The performance of the new Index may differ significantly from the performance of the original Index. If we substitute the Index for a Strategy Account Option in which you are invested, your investment in the Contract is subject to the same terms and conditions as any other investment in a Strategy Account Option under the Contract. For example, you may not be permitted to transfer Contract Value prior to the Term End Date if an Index substitution occurs. If we substitute an Index during a Term, we will calculate the Index Change using the original Index up until the substitution date. After the substitution date, we will calculate the Index Change using the replacement Index, but with a revised Initial Index Value for the replacement Index. The revised Initial Index Value for the replacement Index will reflect the Index Change for the original Index from the Term Start Date to the substitution date. We will use a similar process if multiple substitutions occur during a Term. The substitution of an Index will have no impact on the Strategy Account Option s Term, Upside Parameter, Buffer, or any other features or rates for that Strategy Account Option other than the Index to which the Strategy Account Option is linked. This example is intended to show how we would calculate the Index Change during a Term in which an Index was substituted. Index Change on substitution date for original Index Initial Index Value for original Index 1000 Index Value for original Index on substitution date 1050 Index Change for original Index on substitution date (1050 / 1000) - 1 = 5% This 5% Index Change on the substitution date is then used to calculate the revised Initial Index Value for the replacement Index. Revised Initial Index Value for replacement Index Index Change for original Index on substitution date 5% Index Value for replacement Index on substitution date 1000 Revised Initial Index Value for replacement Index 1000/(100% +5%) = 952.38 The Index Change calculation for that Term is then based on the change between the revised Initial Index Value for the replacement Index, and the Final Index Value for the replacement Index. Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) The Company s mortgage loans are collateralized by a variety of commercial real estate property types located throughout the U.S. and Canada. The commercial mortgage loans are non-recourse to the borrower. The following tables present the geographic and property-type distribution of the Company s mortgage loan portfolio: December 31, 2023 2022 Geographic distribution: Mid-Atlantic 26.2 % 28.0 % Foreign 20.0 22.5 Pacific 15.1 14.7 South Atlantic 15.4 12.1 West South Central 6.4 6.5 East North Central 5.1 5.8 New England 5.3 4.5 Mountain 4.4 3.9 East South Central 1.5 1.5 West North Central 0.6 0.5 Total 100.0 % 100.0 % Property type distribution: Multi-family 32.6 % 35.9 % Office 19.5 23.8 Retail 8.5 8.3 Industrial 14.9 16.2 Hotel/Motel 4.1 4.8 Other 20.4 11.0 Total 100.0 % 100.0 % At December 31, 2023, there were 331 mortgage loans with outstanding balances of $20 million or more, which loans collectively, aggregated approximately 75 percent of this portfolio. The following table presents the minimum and maximum lending rates for new mortgage loans during 2023 and 2022: Years Ended December 31, 2023 2022 (in millions) Maximum Minimum Maximum Minimum Office 12.00 % 3.00 % 12.60 % 3.00 % Multi-family 9.84 3.01 15.03 2.98 Retail 8.84 5.06 Industrial 10.34 4.08 9.34 2.68 Hotel/Motel 9.69 6.95 8.68 4.04 Other 26.01 (0.16 ) 37.35 The Company did not reduce any interest rates during 2023 and 2022. The maximum percentage of any one loan to the value of security at the time of the loan, exclusive of insured or guaranteed or purchase money mortgage was 144 percent and 90 percent, in 2023 and 2022, respectively. At December 31, 2023, the Company held $560 million in impaired mortgage loans with a related allowance for credit losses. There were no impaired mortgage loans without a related allowance. At December 31, 2022, the Company held $800 million in impaired mortgages with $492 million of related allowances for credit losses and $308 million in impaired loans without a related allowance. The Company s average recorded investment in impaired loans was $604 million and $669 million, at December 31, 2023 and 2022, respectively. The Company recognized interest income of $15 million, $22 million and $14 million, in 2023, 2022 and 2021, respectively. When you purchase an annuity, a Contract exists between you and the Company. You are the Owner of the Contract. Maximum Issue Age We will not issue a Contract to anyone age 86 or older on the Contract Issue Date (age 76 or older with optional Return of Purchase Payment Death Benefit). In general, we will not issue a Qualified Contract to anyone who is age 72 or older, unless it is shown that the minimum distribution required by the IRS is being made. See TAXES. Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) The following table presents a rollforward of the changes in the allowance for losses on mortgage loans receivable: December 31, (in millions) 2023 2022 2021 Balance, beginning of year $ 294 $ 245 $ 274 Additions (reductions) charged to unrealized capital loss 148 58 (28) Direct write-downs charged against allowance (87) (9) (1) Balance, end of year $ 355 $ 294 $ 245 During 2023, the Company derecognized $71 million of mortgage loans and recognized $71 million of real estate collateral as a result of foreclosure. The mortgage loan portfolio has been originated by the Company under strict underwriting standards. Commercial mortgage loans on properties such as offices, hotels and shopping centers generally represent a higher level of risk than do mortgage loans secured by multi-family residences. This greater risk is due to several factors, including the larger size of such loans and the more immediate effects of general economic conditions on these commercial property types. However, due to the Company s strict underwriting standards, the Company believes that it has prudently managed the risk attributable to its mortgage loan portfolio while maintaining attractive yields. The following table presents the age analysis of mortgage loans: December 31, (in millions) 2023 2022 Current $ 29,547 $ 24,981 30 - 59 days past due 68 21 60 - 89 days past due 13 3 90 - 179 days past due 24 125 Greater than 180 days past due 1 Total $ 29,652 $ 25,131 At December 31, 2023 and 2022, the Company had mortgage loans outstanding under participant or co-lender agreements of $22.7 billion and $21.2 billion, respectively. The Company had $307 million and $466 million in restructured loans at December 31, 2023 and 2022, respectively. Aggregate mortgage loans having the following loan-to-value ratios as determined from the most current appraisal as of December 31, 2023: (in millions) Residential Commercial Agricultural Loan-to-Value Amount Percentage of Total Admitted Assets Amount Percentage of Total Admitted Assets Amount Percentage of Total Admitted Assets a. above 95% $ 1 % $ 609 0.40 % $ % b. 91% to 95% 1 246 0.20 c. 81% to 90% 264 0.20 1,133 0.70 d. 71% to 80% 1,645 1.00 2,751 1.70 e. below 70% 3,689 2.30 19,314 12.00 Troubled Debt Restructuring The Company held no restructured debt for which impairment was recognized for both December 31, 2023 and 2022. At December 31, 2023 , the Company had $4 million outstanding commitments to debtors that hold loans with restructured terms. At December 31, 2022, the Company had $4 million of outstanding commitments to debtors that held loans with restructured terms. Joint Ownership A Non-Qualified Contract may be jointly owned by a spouse or non-spouse. Joint Owners possess an equal and undivided interest in the Contract. The age of the older Owner is used to determine the availability of most age driven benefits. The addition of a joint Owner after the Contract has been issued is contingent upon prior review and approval by the Company. We will not issue a Qualified Contract with joint Owners, in accordance with tax law. Spouse Your spouse (as determined for federal tax law purposes) may jointly own the Contract. In certain states, domestic or civil union partners ( Domestic Partners ) qualify for treatment as, or are equal to, spouses under state law. Non-Spouse In certain states, we may issue the Contract to non-spousal joint owners. Non-spousal joint Owners and Domestic Partners should consult with their tax adviser and/or financial representative as, they may not be able to fully benefit from certain benefits and features of the Contract such as spousal continuation of the death benefit. See APPENDIX E: STATE VARIATIONS for a list of states that require that benefits and features be made to domestic or civil union partners. Non-Natural Ownership A trust, corporation or other non-natural entity may only own this Contract if such entity has sufficiently demonstrated an Insurable Interest in the Annuitant selected. At its sole discretion, the Company reserves the right to decline to issue this Contract to certain entities. We apply various considerations including, but not limited to, estate planning, tax consequences, and the propriety of this Contract as an investment consistent with a non-natural Owner s organizational documentation. For more information on non-natural ownership, see TAXES. You should consult with your tax and/or legal adviser in connection with non-natural ownership of this Contract. "Insurable Interest is evidence that the Owner(s), Annuitant(s) or Beneficiary(ies) will suffer a financial loss at the death of the life that triggers the death benefit. Generally, we consider an interest insurable if a familial relationship and/or an economic interest exists. A familial relationship generally includes those persons related by blood or by law. An economic interest exists when the Owner has a lawful and substantial economic interest in having the life, health or bodily safety of the insured life preserved. Assignment of the Contract/Change of Ownership You may assign this Contract before the Income Phase begins. We will not be bound by any assignment until we receive and process your written request at our Annuity Service Center, and you have received our consent to the assignment. Your rights and those of any other person with rights under this Contract will be subject to the assignment. We are not responsible for the validity, tax or other legal consequences of any assignment. An assignment will not affect any payments we may make or actions we may take before we receive notice of the assignment. We reserve the right to refuse our consent to any assignment at any time on a non-discriminatory basis if the assignment would violate or result in noncompliance with any applicable state or federal law or regulation, including but not limited to the extent necessary to qualify for exemption from the Securities and Exchange Act of 1934 reporting under Rule 12h-7. An assignment may result in adverse tax consequences. See TAXES for details on the tax consequences of an assignment. You should consult a qualified tax adviser before assigning the Contract. Termination of the Contract for Misstatement and/or Fraud The Company reserves the right to terminate the Contract at any time if it discovers a misstatement or fraudulent representation of any information provided in connection with the issuance or ongoing administration of the Contract. If we learn of a misstatement of age, we reserve the right to fully pursue our remedies including revocation of any age-driven benefits or adjustment of future annuity income payments. Allocation of Purchase Payment To issue your Contract, we must receive your Purchase Payment and all required paperwork in Good Order, including Purchase Payment allocation instructions. The minimum Purchase Payment for Qualified and Non-Qualified Contracts is $25,000. If you purchased your Contract through certain broker-dealers, the minimum Purchase Payment may be higher. We may agree to accept multiple payments as part of a single Purchase Payment subject to the limitations outlined in this prospectus. If we Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) Real Estate The following table presents the components of the Company s investment in real estate: December 31, (in millions) 2023 2022 Properties occupied by the Company $ $ 6 Properties held for production of income 73 3 Properties held for sale 2 Total $ 75 $ 9 The Company recognized no gains or losses in 2023, 2022 and 2021. The Company recognized $3 million in impairment write-downs for its investment in real estate in 2023. The Company did not recognize any impairment write-downs for its investment in real estate during 2022 and 2021. Other Invested Assets The following table presents the components of the Company s other invested assets: December 31, (in millions) 2023 2022 Investments in limited liability companies $ 644 $ 972 Investments in limited partnerships 3,921 4,188 Other unaffiliated investments 1,892 2,717 Receivable for securities 100 73 Non-admitted assets (1) (10) Total $ 6,556 $ 7,940 The Company utilizes the look-through approach in valuing its investments in affiliated joint ventures or partnerships that have the characteristics of real estate investments. These affiliated real estate investments had an aggregate value of $955 million at December 31, 2023. All liabilities, commitments, contingencies, guarantees, or obligations of these holding company entities, which are required to be recorded as liabilities, commitments, contingencies, guarantees or obligations under applicable accounting guidance, are reflected in the Company s determination of the carrying value of the investment in each of the respective holding company entities, if applicable. The Company recorded impairment write-downs in joint ventures was $4 million, $13 million and $15 million during 2023, 2022 and 2021, respectively. agree to accept multiple payments as part of a single Purchase Payment and the minimum Purchase Payment is satisfied within 60 days from the date the application was signed or the electronic order submission date, we will issue your Contract provided all required paperwork is in Good Order. If an additional payment is received after the 60th day, we will treat the payment as a request for a second contract provided the payment satisfies the minimum Purchase Payment. Purchase Payment Restrictions We reserve the right to refuse any Purchase Payment and restrict allowance of a Purchase Payment based on age and election of the optional Return of Purchase Payment Death Benefit. We reserve the right to require Company approval prior to accepting a Purchase Payment greater than the Purchase Payment Limit. The Purchase Payment Limit is the maximum Purchase Payment of $2,000,000 without prior Company approval. We may choose to accept Purchase Payments in excess of $2,000,000 at our sole discretion. For Contracts owned by a non-natural Owner, we reserve the right to require Company approval prior to accepting any Purchase Payment. Company pre-approval may also be required for a Purchase Payment that would cause total Purchase Payments in all contracts issued by AGL and/or US Life to the same Owner and/or Annuitant to exceed the Purchase Payment Limit. Submission of Purchase Payment A Purchase Payment is not considered received by us until received at our Annuity Service Center. Delivery of a Purchase Payment to any other address may result in a delay in issuing your Contract until the Purchase Payment is received at the Annuity Service Center. Regular Mail: American General Life Insurance Company Purchase Payment Processing Center P.O. Box 100330 Pasadena, CA 91189-0330 Overnight/Express Delivery: JPM Chase AGL 100330 Purchase Payment Processing Center 2710 Media Center Drive Building #6, Suite 120 Los Angeles, CA 90065-1750 Receipt of Purchase Payments Purchase Payments will be picked up at the mailing addresses noted above and forwarded to our Annuity Service Center. Purchase Payments, however, are not considered received by us until received at our Annuity Service Center. Your Contract Issue Date is the day we apply your Purchase Payment, which will generally be no later than two (2) Business Days after your Purchase Payment and application is received at the Annuity Service Center in Good Order. On the Contract Issue Date, we will allocate your Purchase Payment, minus any applicable taxes, to the Allocation Account(s) you selected according to the allocation instructions submitted with your application in Good Order. Allocation instructions must be in whole percentages only. If we do not receive instructions allocating your Purchase Payment, your application is not in Good Order and we will not issue your Contract. Initial Hold on Rates The initial hold on rates ensures you receive the best available rates in effect (among the application-signed date, electronic order submission date, or Contract Issue Date) if the Contract is issued within 60 days of the earlier of application-signed date or electronic order submission date. On your Contract Issue Date, we will apply the Fixed Account Option interest rate and Upside Parameter rates and Lock Buffer Rate applicable to your Contract for your initial Allocation Account elections. The initial Fixed Account Option interest rate is guaranteed for one Contract Year. The initial Upside Parameter rates and Lock Buffer Rates applied on your Contract Issue Date are guaranteed for the length of the initial Term. The initial Fixed Account Option interest rate, Upside Parameter rates and Lock Buffer Rates are determined as follows: If the Contract is issued within 60 days from the earlier of application signed date or the electronic order submission date, rates will be the better of the rates in effect on: the application-signed date, or Table of Contents AMERICAN GENERAL LIFE INSURANCE COMPANY NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued) Net Investment Income The following table presents the components of net investment income: Years ended December 31, (in millions) 2023 2022 2021 Bonds $ 5,259 $ 4,608 $ 4,802 Preferred stocks 2 10 4 Common stocks 11 2 7 Cash and short-term investments 57 44 15 Mortgage loans 1,437 1,038 946 Real estate* 4 4 4 Contract loans 78 68 65 Derivatives (283) 994 167 Investment income from affiliates 148 399 1,419 Other invested assets 246 320 271 Gross investment income 6,959 7,487 7,700 Investment expenses (385) (315) (197) Net investment income $ 6,574 $ 7,172 $ 7,503 * Includes amounts for the occupancy of Company-owned property of $2 million in 2023, 2022 and 2021. Net Realized and Unrealized Capital Gains (Losses) The following table presents the components of Net realized capital gains (losses): Years ended December 31, (in millions) 2023 2022 2021 Bonds $ (460) $ (551) $ 446 Preferred stocks (12) 14 Common stocks 8 (2) 16 Cash and short-term investments 36 (79) (1) Mortgage loans (162) (107) 18 Real estate (3) Derivatives (329) (1,233) (659) Other invested assets 113 80 199 Other (49) Realized capital (losses) gains (809) (1,892) (16) Federal income tax benefit (expense) 170 397 3 Net gains transferred to IMR 276 305 (392) Net realized capital (losses) gains $ (363) $ (1,190) $ (405) During 2023, 2022 and 2021, the Company recognized $87 million, $167 million and $42 million, respectively, of impairment write-downs in accordance with the impairment policy described in Note 2. The following table presents the proceeds from sales of bonds and equities and the related gross realized capital gains and gross realized capital losses: Years ended December 31, (in millions) 2023 2022 2021 Proceeds $ 3,401 $ 9,787 $ 11,495 Gross realized capital gains $ 64 $ 112 $ 823 Gross realized capital losses $ (456) (472) (405) Net realized capital (losses) gains $ (392) $ (360) $ 418 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0000811240_biolase_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0000811240_biolase_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0000811240_biolase_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY 1 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001080429_pacific_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001080429_pacific_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..c47b9d5f2101257a1894a098b932c5faa858ec89 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001080429_pacific_prospectus_summary.txt @@ -0,0 +1,7441 @@ +SUMMARY + + + + The +Pacific Protected Growth contract is a limited premium registered index-linked annuity contract issued by us that is designed to help +you accumulate funds for retirement or other long-term financial planning purposes on a tax-deferred basis. This Contract may be appropriate +for you if you are looking for retirement income or you want to meet other long-term financial objectives. The Contract is not designed +to be a short-term investment and may be inappropriate for you if you intend to take early or frequent withdrawals. + + + + It is possible to lose up to 100% of your principal and previously +credited Contract earnings. You should discuss with your financial professional whether an index-linked annuity contract, the optional +living and death benefits, and which Interest Crediting Options are appropriate for you, taking into consideration your age, income, +net worth, tax status, insurance needs, financial objectives, investment goals, liquidity needs, investment time horizon, risk tolerance +and other relevant information. Together, you can decide if the Pacific Protected Growth is right for you. + + + +PHASES OF THE CONTRACT + + + +This Contract has two phases: the accumulation (savings) phase and +the annuitization (income) phase. The accumulation phase begins on your Contract Issue Date and continues until your Annuity Date. During +this phase, you invest in the Contract s Interest Crediting Options, which include the Index-Linked Options ( ILOs ) +and the Fixed Account Option, each of which has its own risks. Any earnings accumulate on a tax-deferred basis. + + + + The annuitization (income) phase occurs when you annuitize your +Contract and turn your Contract Value into a stream of income payments over a fixed period or for life. Annuity payments will be in a +fixed-dollar amount. When you annuitize, you will be unable to make withdrawals and death benefits and the guaranteed lifetime withdrawal +benefit ( GLWB ) rider will terminate. + + + +IMPORTANT INFORMATION YOU SHOULD CONSIDER ABOUT YOUR CONTRACT + + + + + Key + Features + Location + in + + Prospectus + + + Purchase + Payments + Your + initial Purchase Payment must be at least $25,000 for both Non-Qualified and Qualified Contracts. + You must obtain our consent before making an initial or Subsequent Purchase Payment that + will bring your aggregate Purchase Payments over $1,000,000. For purposes of this limit, + the aggregate Purchase Payments are based on all contracts with Pacific Life for which you + are the owner and/or annuitant. + + + + The Company does not allow additional Purchase Payments + after the initial Purchase Payment, except for transfers from other financial products requested at the time of the investor s + Contract application is submitted and transferred within 60 days after the Contract Issue Date ( Subsequent Purchase Payments ). + + BUYING + YOUR CONTRACT + + + Rate + Lock + On + your Contract Issue Date, we will apply the interest rates and Crediting Strategy rates applicable + to your Contract for your initial Interest Crediting Option allocations. + + + + The initial Crediting Strategy rates applied on + your Contract Issue Date are guaranteed for the length of the initial Term. The initial Fixed Account Option Guaranteed Rate is guaranteed + for one Contract Year. The initial Guaranteed Rate and Crediting Strategy rates are determined as follows: + + + + For paper applications, if the application with + cash or transfer/exchange request is received In Proper Form at Pacific Life by the 14th calendar day after the date + the application is signed (the application-signed date ), the Contract will receive the higher of the interest rates + and Crediting Strategy rates in effect on (1) the application-signed date, or (2) the Contract Issue Date. For electronic + applications, the same rules apply, except the application-signed date will be the date the application is submitted by your + financial professional to their respective office. If this date is not provided to us, we will use the date that Pacific Life receives + the application. + + + + If the application with cash or transfer/exchange + request is not received by the 14th calendar day after the application-signed date, then the Contract will receive the interest rates + and Crediting Strategy rates in effect on the Contract Issue Date. + + + + For transfer/exchange requests, the initial Purchase + Payment must be received within 60 days of the application receipt date in order for the rate lock to apply. + + + + BUYING + YOUR CONTRACT + + + + + 7 + + + + + + + + + Interest + Crediting Options + You + can invest your Purchase Payments and Contract Value among any of the Interest Crediting + Options under the Contract, which includes the ILOs and the Fixed Account Option. + + + + Each + ILO adds or subtracts interest (the Index-Linked Option Credit ) based on the performance of a specific Index(es) over + a defined period of time (the Term ). The ILO Credit may be positive, negative, or equal to zero. Positive returns may + be limited based on the applicable Crediting Strategy, and negative returns may be limited based on the applicable Protection Level, + which provides limited protection from negative Index performance. At the end of each Term we will apply to your Value in each ILO + an ILO Credit based on the Index performance, Crediting Strategy, and Protection Level of the ILO you are invested in. + + + + The + Fixed Account Option credits a fixed rate of interest (the Guaranteed Rate ) that is guaranteed for 1-year periods, + subject to the Minimum Guaranteed Rate for the Fixed Account Option, which is indicated in your Contract. The Fixed Account Option + will always be available under your Contract. + + INVESTING + IN YOUR CONTRACT THE FIXED ACCOUNT OPTION + + + + INVESTING IN YOUR CONTRACT THE INDEX-LINKED + OPTIONS + + + + + Indices + We + currently offer the following reference Indices: + + + + S&P + 500 + + MSCI + EAFE + + First + Trust Growth Strength Net Fee Index + + Invesco + QQQ ETF + + iShares + Russell 2000 ETF + + Performance + Mix* + + + + * The return of the Performance Mix is based on + the combined weighted average of the performance of the S&P 500 , iShares Russell 2000 ETF, and + MSCI EAFE Indices. + + INVESTING + IN YOUR CONTRACT THE INDEX- LINKED OPTIONS; + + + + INVESTING IN YOUR CONTRACT INDEX-LINKED + OPTION CREDIT FORMULA + + + Index-Linked + Option Terms + We + currently offer Terms of 1 Contract Year and 6 Contract Years. + INVESTING + IN YOUR CONTRACT THE INDEX- LINKED OPTIONS + + + + Protection + Levels + + The + Protection Level is the component of each ILO that determines the Adjusted Index Return that + will be applied to your ILO Value on the Term End Date if the Index performance is negative. + It provides a level of protection from loss. We currently offer the following Protection + Levels: + + + + Buffer. +The Buffer Rate is the maximum loss we will protect you from at the end of the Term. You will incur any loss in excess of +the Buffer Rate. We currently offer Buffer Rates of 10%, 15%, and 20%. For example, with a 15% Buffer ILO and a negative Index Return +of -20%, you would incur negative interest of -5%. + + + + Floor. +The Floor is the maximum loss you can incur due to negative Index performance during a Term. You will not incur any additional +loss in excess of the Floor Rate. We currently offer a -10% Floor Rate. For example, with a negative Index Return of -20%, you would +incur negative interest of -10%. + + + + INVESTING + IN YOUR CONTRACT INDEX-LINKED OPTION CREDIT FORMULA + + + + Potential Maximum Loss at Term End + for Each Protection Level + + + + + + 10% + Buffer - 90% Maximum Loss + + + + + + 15% + Buffer - 85% Maximum Loss + + + + + + 20% + Buffer - 80% Maximum Loss + + + + + + -10% + Floor - 10% Maximum Loss + + + + Crediting + Strategies + The + Crediting Strategy is the component of each ILO that determines the Adjusted Index Return + that will be applied to your ILO Value on the Term End Date if the Index performance is positive. + It may limit positive Index Returns. We currently offer the following Crediting Strategies: + + + + Cap + Rate. The Cap Rate is a percentage that signifies the maximum amount of positive Index Return that can be credited to + the Investment Base at the end of the Term. When Index Return is positive or equal to zero, the Adjusted Index Return will be the + lesser of the Index Return or the Cap Rate. For example, with a 10% Cap Rate ILO, and a positive Index Return of 15%, you would incur + positive interest of 10%. We will declare a renewal Cap Rate for each Term, subject to a guaranteed minimum rate. + + INVESTING + IN YOUR CONTRACT INDEX-LINKED OPTION CREDIT FORMULA + + + + + 8 + + + + + + + + + + Cap + Rate with Dual Direction Buffer. The Adjusted Index Return will equal any positive + Index Return up to the Cap, or the absolute value of any negative Index Return up to the + Buffer Rate. The absolute value of a number is simply that number without regard to it being + positive or negative. For example, the absolute value of -10 is 10. If the positive Index + Return exceeds the Cap Rate, the Adjusted Index Return will equal the Cap Rate. If the negative + Index Return exceeds the Buffer Rate, the Adjusted Index Return will equal the negative Index + Return in excess of the Buffer Rate. For example, with a 10% Cap Rate and 10% Dual Direction + Buffer ILO, if the Index Return is -5%, you would incur positive interest of 5%. If the Index + Return is 15%, you would incur positive interest of 10%. We will declare a renewal Cap Rate + for each Term, subject to the guaranteed minimum rates. + + + + Participation + Rate. The Participation Rate is the percentage of the positive Index Return for the Term that will be used to determine + the ILO Credit. When the Index Return is positive or equal to zero, the Participation Rate percentage is multiplied by the Index + Return for the selected ILO to determine the Adjusted Index Return. For example, with a 100% Participation Rate ILO, if the Index + Return is 10%, you would incur positive interest of 10%. With an 80% Participation Rate ILO, and a 10% Index Return, you would incur + positive interest of 8%. We will declare a renewal Participation Rate for each Term, subject to a guaranteed minimum rate. + + + + Tiered + Participation Rate. The Tiered Participation Rates are a percentage of positive Index Return that will be used to determine + the ILO Credit. Tiered Participation Rates include a Tier One Participation Rate and a Tier Two Participation Rate. Positive Index + Return less than or equal to the Tier Level is multiplied by the Tier One Participation Rate. Positive Index Return in excess of + the Tier Level is multiplied by the Tier Two Participation Rate. The Adjusted Index Return is equal to the sum of these two values. + The Tiered Participation Rates determine the positive Index-Linked Option Credit that may be applied at the end of a Term. + + + + Example: + + Index Return = 40% + + Tier Level = 25% + + Tier 1 Participation Rate = 100% + + Tier 2 Participation Rate = 125% + + + + Adjusted Index Return = (0.25 x 100%) + ((0.40 + 0.25) x 125%) = 0.4375 = 43.75% + + + + We will declare renewal Tiered Participation Rates + for each Term, subject to a guaranteed minimum rate. + + + + Performance + Triggered Rate. A Performance Triggered Rate is a fixed rate of interest that will be credited if the Index Return is + equal to zero or positive. This means that the Adjusted Index Return will equal the Performance Triggered Rate, even if the positive + Index Return is equal to zero or greater than the Performance Triggered Rate. For example, with an 8% Performance Triggered Rate + ILO, and a 0% Index Return, you would incur positive interest of 8%. With a 20% Index Return, you would still incur positive interest + of 8%. We will declare a renewal Performance Triggered Rate for each Term, subject to a guaranteed minimum rate. + + + + + Performance + Lock + The + Performance Lock feature allows you to lock-in the Interim Value of an ILO + before the Term End Date. The locked-in value will be equal to the Interim Value on the date + the Performance Lock is exercised. + + + + The locked-in value will earn a fixed rate of interest + until the next Contract Anniversary, and your investment in the ILO will terminate. The locked-in value will not receive an ILO Credit, + and the Crediting Strategy and Protection Level will not be applied to your ILO Value to protect against any loss. The locked-in + value cannot be transferred to a new Interest Crediting Option, or reallocated into a new Term in the same ILO until the next Contract + Anniversary. You may only exercise the Performance Lock feature once during a Term, and the exercise is irrevocable. There are risks + associated with the Performance Lock feature. You may contact us at our Service Center to obtain your Interim Value(s) for any + ILO in which you are invested. + + RISK + FACTORS + + + + INVESTING IN YOUR CONTRACT PERFORMANCE LOCK + + + Contract + Value + Your + Contract Value is the total amount attributable to your Contract and is the sum of the Fixed Account Option Value and the ILO Values. + RISK + FACTORS + + + + + + + + + Index-Linked + Option Value. + + + CONTRACT + VALUE + + + + + + 9 + + + + + + + + + + On + the Term Start Date: The Value of an ILO is your Investment Base, which is your initial investment + in the ILO on the Term Start Date. Each ILO you invest in has a separate Investment Base. + + + + On + the Term End Date: The ILO Value is equal to the Investment Base, adjusted proportionately for any withdrawals (including applicable + surrender charges and taxes) taken during the Term, plus or minus the ILO Credit, which may be positive, negative, or equal to zero. + + + + On + any other day during the Term: The ILO Value is the Interim Value. Each ILO has a separate Interim Value. We calculate the Interim + Value each Business Day between the Term Start Date and the Term End Date based on the value of a hypothetical portfolio of derivative + financial instruments, designed to replicate the value of the ILO Value if it were held until the end of the Term. Such value could + be less than your investment in the ILO, even if the Index is performing positively. The Interim Value is the amount in the ILO that + is available for transactions that occur during the Term, including full surrenders (including Free Look withdrawals), withdrawals + (including required minimum distributions ( RMDs ), free withdrawal amounts, and pre-authorized withdrawals), rider charges, + guaranteed withdrawal amounts under the guaranteed lifetime withdrawal benefit rider, death benefit payments, and annuitization. + You may contact us at our Service Center to obtain your Interim Value(s) for any ILO in which you are invested. + + + + Fixed + Account Option Value. + +The value invested in the Fixed Account Option plus interest credited daily at the Guaranteed Rate, + less transfers and deductions for any withdrawals and charges, including adjustments for applicable surrender charges, and taxes. + + APPENDIX + A + + + Death + Benefit + If + you die during the Accumulation Phase, your Contract provides for a death benefit at no additional + charge. In general: + + + + If + you are 80 years of age or younger at the Contract Issue Date, the Death Benefit Amount is equal to the greater of the Contract Value, + or the Total Adjusted Purchase Payments, reduced by any charges for premium taxes and/or other taxes. The Total Adjusted Purchase + Payments is equal to the sum of all Purchase Payments made into the Contract, reduced by a Pro Rata Reduction for each prior withdrawal. + The Pro Rata Reduction is the reduction percentage that is calculated at the time of a withdrawal by dividing the amount of the withdrawal + (including any applicable surrender charges and taxes) by the Contract Value immediately prior to the withdrawal. + + + + If + the Contract Owner is over 80 years of age at the Contract Issue Date, the Death Benefit Amount is equal to the Contract Value, reduced + by any charges for premium taxes and/or other taxes. + + + + For + an additional charge, the optional Return of Purchase Payment Death Benefit Rider (the ROP Death Benefit Rider ) is + available for Contract Owners between ages 81 and 85 on the Contract Issue Date. The death benefit will be equal to the greater of + the Contract Value or the sum of all Purchase Payments made to the Contract, reduced by a Pro Rata Reduction for each prior withdrawal. + If the death benefit is paid before the end of a Term, any portion of the Contract Value allocated to the ILOs will be based on Interim + Values. The ROP Death Benefit Rider is only available for purchase at the time of Contract application, and may not be voluntarily + terminated by the Contract Owner. We may stop offering the optional ROP Death Benefit Rider at any time. The ROP Death Benefit Rider + may not be available through your financial professional. You may obtain information about the optional benefits that are available + to you by contacting your financial professional. + + DEATH + BENEFIT + + + + + 10 + + + + + + + + + Guaranteed + Lifetime Withdrawal Benefit + For + an additional charge, the Contract provides the Income Guard benefit, an optional guaranteed + lifetime withdrawal benefit rider (the GLWB Rider, or the Rider ) + that may provide you with guaranteed income for life through withdrawals during the accumulation + phase of the Contract. + + + + The Rider may be purchased on or within 60 days after + the Contract Issue Date or any subsequent Contract Anniversary, as long as other conditions are met. Once the Rider is purchased, + it cannot be voluntarily terminated by the Contract Owner. + + + + The GLWB Rider restricts the Interest Crediting Options + that you may invest in under the Contract. If you elect the Rider, you may only allocate Contract Value into 1-year ILO Terms, the + 6-year ILO with Cap Rate and Buffer, and the Fixed Account Option. We may change these limits or restrictions in the future. You + will not be permitted to transfer Contract Value into ineligible Interest Crediting Options. + + + + Withdrawals that exceed maximum annual withdrawal limits + specified in the GLWB Rider ( Excess Withdrawals ) may significantly impact the benefit by reducing the benefit by an + amount greater than the value withdrawn, and/or could terminate the benefit because Excess Withdrawals result in a proportionate + reduction to the Protected Payment Base, which is used to determine the annual withdrawal amount each year under the Rider. In addition, + withdrawals that occur prior to the Income Commencement Date may reduce the benefits provided by the Rider, perhaps significantly, + and/or could terminate the benefit. Withdrawals under the Rider may also reduce the benefits provided by the optional death benefit + rider. + + + + We may stop offering the optional living benefit at + any time, including for current Contract Owners who have not yet purchased the Rider. The optional living benefit may not be available + through your financial professional. You may obtain information about the optional benefits that are available to you by contacting + your financial professional. + + + + Withdrawals + taken under the GLWB Rider from the ILOs may trigger an Interim Value calculation. Given the risk of a potentially negative adjustment, + you should discuss with your financial professional if purchasing the GLWB Rider is appropriate for you. Contract Owners are + advised to schedule withdrawals after the expiration of the surrender charge period and MVA Term, and to coincide with Term End Dates + in order to avoid the use of Interim Value for withdrawals. + + + + Taking a withdrawal before age 59 or a withdrawal + that is greater than the annual withdrawal amount under the GLWB Rider may result in adverse consequences such as tax penalties, + a permanent reduction in Rider benefits, the failure to receive lifetime withdrawals under the Rider, or termination of the Rider. + + + + INCOME + GUARD BENEFIT + + + Charges + and Fees + + + Withdrawals + and Related Charges + If + you withdraw money from your Contract within 6 years following the Contract Issue Date, you + may be assessed a surrender charge of up to 7% of the amount withdrawn in excess of the 10% + annual free withdrawal amount. + + + + For example, if you take an early withdrawal of $100,000, + you could pay a surrender charge of up to $6,300, assuming your Contract Value is $100,000 at the time of the withdrawal. + + + + Withdrawals may also be subject to a market value adjustment + ( MVA ) during the first 6 Contract Years (the Initial MVA Term ) and during any subsequent MVA Term. An + MVA is a positive or negative adjustment to the withdrawal amount to reflect the change in market interest rates between the start + of the MVA Term and the date of your withdrawal. Withdrawals will also be subject to taxes, including a 10% tax penalty if the investor + has not reached age 59 + + + + Withdrawals or surrenders taken at the end of the Term + will reduce the Investment Base, plus the ILO Credit, by the amount of the withdrawal. If you surrender or withdraw money from an + ILO prior to the Term End Date, the transaction will reduce the Interim Value of your investment in that ILO by the amount of the + withdrawal. The Interim Value is the amount in the ILO that is available for transactions that occur during the Term, including full + surrenders (including Free Look withdrawals), withdrawals (including required minimum distributions ( RMDs ), free withdrawal + amounts, and pre-authorized withdrawals), rider charges, guaranteed withdrawal amounts under the GLWB rider, death benefit payments, + and annuitization. The Interim Value is calculated based on the value of a hypothetical portfolio of derivative financial instruments + designed to replicate the value of the ILO if it were held until the end of the Term. The Interim Value could be less than your investment + in the ILO even if the Index is performing positively. Withdrawals or surrenders that cause the ILO Interim Value to be recalculated + could result in the loss of principal investment and previously credited Contract earnings, and such losses could be as high as 100%. + Additionally, withdrawals from an ILO during the Term will reduce your Investment Base in the ILO in the same proportion that the + Interim Value is reduced (rather than a dollar-for-dollar basis), and will proportionately reduce the death benefit. Such reduction + will reduce your Investment Base for the remainder of the Term, and the proportionate reduction may be greater than the dollar amount + of the withdrawal. You may contact us at our Service Center to obtain your Interim Value(s) for any ILO in which you are invested. + + + + Any withdrawal or surrender taken before + the end of the Term could result in a greater loss or lower gain than the ILO would provide at the end of the ILO Term because the + Protection Level and Crediting Strategy do not apply on any day other than the last day of the ILO Term. All withdrawals will reduce + your Contract Value. Withdrawals from an ILO before the end of a Term could also significantly reduce any amount credited at the + end of the Term because the amount of the ILO Credit is calculated based on the Investment Base, which will be reduced proportionately + by the withdrawal. + + + + FEES + AND CHARGES + + + + + + + + RISK FACTORS + + + Premium + Tax Deduction + Some + states impose premium taxes at rates currently ranging up to 3.5%. If premium taxes apply to your Contract, we may deduct these taxes + when a death benefit is paid, when the Contract Value is annuitized, or when you surrender the Contract. + DEATH + BENEFIT + + + + ACCESS TO YOUR MONEY + + + + ANNUITIZATION + + + + + 11 + + + + + + + + + Restrictions + + + Investments + Transfer + Restriction. Contract Value allocated to an ILO may only be transferred to a new + Interest Crediting Option or reallocated into a new Term in the same ILO on the Term End + Date (which will fall on a Contract Anniversary). Contract Value allocated to the Fixed Account + Option may not be transferred until the next Contract Anniversary. If you do not want to + remain invested in the Fixed Account Option until the next Contract Anniversary, or in an + ILO until the end of the Term, your only options will be to take a withdrawal from the Fixed + Account Option or ILO or surrender the Contract, or exercise the Performance Lock feature + and transfer your ILO Value on the next Contract Anniversary. Both options will be based + on the Interim Values of the ILOs. The ILO Interim Value could be less than your investment + in the ILO even if the Index is performing positively. If you do not specify the Interest + Crediting Options, your withdrawal will be made from all of your Interest Crediting Options + proportionately on the date of the withdrawal. Withdrawals and surrenders may be subject + to surrender charges, a market value adjustment, and taxes (including a 10% additional tax + before age 59 ). + + + + Investment + Restriction. You may only invest in a 6-year ILO Term at the beginning of an MVA Term. Within the first 6 Contract Years, + you may only invest your Contract Value into a 6-year ILO Term at the beginning of the Initial MVA Term, which will + + + + RISK + FACTORS + + + + TRANSFERS + + + + FEES AND CHARGES + + + + + 12 + + + + + + + + + + be + on the Contract Issue Date. At the expiration of the Initial MVA Term, you will have the + option to elect to renew the MVA Term. If a subsequent MVA Term is not renewed, you will + be unable to invest in 6-year ILO Terms, and only 1- year ILOs will be available to you for + investment for the remainder of the time you own the Contract. You will be unable to reallocate + or transfer your Contract Value to another 6-year ILO Term unless you elect to renew the + MVA Term at the expiration of the Initial MVA Term, and allocate your Contract Value into + the 6-Year ILO at the start of the new MVA Term. This means that you may only invest in 6-year + ILOs every 6 Contract Years, and only if you elect to renew the MVA Term at the end of the + Initial MVA Term, and each subsequent 6-year ILO Term thereafter. + + + + If you elect the GLWB Rider, you must allocate your + Contract Value among the Interest Crediting Options in accordance with the investment allocation restrictions. You will be unable + to transfer your Contract Value into ineligible Interest Crediting Options. + + + + Availability + of Index-Linked Options and Indices. We reserve the right to add or remove an ILO or Index, subject to applicable regulatory + approvals. We may stop offering an ILO for investment at the end of a Term, or to new Contract issues. We may remove or replace an + Index if it is discontinued, if the calculation of the Index is substantially changed by the Index provider, if Index values should + become unavailable for any reason, if hedging instruments become difficult to acquire or the cost of hedging becomes excessive, or + if its investment objectives, strategies, or risks substantially change. If we substitute an Index, we will select a new Index that + we determine in our judgment is comparable to the original Index, however, the performance of the new Index may not be satisfactory + to you. + + + + We may change the Crediting Strategy rates and Protection + Level rates subject to the stated guaranteed minimum or maximum rates. There is no guarantee that a particular ILO will be available + during the entire time that you own your Contract. The 1-year S&P 500 with Cap and 10% Buffer ILO, and the Fixed + Account Option, will always be available under your Contract. The minimum guaranteed Cap Rate for this ILO is [ ]%. + + + + We reserve the right to stop offering all but one ILO + (the 1-year S&P 500 with Cap and 10% Buffer ILO), in addition to the Fixed Account Option. If, in the future, + you are not satisfied with the available ILOs, you may choose to surrender your Contract, but you may be subject to surrender charges, + a market value adjustment, taxes, and tax penalties, and the calculation of the surrender amount based on Interim Value if the surrender + is made before the end of a Term. + + + + Certain ILOs and Indexes also may not be available + through your financial professional. You may obtain information about the ILOs and Indexes that are available to you by contacting + your financial professional. + + + + + Taxes + + + Tax + Implications + You + should consult with a tax professional to determine the tax implications of an investment in, withdrawals from, and payments received + under the Contract. There is no additional tax benefit if you purchase the Contract through a Traditional IRA or Roth IRA. Withdrawals + are subject to ordinary income tax, and you may be subject to a 10% additional tax if you withdraw money before age 59 . + FEDERAL + TAX ISSUES + + + Conflicts + of Interest + + + Financial + Professional Compensation + Your + financial professional may receive compensation for selling the Contract to you in the form of commissions and non-cash compensation. + This compensation may influence your financial professional to recommend the Contract over another investment. + DISTRIBUTION + + + Exchanges + Some + financial professionals may have a financial incentive to offer you a new contract in place of the one you own. You should only exchange + your existing contract for this Contract if you determine, after comparing the features, fees, and risks of both contracts, that + it is preferable for you to purchase this Contract rather than continue your existing contract. Call your financial professional + or call us at (800) 722-4448 if you are interested in this option. + BUYING + THE CONTRACT PURCHASING THE CONTRACT + + + + ADDITIONAL INFORMATION REPLACEMENT OF LIFE + INSURANCE OR ANNUITIES + + + + +Not every contract we issue is offered through every selling broker-dealer. +Some selling broker-dealers may not offer and/or limit the offering of certain features and options of the contract, as well as limit +the availability of the contracts, based on issue age or other criteria established by the selling broker-dealer. Upon request, your +financial professional can show you information regarding our other annuity contracts that he or she distributes. You can also contact +us to find out more about the availability of any of our annuity contracts. + + + + 13 + + + + + + + + + RISK + FACTORS + + + + + +An investment in the Contract involves certain risks +that you should consider carefully before purchasing the Contract. + + + +RISK OF LOSS + +You can lose money by investing in this Contract, +including loss of a substantial portion or all of your principal investment and any previously-credited earnings in the Contract. You +may experience significant negative returns under the Contract due to the poor investment performance of the ILOs you select, the timing +of any transactions you request, such as withdrawals and transfers, and any fees and adjustments associated with those transactions. +The Contract is not a deposit or obligation of, or guaranteed or endorsed by any bank. It is not federally insured by the Federal Deposit +Insurance Corporation (FDIC), the Federal Reserve Board, or any other government agency. + + + + + Potential + Maximum Loss at Term End for Each Protection Level + + + 10% + Buffer - 90% Maximum Loss + + + 15% + Buffer - 85% Maximum Loss + + + 20% + Buffer - 80% Maximum Loss + + + -10% Floor - 10% + Maximum Loss + + + + + +LIQUIDITY RISK + +This Contract may be appropriate if you are looking for retirement +income or you want to meet other long-term financial objectives. The Contract is not designed to be a short-term investment, and may +not be appropriate for you if you intend to take early or frequent withdrawals. + + + + Transfer + and Reallocation Limitations. Transfers between the Contract s Interest Crediting + Options (including reallocations to the same Interest Crediting Option for a new Term) are + only permitted at the end of a Term (transfers may occur on the next Contract Anniversary + if you exercise the Performance Lock feature on a 6-year ILO). Transfer instructions can + be requested, changed or cancelled any time prior to close of the Business Day on the Contract + Anniversary date corresponding to the end of a Term. These restrictions significantly limit + your ability to reallocate your Contract Value in response to changes in market conditions, Interest + Crediting Option performance, or personal needs. + + + + + + + If we do not receive a transfer request prior + to the close of the Business Day on the Contract Anniversary coinciding with the Term End Date and the ILO you are currently invested + in remains available, no transfers will occur and your current allocation will remain in place for the next Term. This will occur + even if the Crediting Strategy rate or Index associated with the ILO has changed since you last selected the ILO, in which case the + ILO may no longer be satisfactory to you. + + + + + + + + + + If you fail to transfer ILO Value at the end + of a Term and do not wish to remain invested in a particular ILO for another Term, your only alternative will be to surrender the + related ILO Value. Surrendering all or a portion of your Contract Value may cause you to incur surrender charges, a market value + adjustment, and taxes. If you surrender the ILO Value during the Term, the ILO Value will equal the Interim Value. We calculate the + Interim Value based on the value of a hypothetical portfolio derivative financial instruments designed to replicate the ILO Value + if it were held until the end of the Term. This means that the Interim Value calculated could be less than your investment in the + ILO even if the Index is performing positively. The Interim Value could reflect less gain or more loss (perhaps significantly less + gain or more loss) than would be applied at the end of the Term. This means that there could be significantly less money available + under your Contract for a surrender. + + + + + + + + + + If you choose the optional GLWB Rider, you + must follow the investment allocation requirements for the Rider for the entire time that you own the Rider. Owning the GLWB Rider + limits the Interest Crediting Options available to you, and you will be unable to transfer Contract Value into ineligible Interest + Crediting Options. The allowable Interest Crediting Options seek to minimize the Company s risk, may reduce investment returns, + and may reduce the likelihood that we will be required to make payments under the optional benefit Rider. + + + + + + + + + + MVA Term Investment Limitations. You + may only invest your Contract Value into a 6-year ILO Term at the beginning of an MVA Term. This means that within the first 6 Contract + Years, you may only invest your Contract Value into a 6-year ILO Term at the beginning of the Initial MVA Term, which will be on + the Contract Issue Date. At the expiration of the Initial MVA Term, you will have to option to elect to renew the MVA Term. If + a subsequent MVA Term is not renewed, you will be unable to invest in 6-year ILOs, and only 1-year ILOs will be available to you + for the remainder of the time you own the Contract. You will be unable to reallocate or transfer your Contract Value to another + 6-year ILO Term unless you elect to renew the MVA Term upon the expiration of the Initial MVA Term, and allocate your Contract Value + into the 6-Year ILO at the start of the new MVA Term. This means that you may only invest in a 6-year ILO every 6 Contract Years, + and only if you elect to renew the MVA Term at the end of the Initial MVA Term, and each subsequent 6-year ILO Term thereafter. The + MVA may not apply in all states. See STATE VARIATIONS. + + + + + + 14 + + + + + + + + Withdrawals and Surrenders. All withdrawals will reduce + your Contract Value. Transactions that result in a withdrawal from the ILOs, including full + surrenders (including Free Look withdrawals), withdrawals (including required minimum distributions + ( RMDs ), pre-authorized withdrawals), rider charges, any guaranteed withdrawal + amounts under the GLWB Rider), death benefit payments and annuitization will reduce the ILO + Value and the death benefit, and a surrender charge, MVA, and taxes may apply. The amount + of any applicable MVA will increase or decrease the amount an investor receives from a withdrawal. + An MVA could be negative, positive, or equal to zero. The application of the MVA could result + in the loss of principal and earnings in the Contract, and such losses could be as high as + 100%. In addition, amounts withdrawn from this Contract may also be subject to a 10% additional + federal tax penalty if taken before age 59 . + + + + + + + Withdrawals from the ILOs at the end of a Term will reduce + the Investment Base and death benefit by the amount of the withdrawal (including applicable surrender charges and taxes). Withdrawals + taken from the ILOs during the Term will reduce your Interim Value by the amount of the withdrawal, and will proportionately reduce + your Investment Base and death benefit. This proportionate reduction may be greater than the dollar amount of the withdrawal, and + will reduce the Investment Base for the remainder of the Term. Withdrawals from an ILO before the end of a Term could also significantly + reduce any amount credited at the end of the Term because the amount of the ILO Credit is calculated based on the Investment Base, + which will be reduced proportionately by the withdrawal. Any withdrawal or surrender taken from an ILO before the end of the Term + could result in a greater loss or lower gain than the ILO would provide at the end of the ILO Term because the Protection Level and + Crediting Strategy only apply on the ILO Term End Date. If you plan on taking withdrawals for short-term needs that will be subject + to surrender charges, an Interim Value calculation, MVA, and/or additional taxes, this Contract may not be appropriate for you. You + may contact us at our Service Center to obtain your Interim Value(s) for any ILO in which you are invested. + + + + + + + + Additionally, since the benefits associated with the GLWB + Rider are not available until the Designated Life (or youngest Designated Life for Joint Life) is age 59 years of age or + older, Early Withdrawals may reduce or terminate the benefits associated with the Rider. Withdrawals under the Rider that exceed + maximum annual withdrawal limits specified by the Rider may significantly impact the benefit by reducing the benefit by an amount + greater than the value withdrawn, and/or could terminate the benefit. The GLWB Rider may not be available through your financial + professional. You may obtain information about the optional benefits that are available to you by contacting your financial professional. + + + + + + Interim Value. If you withdraw money from an ILO prior + to the Term End Date, the amount available for withdrawal from that ILO is the Interim Value. + Changes to your Interim Value are not directly tied to the performance of the relevant Index + (although Index performance impacts your Interim Value). Rather, we calculate the Interim + Value based on the value of a hypothetical portfolio derivative financial instruments designed + to replicate the ILO Value if it were held until the end of the Term. This means that the + Interim Value calculated could be less than your investment in the ILO even if the Index + is performing positively. If you take a withdrawal from an ILO during the Term, your Interim + Value on the date of the withdrawal will be reduced by the withdrawal amount, including any + applicable surrender charges and taxes. In addition, any withdrawal taken from an ILO before + the end of the Term will also reduce your Investment Base in the ILO and the death benefit + in the same proportion that the Interim Value is reduced, and such reduction could be greater + than the dollar amount withdrawn. This in turn will negatively impact your Investment Base + for the remainder of the Term and any ILO Credit. Withdrawals or surrenders that cause the + ILO Interim Value to be recalculated could result in the loss of principal and earnings in + the Contract, and such losses could be as high as 100%. + + + + + + + The calculation of the Interim Value could result in a loss, + and this loss may be greater than the loss that would be incurred on the Term End Date after the application of the Protection Level. + The Interim Value calculation could also result in a gain that is lower than the return that would be credited on the Term End Date + after the application of the Crediting Strategy. + + + + + + + + The Interim Values generally reflect less gain and more downside + than would otherwise apply at the end of the Term. As such, when a transaction is processed based on an Interim Value, the Interim + Value could reflect less gain or more loss (perhaps significantly less gain or more loss) than would be applied at the end of the + Term. This means that there could be significantly less money available under your Contract for withdrawals, annuitization, and the + death benefit. The application of an Interim Value may result in a loss even if the Index performance at the time of withdrawal or + other transaction listed above is higher than at the beginning of the Term. If you use the Performance Lock feature to lock-in an + Interim Value that is lower than your Investment Base on the Term Start Date, you may lock-in a loss. You may contact us at our Service + Center to obtain your Interim Value(s) for any ILO in which you are invested. + + + + + + Taxes. Income taxes and certain tax restrictions may + apply to any withdrawal or surrender. If taken before age 59 , a withdrawal or surrender + may also be subject to a 10% federal penalty tax. + + + + Delays in Payment. We generally make payment of any + amount due from the Contract within seven calendar days from the date we receive a request + In Proper Form. When permitted by law, however, we may defer payment of any withdrawal or + surrender proceeds for up to six months from the date we receive your request. + + + + RISKS ASSOCIATED WITH THE INTEREST CREDITING OPTIONS + + An investment in the Contract is subject to the risk of poor investment +performance of the ILOs you select. Each Interest Crediting Option, including the Fixed Account Option, has its own unique risks. You +should review and understand the Interest Crediting Options before making an investment decision. + + + +CREDITING STRATEGY & PROTECTION LEVEL +RISK + + Each ILO has an applicable Crediting Strategy and +Protection Level for determining the ILO Credit applied to your ILO Value. Each Crediting Strategy provides a Cap Rate, Participation +Rate, Tiered Participation Rate, Performance Triggered Rate, or Cap Rate with Dual Direction Buffer, and each Protection Level provides +protection in the form of a Floor or Buffer (including the Dual Direction Buffer). + + + + Crediting Strategy Risk. If you invest Contract Value + in an ILO, the highest possible Adjusted Index Return that you may achieve is limited by + the applicable Crediting Strategy, which will be either a Cap Rate, Performance Triggered + Rate, Participation Rate, Tiered Participation Rate, or Cap Rate with Dual Direction Buffer. + The Crediting Strategies may therefore limit the positive ILO Credit, if any, that may be + applied to your Contract Value for a given Term. Because of these limits, the Adjusted Index + Return for an ILO may be less than the positive Index Return. This is because any positive + Index Return is subject to a maximum in the form of the applicable Crediting Strategy. + + + + + + + The Crediting Strategies benefit us because they limit the amount + of positive interest that we may be obligated to credit for any Term. We set the Crediting Strategy rates each Term in our discretion, + however, they will never be less than the guaranteed minimum rates set forth in this Prospectus. You bear the risk that we will not + set the Crediting Strategy rates higher than these minimums. + + + + + + 15 + + + + + + + + Buffer and Floor Risk. The Buffer Rate and Floor provide + only limited protection against negative Index performance. When you invest Contract Value + in an ILO, you bear the risk that negative Index performance may cause the Adjusted Index + Return to be negative even after the application of the Buffer or Floor. This would result + in a negative ILO Credit and reduce your ILO Value by the amount of the ILO Credit. Additionally, + Buffer Rates and Floors provide downside protection only on the Term End Date, so your exposure + to negative Index performance during a Term is greatest before the Term End Date (or Contract + Anniversary). + + + + + + + The risk of loss may be greater on a Buffer ILO than a + Floor ILO. If there is a steep negative Index Return, the risk of loss is substantially higher on a Buffer ILO than a Floor ILO where + the Buffer Rate and the Floor Rate are identical. For example, if two otherwise identical ILOs have a Buffer Rate of 10% and a Floor + Rate of -10%, respectively, and the negative Index Return is -30% during the Term, the Adjusted Index Return for the Buffer ILO will + be -20% (the excess of the -30% Index Return over the 10% Buffer Rate), while the Adjusted Index Return for the Floor ILO will be + limited to -10% (which is the negative Index Return up to the -10% Floor Rate). + + + + + + Cap Rate with Dual Direction Buffer Risk. For a Dual + Direction ILO, you should note that, because the absolute value of any negative Index Return + up to the Buffer Rate will be credited as a positive rate of interest, a negative Index Return + on the Term End Date that is slightly below or slightly above the Buffer Rate can result + in very different ILO Credits. For example, for a Dual Direction ILO with a 10% Buffer, if + the negative Index Return is -10%, the ILO Credit will be 10%; whereas if the negative Index + Return is -10.01%, the ILO Credit will be -0.01%. + + + +PERFORMANCE LOCK RISK + + If applicable, you may exercise the Performance +Lock feature once during a Term to lock-in your Interim Value as of the Business Day the request is submitted. The locked-in +value will equal the Interim Value of the ILO calculated at the end of the Business Day that the Performance Lock is requested. You must +lock-in the entire value in the ILO. If you have made Subsequent Purchase Payments into the same ILO, each Purchase Payment will constitute +a different segment in the initial ILO Term with its own Investment Base and Interim Value, and the investment performance +of each segment will be tracked separately. If you have multiple segments in the same ILO in the initial Term due to multiple Purchase +Payments in the first Contract Year, the value of each segment may be locked-in independently. You may exercise the Performance Lock +feature once for each segment during the ILO Term. If you exercise the Performance Lock for an ILO Term with more than one segment, it +is possible that the Interim Value of one segment may have increased, while the Interim Values of other segments may have decreased at +the time the Performance Lock is exercised. + + + + The locked-in value will be credited with a fixed rate of interest +equal to the annualized ILO Budget rate until the next Contract Anniversary. Your decision to exercise the Performance Lock will terminate +your investment in the ILO and you will not receive an ILO Credit or the application of the Crediting Strategy or Protection Level to +mitigate any loss. Withdrawals (including applicable surrender charges and taxes) will reduce the locked-in value. Your decision to exercise +the Performance Lock is irrevocable. + + + + Once the Performance Lock is exercised, the locked-in amount cannot +be transferred to a new ILO, or begin a new Term in the same ILO, until the next Contract Anniversary. If you exercise the Performance +Lock on a 6-year ILO, you will be unable to transfer or reallocate your Contract Value to another 6-year ILO until the end of the current +MVA Term, and only if you elect to renew the 6-year MVA Term at the expiration of the current MVA Term. + + + + You will not be able to determine the Interim Value that will be +locked-in prior to the Performance Lock request. You bear the risk that the Interim Value that is locked in will be lower than the Interim +Value you last obtained, and lower than the potential ILO Value you would receive at the end of the Term. If you exercise the Performance +Lock feature at a time when your Interim Value has declined, you will lock-in any loss. There may not be an optimal time to exercise +the Performance Lock feature. It may be better for you if you do not exercise the Performance Lock feature during a Term. We will not +advise you as to whether or when you should or should not exercise the Performance Lock, and we are not responsible for any losses that +may occur due to your decision to exercise this feature. You may contact us at our Service Center to obtain your Interim Value(s) for +any ILO in which you are invested. + + + +AVAILABILITY OF INDEXES AND INDEX-LINKED OPTIONS + + We +reserve the right to add or remove ILOs and Indexes. We may change the Crediting Strategy rates and Protection Level rates subject +to the stated guaranteed minimum or maximum rates. There is no guarantee that a particular ILO will be available during the entire time +that you own your Contract. If we decide to discontinue offering any ILOs or Indexes, we will amend this Prospectus. An ILO that is currently +available may not be available for transfers from other Interest Crediting Options or reallocations of Contract Value into the same ILO +at the end of a Term (or the next Contract Anniversary after you exercise the Performance Lock feature), or may be closed to new Contract +issues. The 1-year S&P 500 with Cap and 10% Buffer ILO, in addition to the Fixed Account Option, will always be available +under your Contract. The Cap Rate for this ILO is subject to a guaranteed minimum rate of [ ]%. + + + + We reserve the right to stop offering all but one ILO (the 1-year +S&P 500 with Cap and 10% Buffer ILO) in addition to the Fixed Account Option. If, in the future, you are not satisfied +with the available ILOs, you may choose to surrender your Contract, but you may be subject to surrender charges, a market value adjustment, +taxes, and tax penalties, and the calculation of the surrender amount based on Interim Value if the surrender is made before the end +of a Term. If you purchase another retirement vehicle, it may have different features, fees, and risks than the Contract. Discuss with +your financial professional whether the Contract is appropriate for you given our right to make such changes to the allowable ILOs. + + + + We +may remove or replace an Index if it is discontinued, if the calculation of the Index is substantially changed by the Index provider, +if Index values should become unavailable for any reason, if hedging instruments become difficult to acquire or the cost of hedging becomes +excessive, or if its investment objectives, strategies, or risks substantially change. If we substitute an Index, we will select a new +Index that we determine in our judgment is comparable to the original Index, however, the performance of the new Index may differ from +the original Index. This may negatively affect the interest that you earn during that Term. You may receive a greater loss or lower gain +than if we continued to use the original Index for the entire Term. We may replace an Index at any time during a Term. If we replace +an Index during a Term, we will calculate the Index Return using the old Index up until the replacement date. After the replacement date, +we will calculate the Index Return using the new Index, but with a modified starting Index Price for the new Index. The modified starting +Index Price for the new Index will reflect the Index Return for the old Index from the start of the Term to the replacement date. If +we replace an Index, the ILO Crediting Strategy and Protection Level will not change. We will notify you in writing prior to replacing +an Index. You will have no right to reject the replacement of an Index, and you will not be permitted to transfer ILO Value until the +end of a Term even if we replace the Index during the Term. If we substitute an Index and you do not wish to remain invested in the relevant +ILO for the remainder of the Term, your only options will be to take a withdrawal or surrender the Contract, or exercise the Performance +Lock feature and transfer your ILO Value on the next Contract Anniversary. Both options will trigger an Interim Value calculation, and +taking a withdrawal may cause you to incur surrender charges, a market value adjustment, and taxes. + + + + 16 + + + + + + + +AVAILABILITY BY SELLING BROKER-DEALER FIRM + +The availability of the ILOs, Indexes, and optional benefits +described in this Prospectus may vary by selling broker-dealer firm. For example, a firm may choose not to offer certain ILOs that are +described in this Prospectus. Only those ILOs and optional benefits available through your firm will be part of your Contract and will +be described in your firm s marketing materials. You should ask your financial professional for details about the specific ILOs +and optional benefits available under your Contract. + + + +INDEX RISK + + Investing in the ILOs of the Contract will subject +you to risks related to the Indexes (which may be a market index or exchange-traded fund ( ETF ), such as the following: + + + + No Dividends. Each Index is a price return index and + the performance of an Index does not include income from any dividends or other distributions + paid by the Index s component companies. If dividends and other distributions were + included, the Index performance would be higher. + + + + No Rights in the Index. An investment in an ILO is + not an investment in the Index or any of its component companies. You have no voting, liquidation, + or other rights with respect to the Index, its publisher, or any of the component companies. + + + + Index Performance. An investment in the Contract is + subject to the risk of poor investment performance of the ILOs you select. If you allocate + money to an ILO, the value of your investment depends in part on the performance of the applicable + Index. The performance of an Index is based on changes in the values of the securities or + other instruments that comprise or define the Index. The securities and instruments comprising + or defining the Indexes are subject to a variety of investment risks that you are indirectly + exposed to. These risks may affect capital markets generally, specific market segments, or + specific issuers. The performance of the Indexes may fluctuate, sometimes rapidly and unpredictably. + Negative Index performance may cause you to realize investment losses, which may be significant. + The historical performance of an Index or an ILO does not guarantee future results. Because + we measure Index performance from the Term Start Date to the Term End Date, you bear the + risk that the Index Return may be negative or zero at the end of a Term, even if the Index + performed positively at times. + + + + o Market Risk. Market risk is the risk that short-term + market movements may cause the value of an Index to fluctuate, sometimes rapidly and unpredictably. + Index performance could decrease over longer periods of time during more prolonged market + downturns. Market changes can result from disasters and other events, such as storms, earthquakes, + fires, outbreaks of infectious diseases, utility failures, terrorist acts, political and + social developments, and military and governmental actions. + + + + o Issuer Risk. Issuer Risk is the risk that Index performance + may decline for reasons directly related to the issuer, as opposed to the market generally. + Changes in the financial condition or credit rating of an issuer of the securities that make + up an Index may cause the Index performance to decline. + + + + INVESTMENT RISKS FOR THE INDICES + + + + S&P + 500 Index. This Index is comprised of equity + securities issued by large-capitalization U.S. companies. In general, large-capitalization + companies may be unable to respond quickly to new competitive challenges, and may not be + able to attain the high growth rate of successful smaller companies. + + + + MSCI EAFE Index. This Index is designed to follow the + performance of large- and mid-capitalization companies across 21 developed markets around + the world excluding the U.S. and Canada. Political, social and economic developments abroad + and differences between the regulations and reporting standards and practices to which foreign + issuers are subject as compared to U.S. issuers may affect the Index Performance. In addition, + to the extent the component securities are denominated in foreign currencies, their values + may be subject to risks related to changes in currency exchange rates. Risks of investing + in foreign securities are generally increased by investing in emerging market countries. + + + + First + Trust Growth Strength Net Fee Index. This Index provides exposure to a mix of U.S. common + stocks and real estate investment trusts ( REITs ) and has significant exposure + to health care and information technology companies. + + + + o REIT Risk. REITs typically own and operate income-producing + real estate, such as residential or commercial buildings, or real-estate related assets, + including mortgages. As a result, investments in REITs are subject to the risks associated + with investing in real estate, which may include, but are not limited to: fluctuations in + the value of underlying properties; defaults by borrowers or tenants; market saturation; + changes in general and local operating expenses; and other economic, political or regulatory + occurrences affecting companies in the real estate sector. REITs are also subject to the + risk that the real estate market may experience an economic downturn generally, which may + have a material effect on the real estate in which the REITs invest and their underlying + portfolio securities. REITs may have also a relatively small market capitalization which + may result in their shares experiencing less market liquidity and greater price volatility + than larger companies. Increases in interest rates typically lower the present value of a + REIT's future earnings stream, and may make financing property purchases and improvements + more costly. Because the market price of REIT stocks may change based upon investors' collective + perceptions of future earnings, the value of the Fund will generally decline when investors + anticipate or experience rising interest rates. + + + + o Health Care Companies Risk. Health care companies, + such as companies providing medical and healthcare goods and services, companies engaged + in manufacturing medical equipment, supplies and pharmaceuticals, as well as operating health + care facilities and the provision of managed health care, may be affected by government regulations + and government health care programs, increases or decreases in the cost of medical products + and services and product liability claims, among other factors. Many health care companies + are heavily dependent on patent protection, and the expiration of a company s patent + may adversely affect that company s profitability. Health care companies are also subject + to competitive forces that may result in price discounting, may be thinly capitalized and + susceptible to product obsolescence. + + + + o Information Technology Companies Risk. Information + technology companies produce and provide hardware, software and information technology systems + and services. These companies may be adversely affected by rapidly changing technologies, + short product life cycles, fierce competition, aggressive pricing and reduced profit margins, + the loss of patent, copyright and trademark protections, cyclical market patterns, evolving + industry standards and frequent new product introductions. In addition, information technology + companies are particularly vulnerable to federal, state and local government regulation, + and competition and consolidation, both domestically and internationally, including competition + from foreign competitors with lower production costs. Information technology companies also + heavily rely on intellectual property rights and may be adversely affected by the loss or + impairment of those rights. + + + + Invesco QQQ ETF (QQQ). This ETF is an exchange-traded + fund that seeks to track the investment results of the NASDAQ-100 Index . + The Index includes the 100 largest non-financial companies listed on the Nasdaq + based on market cap. + + + + iShares Russell 2000 ETF (IWM). This + ETF seeks to track the investment results of the Russell 2000 Index, an index + composed of small-capitalization U.S. equities. The Russell 2000 Index measures + the performance of the small capitalization sector of the U.S. equity market, as defined + by FTSE Russell. + + + + When you allocate to an Index that is linked to the performance +of an ETF you are not investing in the ETF. Index-based ETFs seek to track the investment results of a specific market index and are +not actively managed. Due to a variety of factors, including the fees and expenses associated with an ETF, an ETF s performance +may not fully replicate or may, in certain circumstances, diverge significantly from the performance of the underlying index. This potential +divergence between the ETF and the specific market index is known as tracking error. Although we believe that we will be viewed as the +owner of the Index Strategy for tax purposes, there is no legal guidance to indicate how the IRS might view access to an ETF linked Index +Strategy coupled with frequent transfers among investment options. + + + + 17 + + + + + + + + GUARANTEED LIFETIME WITHDRAWAL BENEFIT RIDER +RISK + + We +currently offer the optional Income Guard benefit (the GLWB Rider or Rider ) for purchase, subject to certain +conditions. If you purchase the Rider, you must allocate your Contract Value among the Interest Crediting Options in accordance with +the investment allocation restrictions for the entire time that you own the Rider. Owning the Rider limits the Interest Crediting +Options available to you, and you will be unable to transfer Contract Value into ineligible Interest Crediting Options. Once the Rider +is purchased, you may not voluntarily terminate the Rider. + + + + All withdrawals under the Rider reduce the Contract +Value in the same manner as any other withdrawal. Withdrawals that exceed the maximum annual withdrawal limits specified in the Rider +may significantly impact the benefit by reducing the benefit by an amount greater than the value withdrawn, and/or could terminate the +benefit because the amount of the withdrawal in excess of the annual withdrawal limits will result in a proportionate reduction to the +Protected Payment Base, which is used to determine the annual withdrawal amount each year under the Rider. In addition, withdrawals that +occur prior to the Income Commencement Date may reduce the benefits provided by the Rider, perhaps significantly, and/or could terminate +the benefit. Withdrawals under the Rider may also reduce the benefits provided by the optional death benefit rider. Rider charges will +reduce the Contract Value and will be deducted on each Contract Anniversary. The portion of the rider charge deducted from the ILOs will +reduce the Investment Base by the amount of the charge in the same manner as a withdrawal. + + + + Withdrawals taken under the Rider from the ILOs +during the Term will trigger the Interim Value to be recalculated. Given the risk of a potentially negative adjustment, you should discuss +with your financial professional if purchasing the Rider is appropriate for You. Contract Owners should strongly consider scheduling +withdrawals after the expiration of the surrender charge period and MVA Term, and to coincide with Term End Dates in order to avoid the +use of Interim Value for withdrawals. You may contact us at our Service Center to obtain your Interim Value(s) for any ILO in which +you are invested. + + + + Taking a withdrawal before age 59 , or a +withdrawal that is greater than the annual withdrawal amount under the Rider, may result in adverse consequences such as tax penalties, +a permanent reduction in Rider benefits, the failure to receive lifetime withdrawals under the Rider, or termination of the Rider. + + + + In the future, we may cease offering the GLWB Rider +to new purchasers altogether. If so, we would apply this change to new Contract purchasers, as well as Contract Owners who did not purchase +the Rider on the Contract Issue Date. This means if you do not purchase the GLWB Rider at Contract issue, it may not be available to +you at a later date. + + + + The GLWB Rider may not be available through your +financial professional. You may obtain information about the optional benefits that are available to you by contacting your financial +professional. + + + + RETURN OF PURCHASE PAYMENT DEATH BENEFIT RIDER +RISK + + The Rider is only available for purchase at the time of Contract +application, and may not be voluntarily terminated by the Contract Owner. Rider charges will reduce the Contract Value and will be deducted +on each Contract Anniversary. The portion of the Rider charge deducted from the ILOs will reduce the Investment Base by the amount of +the charge in the same manner as a withdrawal. We may stop offering the optional death benefit at any time. The optional death benefit +may not be available through your financial professional. You may obtain information about the optional benefits that are available to +you by contacting your financial professional. + + + +INSURANCE COMPANY RISKS + + Pacific Life Insurance Company is a life insurance company domiciled in Nebraska. +Along with our subsidiaries and affiliates, our operations include life insurance, annuity, mutual funds, broker-dealer operations, and +investment advisory services. Our executive office is located at 700 Newport Center Drive, Newport Beach, California 92660. + + + + Investment in the Contract is subject to the risks related to us, +and any obligations (including under the Fixed Account Option), guarantees, or benefits of the Contract are subject to our claims-paying +ability and financial strength. You should look to our financial strength with regard to such guarantees. Your financial professional s +firm is not responsible for any Contract guarantees. If we experience financial distress, we may not be able to meet our obligations +to you. More information about us, including our financial strength ratings, is available upon request by calling (800) 722-4448 or visiting +our website at www.PacificLife.com. + + + +The assets supporting the ILOs are held in a non-registered, non-insulated +separate account established under Nebraska insurance law for the purpose of supporting our obligations under the Contract. These assets +are subject to the claims of our creditors. Therefore, the benefits provided under the ILOs are subject to the claims-paying ability +of Pacific Life. You may obtain information about our financial condition by reviewing our financial statements included in this Prospectus. + + + +CYBER SECURITY RISKS + +Our business is highly dependent upon the effective +operation of our computer systems and those of our business partners. As a result, our business is potentially susceptible to operational +and information security risks associated with the technologies, processes and practices designed to protect networks, systems, computers, +programs and data from attack, damage or unauthorized access. These risks include, among other things, the theft, loss, misuse, corruption +and destruction of data maintained online or digitally, denial of service on websites and other operational disruption, and unauthorized +release of confidential customer information. Cyber-attacks affecting us, any third-party administrator, the Indexes or Index issuers, +intermediaries, and other affiliated or third-party service providers may adversely affect us and your Contract Value. For instance, +cyber-attacks may interfere with Contract transaction processing, including the processing of requests from our website; impact our ability +to calculate Index Return or the ILO Credit; cause the release and possible destruction of confidential customer or business information; +subject us and/or our service providers and intermediaries to regulatory fines and financial losses; and/or cause reputational damage. +Cybersecurity risks may also impact the issuers of the securities that comprise the Indexes, which may cause the securities making up +the Index to lose value. The constant change in technologies and increased sophistication and activities of hackers and others, continue +to pose new and significant cybersecurity threats. While measures have been developed that are designed to reduce cybersecurity risks, +there can be no guarantee or assurance that we, the Indexes, or our service providers will not suffer losses affecting your Contract +due to cyber-attacks or information security breaches in the future. + + + +We are also exposed to risks related to natural and +man-made disasters or other events, including (but not limited to) earthquakes, fires, floods, storms, epidemics and pandemics (such +as COVID-19), terrorist acts, civil unrest, malicious acts and/or other events that could adversely affect our ability to conduct business. +The risks from such events are common to all insurers. To mitigate such risks, we have business continuity plans in place that include +remote workforces, remote system and telecommunication accessibility, and other plans to ensure availability of critical resources and +business continuity during an event. Such events can also have an adverse impact on financial markets, U.S. and global economies, service +providers, and index performance for the Indexes available through your Contract. There can be no assurance that we, the Indexes, or +our service providers will avoid such adverse impacts due to such events and some events may be beyond control and cannot be fully mitigated +or foreseen. + + + + 18 + + + + + + + + + FEES + AND CHARGES + + + + + + SURRENDER CHARGE + + + + Your Contract Value may be subject to a surrender charge when a +withdrawal is made from the Contract prior to the expiration of the surrender charge period. The surrender charge applies to withdrawals +taken during the first 6 Contract Years (the surrender charge period), and declines to 0% by the 7th Contract Year. The amount +of the surrender charge depends on the Contract Year in which you take the withdrawal and the amount you withdraw. The Contract is in +year 1 from the Contract Issue Date until the day preceding the first Contract Anniversary. Beginning on the day preceding your first +Contract Anniversary, your Contract will be in year 2, and increases in Contract Years on the day preceding each subsequent Contract +Anniversary. See ACCESS TO YOUR MONEY Withdrawals Free of a Surrender Charge for information regarding taking withdrawals +without incurring a surrender charge. + + + + The surrender charge is calculated based on the entire amount withdrawn +in excess of the annual free withdrawal amount. When you withdraw an amount subject to the surrender charge, your Contract Year determines +the level of the surrender charge according to the following schedule: + + + + + Contract + Year + Surrender + Charge + + Percentage + + + Contract + Year 1 + 7% + + + Contract + Year 2 + 7% + + + Contract + Year 3 + 6% + + + Contract + Year 4 + 5% + + + Contract + Year 5 + 4% + + + Contract + Year 6 + 3% + + + Contract + Year 7+ + 0% + + + + + The surrender charge is deducted proportionately among all Interest +Crediting Options from which your withdrawal occurs. A partial withdrawal amount requested will be processed as a gross +amount, which means that applicable surrender charges, market value adjustment, and taxes will be deducted from the requested amount. + + + + Example 1: + + + + + Contract + Year 3 + + + Gross + Withdrawal Amount: $10,000 + + + Free + Amount prior to withdrawal: $4,000 + + + Withdrawal + Charge: $360 (($10,000 - $4,000) x 6%) + + + Market + Value Adjustment (negative): $120 + + + Tax + Withholding: $1,500 + + + Amount + Received: $8,020 ($10,000 - $360 - $120 - $1,500) + + + + + + The surrender charge is designed to reimburse us for sales commissions +and other expenses associated with the promotion and solicitation of offers for the Contracts, although our actual expenses may be greater +or less than the surrender charge amount. See ADDITIONAL INFORMATION DISTRIBUTION ARRANGEMENTS for information regarding +commissions and other amounts paid to broker-dealers in connection with Contract distribution. + + + + No surrender charge is imposed on: + + + + cancellations of the Contract during the Free Look period. + See RIGHT TO CANCEL ( FREE LOOK ), + + the free withdrawal amount. See ACCESS TO YOUR MONEY Withdrawals Free of a Surrender + Charge, + + death benefit proceeds, except as provided under the DEATH BENEFIT Non-Natural Owner + section for certain Non- Natural Owners, + + amounts converted to an Annuity Option. See ANNUITIZATION CHOOSING YOUR ANNUITY OPTION, + + withdrawals by Owners to meet the required minimum distribution ( RMD ) rules (Owners + must be enrolled in Pacific Life s RMD program) for IRAs and Qualified Contracts as they apply to + amounts held under the Contract (except for any new Inherited Qualified Contracts), + + withdrawals after the 1st Contract Anniversary, if the Owner (or Annuitant in the case of a Non-Natural + Owner) has been diagnosed on or after the Contract Issue Date with a medically determinable condition + that results in a life expectancy of 12 months or less and we are provided with medical evidence In Proper + Form (Terminal Illness Waiver), + + subject to medical evidence provided In Proper Form, after 90 calendar days from the Contract Issue + Date, full or partial withdrawals while the Owner (or Annuitant in the case of a Non-Natural Owner) has + been confined to an accredited nursing home for 30 calendar days or longer and was not confined to the + nursing home on the Contract Issue Date (Nursing Home Waiver), see STATE VARIATIONS, + + withdrawals after 90 calendar days from the Contract Issue Date, full or partial withdrawals if + the Owner (or Annuitant in the case of a Non-Natural Owner) has been confined to an accredited facility + that provides skilled nursing care and/or long-term care services for 30 days or more. Such confinement + must begin after the Contract Issue Date to qualify for the waiver, + + Rider charges, or + + Compliant Withdrawals under the GLWB Rider, if elected. Please see INCOME GUARD BENEFIT + WITHDRAWALS for more information. + + + + 19 + + + + + + + + Nursing Home Waiver + + + + The nursing home waiver applies only to withdrawals made while +the Owner (or Annuitant in the case of a Non-Natural Owner) is in a nursing home or within 90 calendar days after the Owner (or Annuitant +in the case of a Non-Natural Owner) leaves the nursing home. In addition, the nursing home confinement period for which you seek the +waiver must begin after the Contract Issue Date. In order to use this waiver, you must submit with your withdrawal request the following +documents: + + + + an admittance form which shows the type of facility the Owner + (or Annuitant in the case of a Non-Natural Owner) entered, and + + a bill from the nursing home which shows that the Owner (or Annuitant in the case of a Non-Natural + Owner) met the 30 + + calendar day nursing home confinement requirement. + + + + An accredited nursing home is defined as a home or facility that: + + + + is operating in accordance with the law of jurisdiction in + which it is located, + + is primarily engaged in providing, in addition to room and board, skilled nursing care under the + supervision of a duly licensed + + physician, and + + provides continuous 24 hour a day nursing service by or under the supervision of a registered nurse, + and maintains a daily + + record + of the patient. + + + + Withdrawals from the ILOs made under the nursing home waiver are +based on Interim Values. If made during the Term, such withdrawals will cause a reduction in your Interim Value and a potentially significant +reduction in your Investment Base. Your Investment Base will be reduced in the same proportion that your Interim Value is reduced by +the withdrawal. Reductions to your Investment Base will result in potentially significant reductions to your ILO Value for the remainder +of the Term, and will result in a lower positive ILO Credit, if any, at the end of the Term. + + + + Terminal Illness Waiver + + + + The terminal illness waiver applies only to withdrawals after the +1st Contract Anniversary, if the Owner (or Annuitant in the case of a Non-Natural Owner) has been diagnosed on or after the Contract +Issue Date with a medically determinable condition that results in a life expectancy of 12 months or less, and we are provided with medical +evidence In Proper Form. In order to submit this waiver, you must submit with your withdrawal request a Terminal Illness Certification +Form signed by a physician. State restrictions may apply. Please see STATE VARIATIONS. + + + + Withdrawals from the ILOs under the terminal illness waiver are +based on Interim Values. If made during the Term, such withdrawals will cause a reduction in your Interim Value and a potentially significant +reduction in your Investment Base. Your Investment Base will be reduced in the same proportion that your Interim Value is reduced by +the withdrawal. Reductions to your Investment Base will result in potentially significant reductions to your ILO Value for the remainder +of the Term, and will result in a lower positive ILO Credit, if any, at the end of the Term. + + + + MARKET VALUE ADJUSTMENT + + + + During +the first 6 Contract Years, in addition to a surrender charge, we may also apply a market value adjustment or MVA +to withdrawals from the Contract (the Initial MVA Term ). An MVA is a positive or negative dollar adjustment to the withdrawal +amount to reflect the change in market interest rates between the start of the MVA Term and the date of your withdrawal. The MVA may +apply to withdrawals from all the Interest Crediting Options in which you are invested, including the Fixed Account Option. The +MVA will be applied to increase or decrease the amount you receive from the withdrawal or surrender based on the total amount requested. +If the MVA is negative, it will reduce the amount you receive, and a positive MVA will increase the amount you receive from a withdrawal +or surrender. MVA Terms run consecutively in 6-year increments. After the Initial MVA Term, you may elect to renew the MVA Term. +During an MVA Term, an MVA applies to withdrawals in excess of the annual free withdrawal amount, including Early and Excess Withdrawals +under the GLWB Rider, if elected, in excess of the free withdrawal amount. At the end of an MVA Term, an MVA will no longer be applied +to amounts withdrawn from the Contract. See below for a list of withdrawals to which the MVA is not applied. + + + + You will have the option to renew the MVA +Term at the end of the Initial MVA Term. If you decline to renew the MVA Term, you will not be permitted to elect future MVA Terms. We +will send you a notice 30 days prior to the end of the Initial MVA Term, regardless of your current ILO selections, permitting you to +renew the MVA Term. + + + + You may only invest your Contract Value into a 6-year ILO Term +at the beginning of an MVA Term. This means that within the first 6 Contract Years, you may only invest your Contract Value into a 6-year +ILO Term at the beginning of the Initial MVA Term, which will be on the Contract Issue Date. At the expiration of the Initial MVA +Term, if a subsequent MVA Term is not renewed, you will be unable to invest in 6-year ILOs, and only 1-year ILOs and the Fixed Account +Option will be available to you for investment for the remainder of the time you own the Contract. You will be unable to reallocate +or transfer your Contract Value to another 6-year ILO Term unless you elect to renew the MVA Term at the expiration of the Initial MVA +Term, and allocate your Contract Value into the 6-Year ILO at the start of the new MVA Term. This means that you may only invest in a +6-year ILO every 6 Contract Years, and only if you elect to renew the MVA Term at the end of the Initial MVA Term, and each subsequent +MVA Term thereafter. The MVA may not apply in all states. See STATE VARIATIONS. Additionally, the renewal Crediting Strategy rates +declared for a Subsequent Term will vary if the MVA Term is renewed. In general, these renewal crediting rates will be higher if the +MVA Term is renewed, and lower if the MVA Term is not renewed. When deciding whether or not to renew the MVA Term, consider the potential +negative adjustment to withdrawal amounts when the MVA is applied, the effect of the MVA Term on renewal Crediting Strategy rates, and +the ability to invest in available 6-year ILO Terms for the remainder of the time that you own the Contract. + + + + No MVA is imposed on: + + + + cancellations of the Contract during the Free Look period. + See RIGHT TO CANCEL ( FREE LOOK ), + + the free withdrawal amount. See ACCESS TO YOUR MONEY Withdrawals Free of a Surrender + Charge, + + withdrawals after the Initial MVA Term if the MVA Term is not renewed, + + death benefit proceeds, except as provided under the DEATH BENEFIT Non-Natural Owner + section for certain Non- Natural Owners, + + amounts converted to an Annuity Option. See ANNUITIZATION CHOOSING YOUR ANNUITY OPTION, + + withdrawals by Owners to meet the required minimum distribution ( RMD ) rules (Owners + must be enrolled in Pacific Life s RMD program) for IRAs and Qualified Contracts as they apply to + amounts held under the Contract (including any new Inherited Qualified Contracts), + + withdrawals after the 1st Contract Anniversary, if the Owner (or Annuitant in the case of a Non-Natural + Owner) has been diagnosed on or after the Contract Issue Date with a medically determinable condition + that results in a life expectancy of 12 months or less and we are provided with medical evidence In Proper + Form (the Terminal Illness Waiver), + + subject to medical evidence provided In Proper Form, after 90 calendar days from the Contract Issue + Date, full or partial withdrawals while the Owner (or Annuitant in the case of a Non-Natural Owner) has + been confined to an accredited nursing home for 30 calendar days or longer and was not confined to the + nursing home on the Contract Issue Date (the Nursing Home Waiver), + + withdrawals after 90 calendar days from the Contract Issue Date, full or partial withdrawals if + the Owner (or Annuitant in the case of a Non-Natural Owner) has been confined to an accredited facility + that provides skilled nursing care and/or long-term care services for 30 days or more. Such confinement + must begin after the Contract Issue Date to qualify for the waiver, + + Rider charges, or + + Compliant Withdrawals under the GLWB Rider, if elected. Please see INCOME GUARD BENEFIT + WITHDRAWALS for more information. + + + + 20 + + + + + + + + Market Value Adjustment Formula + + + + The MVA is based on the change in market interest rates between +the Contract Issue Date and the date of your withdrawal. We use the average price of the JP Morgan 5-Year U.S. Liquid Index, and the +7-Year U.S. Liquid Index rates to measure this change. The Indexes are comprised of publicly-traded USD-denominated investment grade +and corporate bonds issued by U.S. and international corporations that are rated BBB- or better, and have an approximate 5 or 7-year +maturity, respectively. Current-day prices of the JP Morgan 5-Year and 7-Year U.S. Liquid Indexes will be publicly available on our website +at [ ]. You can obtain the current ILO Budget rate by contacting our Service Center. + + + + The MVA is a dollar amount, which can be positive, negative, or +equal to zero, by which we adjust the amount you will receive from a withdrawal or surrender. The MVA will not otherwise affect the values +under your Contract. The positive or negative MVA is subtracted from the gross withdrawal amount. The application of the MVA could result +in the loss of principal and earnings in the Contract, and such losses could be as high as 100%. We use the following MVA formula to +determine the dollar value of the MVA. Please see the examples in APPENDIX C for demonstrations of how we calculate the MVA in +various scenarios. + + + + Market Value Adjustment = [(J I) x ( N/12 )] x (W +f), where: + + + + J = Average of the JP Morgan 5-Year U.S. + Liquid Index and JP Morgan 7-Year U.S. Liquid Index yield as of the Business Day prior to + withdrawal (JP Morgan 5-Year U.S. Liquid Index Ticker symbol = JULI05YY & JP Morgan + 7-Year U.S. Liquid Index Ticker symbol = JULI07YY) + + + + I = Average of the JP Morgan 5-Year U.S. Liquid Index and JP Morgan + 7-Year U.S. Liquid Index yield as of Business Day prior to start of the MVA Term (JP Morgan + 5-Year U.S. Liquid Index Ticker symbol = JULI05YY and JP Morgan 7-Year U.S. Liquid Index + Ticker symbol = JULI07YY) + + + + + + N = + Number of complete months remaining in the current MVA + Term. + + + + + + W = Sum of the total withdrawal from the Fixed Account Option, plus + the Investment Base withdrawal from each ILO segment adjusted for the ILO Budget rate: + + + + + Total amount withdrawn from the Fixed Account + [ (Investment Base withdrawal amount + from the ILO x (1 ILO Budget rate)) + (Investment Base withdrawal amount from the + ILO x (1 ILO Budget rate)) + (Investment Base withdrawal amount from the ILO x (1 + ILO Budget rate)) + ] + + + + + + f = Free withdrawal amount. In each Contract Year during the withdrawal + charge period, 10% of the aggregate Purchase Payments, less any withdrawals taken during + the Contract Year. For each Contract Year during a subsequent MVA Term, 10% of the Contract + Value on the Contract Anniversary corresponding to the start of the MVA Term, less any withdrawal + taken during the Contract Year. + + + + The first portion of the MVA formula in brackets results in an +MVA percentage, which may be positive, negative, or equal to zero, representing the average change in the JP Morgan 5-Year U.S. Liquid +Index and 7-Year U.S., Liquid Index. The MVA percentage is then multiplied by the second portion of the formula, which is the amount +that the Fixed Account Option withdrawal and/or Investment Base withdrawal from the each of the ILOs exceeds the available free withdrawal +amount. The Investment Base withdrawal is the total decrease to the Investment Base when a withdrawal is taken. The result yields the +dollar amount of the MVA, which can be positive, negative, or equal to zero. This positive, zero, or negative dollar amount is subtracted +from the gross withdrawal amount. Therefore, a negative result from the MVA calculation increases the amount you will receive from a +withdrawal or surrender. Conversely, a positive result from the MVA calculation decreases the amount you will receive from a withdrawal +or surrender. If the MVA is $0, it has no effect on the amount you will receive from a withdrawal or surrender or the Contract Value +remaining in your Contract from a withdrawal. + + + + In general, if the average of the JP Morgan 5-Year U.S. Liquid +Index and JP Morgan 7-Year U.S. Liquid Index price has increased as of the withdrawal date over the level at the start of the MVA Term, +the MVA will be positive and will decrease the amount you receive from a withdrawal or surrender. Similarly, if the average of the JP +Morgan 5-Year U.S. Liquid Index & JP Morgan 7-Year U.S. Liquid Index price has decreased as of the withdrawal date from their +levels on the Contract Issue Date, the MVA will be negative and will increase the amount you receive from a withdrawal or surrender. + + + + Discontinuation of or Substantial Change in the JP Morgan +5-Year U.S. Liquid Index or JP Morgan 7-Year U.S. Liquid Index. If +the JP Morgan 5-Year U.S. Liquid Index or JP Morgan 7-Year U.S. Liquid Index prices are no longer available to us, or if the manner +in which the prices are determined is substantially changed, we will substitute an equivalent Index(es), subject to prior approval +by the insurance regulatory authority of the state in which this Contract is delivered. We will send you a notice describing the +substitution prior to the date it becomes effective. + + + + INTERIM VALUE ADJUSTMENT + + + + In addition to surrender charges and the market value adjustment, +if, during a Term, you take a full surrender (including Free Look withdrawals) or withdrawal (including required minimum distributions +( RMDs ), free withdrawal amounts, pre-authorized withdrawals, rider charges, and guaranteed withdrawal amounts under the +guaranteed lifetime withdrawal benefit rider), or your Contract is annuitized or a death benefit is paid, the transaction will be based +on the Interim Value of the ILOs you are invested in. + + + + The application of the Interim Value to these transactions could +result in a greater loss or lower gain than the ILO would provide at the end of the Term. In addition, the Protection Level will not +be applied to mitigate any loss. This means that there could be significantly less money available under your Contract for withdrawals, +annuitization, and the death benefit. Withdrawals or surrenders that cause the ILO Interim Value to be recalculated could result in +the loss of principal and previously-credited earnings in the Contract, and such losses could be as high as 100%. The maximum loss +would occur if there is a total distribution from an ILO during the Term at a time when the Index Price has declined to zero. Please +see CONTRACT VALUE INTERIM VALUE for more information. + + + + GUARANTEED LIFETIME WITHDRAWAL BENEFIT RIDER CHARGE + + + + See INCOME GUARD BENEFIT below for more information about +the GLWB Rider. + + + + The Rider charge will be assessed in arrears as a percentage of +the Protected Payment Base annually on each Contract Anniversary after the Rider Effective Date. The Rider charge is [ ]%. The charge +is equal to the rider charge percentage multiplied by the Protected Payment Base on the day the charge is deducted. The charge amount +will be deducted from all Interest Crediting Options on a pro-rata basis relative to the Contract Value of each Interest Crediting Option. +The portion of the Rider charge deducted from each of the ILOs on the Contract Anniversary will reduce the Investment Base dollar-for-dollar +in the same manner as a withdrawal. Any portion of the Rider charge deducted from a 6-year ILO prior to the Term End Date will reduce +the ILO Interim Value dollar-for-dollar and adjust the Investment Base proportionally in the same manner as a withdrawal. The deduction +of the Rider charge will not be subject to an MVA or surrender charge. + + + + When the Charge Applies + + + + The charge will apply each year that the Rider is in effect, and +upon termination of the Contract or Rider. If the charge is assessed upon Rider or Contract termination before the Contract Anniversary, +the charge may be prorated. If the terminating event happens on the Contract Anniversary, then the full-year charge will apply. If the +charge is prorated, it will be based on the Protected Payment Base at the time the Rider terminates, and will be deducted from the Contract +Value on the earlier of the date the Contract or Rider terminates or the next Contract Anniversary. + + + + RETURN OF PURCHASE PAYMENT DEATH BENEFIT RIDER CHARGE + + + + See DEATH BENEFIT OPTIONAL DEATH BENEFIT RIDER below +for more information about the Return of Purchase Payment Death Benefit Rider. + + + + If you elect the optional Return of Purchase Payment Death Benefit +Rider (the Rider ), you will be subject to an additional annual fee. The annual rider charge of [ ]% is assessed in arrears +as a percentage of your Contract Value and deducted each Contract Anniversary (including during a 6-year ILO Term) proportionately from +the Interest Crediting Options in which you are invested. The portion of the rider charge deducted from each of the ILOs on the Contract +Anniversary will reduce the Investment Base by the amount of the charge in the same manner as a withdrawal. Any portion of the Rider +charge deducted from a 6-year ILO prior to the Term End Date will reduce the ILO Interim Value dollar-for-dollar and adjust the Investment +Base proportionally in the same manner as a withdrawal. The deduction of the Rider charge will not be subject to an MVA or surrender +charge. + + + + TAXES + + + + Depending on your state of residence (among other factors), a tax +may be imposed on your Purchase Payments ( premium tax ) at the time your Purchase Payment is made, at the time of a partial +or full withdrawal, at the time any death benefit proceeds are paid, at annuitization or at such other time as taxes required by your +state. Tax rates ranging from 0% to 3.5% are currently in effect, but may change in the future. If a premium tax is charged at the time +of annuitization, the rate is determined by your state of residence at the time of annuitization. Premium tax is subject to state requirements. +Some local jurisdictions also impose a tax. If we pay any premium taxes attributable to Purchase Payments, we will impose a similar charge +against your Contract Value. We normally will charge you when you annuitize some or all of your Contract Value. We reserve the right +to impose this charge for applicable premium taxes and/or other taxes when you make a full or partial withdrawal, at the time any death +benefit proceeds are paid, or when those taxes are incurred. For these purposes, premium taxes include any state or local +premium or retaliatory taxes and any federal, state or local income, excise, business or any other type of tax (or component thereof) +measured by or based upon, directly or indirectly, the amount of Purchase Payments we have received. We currently base this charge on +your Contract Value, but we reserve the right to base this charge on the transaction amount, the aggregate amount of Purchase Payments +we receive under your Contract, or any other amount, that in our sole discretion we deem appropriately reimburses us for premium taxes +paid on this Contract. + + + + 21 + + + + + + + + + BUYING + THE CONTRACT + + + + + +PURCHASING THE CONTRACT + + + +To purchase a Contract, you must work with your financial +professional to complete an application and submit it along with your initial Purchase Payment of at least $25,000 to Pacific Life Insurance +Company at P.O. Box 2290, Omaha, Nebraska 68103-2290. In those instances when we receive electronic transmission of the information +on the application from your financial professional s distribution firm and our administrative procedures with your distribution +firm so provide, we consider the application to be received on the Business Day we receive the transmission. If your application and +Purchase Payment are complete when received, or once they have become complete, we will issue your Contract within 2 Business Days. The +date that we issue your Contract is your Contract Issue Date. If some information is missing from your application, we may delay issuing +your Contract while we obtain the missing information. However, we will not hold your initial Purchase Payment for more than 5 Business +Days without your permission. In any case, we will not hold your initial Purchase Payment after 20 Business Days. + + + +You may also purchase a Contract by exchanging your +existing annuity. All contract exchange and transfer requests must be submitted with the Contract application, and no subsequent exchange +or transfer requests may be initiated. Some financial professionals may have a financial incentive to offer you this Contract in place +of the one you already own. You should only exchange your existing contract for this Contract if you determine, after comparing the features, +fees, and risks of both contracts, that it is preferable for you to purchase this Contract rather than continue your existing contract. +Call your financial professional or call us at (800) 722-4448 if you are interested in this option. Financial professionals may call +us at (833) 953-1863. + + + +We reserve the right to reject any application or +Purchase Payment for any reason, subject to any applicable nondiscrimination laws and to our own standards and guidelines. On your application, +you must provide us with a valid U.S. tax identification number for federal, state, and local tax reporting purposes. + + + +The maximum age of a Contract Owner/Annuitant, including +Joint Owners, Joint Annuitants, and Contingent Annuitants, for which a Contract will be issued is 85. The Contract Owner s age +is calculated as of his or her last birthday. If any Contract Owner (or any Annuitant in the case of a Non-Natural Owner) named in the +application for a Contract dies and we are notified of the death before we issue the Contract, then we will return the amount we received. +If we issue the Contract and are subsequently notified after Contract issuance that the death occurred prior to issue, then the application +for the Contract and/or any Contract issued will be deemed cancelled and a refund will be issued. The refund amount will be the Contract +Value based on the Fixed Account Option Value and the ILO Value next determined after we receive proof of death, In Proper Form, +of the Contract Owner (or Annuitant in the case of a Non- Natural Owner), plus a refund of any amount used to pay premium taxes and/or +any other taxes. Any refunded assets may be subject to probate. + + + +Not every contract we issue is offered through every selling broker-dealer. +Some selling broker-dealers may not offer and/or limit the offering of certain features or options, as well as limit the availability +of the contracts, based on issue age or other criteria established by the selling broker-dealer. Upon request, your financial professional +can show you information regarding our other annuity contracts that he or she distributes. You can also contact us to find out more about +the availability of any of our annuity contracts. + + + + 22 + + + + + + + +Making Your Initial Purchase Payment + + + + Your initial Purchase Payment must be at least $25,000 for both +Non-Qualified and Qualified Contracts. You must obtain our consent before making an initial (or additional) Purchase Payment that will +bring your aggregate Purchase Payments over $1,000,000. For purposes of this limit, the aggregate Purchase Payments are based on all +contracts for which you are either owner and/or annuitant. + + + +When Your Purchase Payment is Effective + + + + Your initial Purchase Payment is effective on your Contract +Issue Date, which will be no later than 2 Business Days after we receive your initial Purchase Payment and Contract application In +Proper Form. Any Subsequent Purchase Payment is effective on the Business Day we receive it In Proper Form. See ADDITIONAL +INFORMATION INQUIRIES AND SUBMITING FORMS AND REQUESTS. On the Contract Issue Date, we will allocate your initial +Purchase Payment, minus any applicable taxes, to the Interest Crediting Options you selected according to the initial allocation +instructions submitted with your application In Proper Form. Allocation instructions must be in whole percentages only. If we do not +receive instructions allocating your initial Purchase Payment, your application is not In Proper Form and we will not issue +your Contract. + + + +METHODS OF PAYMENT + + + +All Purchase Payments may be sent by personal or bank check or by +wire transfer. Purchase Payments must be made in a form acceptable to us before we can process it. Acceptable forms of Purchase Payments +are: + + + + personal + checks or cashier s checks drawn on a U.S. bank, + + + + money + orders and traveler s checks in single denominations of more than $10,000 if they originate + in a U.S. bank, + + + + third + party payments when there is a clear connection of the third party to the underlying transaction, + and + + + + wire + transfers that originate in U.S. banks. + + + +We will not accept Purchase Payments in the following forms: + + + + cash, + + + + credit + cards or checks drawn against a credit card account, + + + + money + orders or traveler s checks in single denominations of $10,000 or less, + + + + starter + checks, + + + + home + equity checks, + + + + eChecks, + + + + cashier s + checks, money orders, traveler s checks or personal checks drawn on non-U.S. banks, + even if the payment may be + + + + effected + through a U.S. bank, + + + + third + party payments if there is not a clear connection of the third party to the underlying transaction, + and + + + + wire + transfers that originate from foreign bank accounts. + + + +All unacceptable forms of Purchase Payments will be returned to +the payor along with a letter of explanation. We reserve the right to reject or accept any form of payment. Any unacceptable +Purchase Payment inadvertently invested may be returned and the amount returned may be more or less than the amount submitted. If a +Purchase Payment is made by check other than a cashier s check, we may hold the check and the payment of any withdrawal +proceeds and any refund during the Right to Cancel period may be delayed until we receive confirmation in our Service +Center that your check has cleared. In general, a delay of the payment of withdrawal proceeds or any refund during the check hold +period will not exceed 10 Business Days after we receive your withdrawal or Right to Cancel request In Proper Form. We +will calculate the value of your proceeds as of the end of the Business Day we received your withdrawal or Right to +Cancel request In Proper Form. + + + + SUBSEQUENT PURCHASE PAYMENTS + + + + Subsequent Purchase Payments are permitted only for 60 calendar +days after your Contract Issue Date and are only permitted as a result of transfers or exchanges from other financial products requested +at the time your Contract application is submitted. No other Purchase Payments are permitted. You must obtain our consent before making +any Purchase Payment that will bring your aggregate Purchase Payments over $1,000,000. For purposes of this limit, the aggregate Purchase +Payments are based on all contracts for which you are either owner and/or annuitant. + + + + Each Subsequent Purchase Payment must be at least $1,000. Subsequent +Purchase Payments will be allocated according to the same allocation instructions as the initial Purchase Payment, and will receive the +same interest rates and ILO crediting rates that were applied to the initial Purchase Payment on the Contract Issue Date. + + + + Initial +Term. For the initial Term, each Subsequent Purchase Payment will receive the Index Price as of the date the payment is received. +Each Subsequent Purchase Payment allocated into the same ILO will constitute a different segment in the initial ILO Term, + + + + 23 + + + + + + + + and the investment performance of each ILO segment will be tracked +separately. Each ILO segment in the same ILO Term have its own associated Interim Value and Investment Base during the initial Term. + + + + The ending Index Price for all ILO segments will be the Index Price +determined on the Contract Anniversary that coincides with the initial Term End Date. Each ILO segment will also receive a separate ILO +Credit applied to each respective Investment Base at the end of the initial Term. + + + +Example + Subsequent Purchase Payments (Assuming No Withdrawals) + + + +Initial payment (received 12/1/2024) += $100,000 + +Index +Linked Option = 100% allocated to the S&P 500 Cap Rate with 10% Buffer + +Starting Index Price (as of 12/1/2024) = 4,400 + +Investment Base = $100,000 + + + +Subsequent Payment (received 12/20/2024) = $25,000 + +Index +Linked Option = 100% allocated to the S&P 500 Cap Rate with 10% Buffer + + Starting Index Price (as of 12/20/2024) = 4,315 + +Investment Base = $25,000 + + + +For subsequent Terms, all Contract Value allocated +to same ILO will be combined into one segment and will receive the same starting Index Price determined on the Contract Anniversary coinciding +with the Term Start Date. + + + +See INDEX-LINKED OPTION CREDIT FORMULA below for more information +on how the Index Price is used to determine the Index Return and the ILO Credit. + + + +RATE LOCK + + + + Typically, we declare interest rates and Crediting Strategy rates +twice a month. Pacific Life reserves the right to declare rates more frequently. We will make the current interest rates and Crediting +Strategy rates available online at [ ] at least [ ] days prior to any Term Start Date. The initial Crediting Strategy rates (Cap Rates, +Performance Triggered Rates, Participation Rates, Tiered Participation Rates, and Cap Rates with Dual Direction Buffer) applicable to +your Contract are applied on the Contract Issue Date and are guaranteed for the length of the initial Term, and the initial Guaranteed +Rate for the Fixed Account Option is guaranteed for one Contract Year. The initial Guaranteed Rate and Crediting Strategy rates will +also apply to all Subsequent Purchase Payments. + + + +Rate Lock Guidelines + + + +The initial interest rates and ILO Crediting Strategy rates applicable +on the Contract Issue Date are determined as follows: + + + + For paper applications, if the application with cash or transfer/exchange +request is received In Proper Form at Pacific Life by the 14th calendar day after the date the application is signed +(the application-signed date ), the Contract will receive the higher of the interest rates and Crediting Strategy rates +in effect on (1) the Application-signed date, or (2) the Contract Issue Date. + + + + For electronic applications the same rules apply, except that +the application-signed date will be the date the application is submitted by your financial professional to their respective office. +If this date is not provided to us, we will use the date that Pacific Life receives the application. + + + + If the application with cash or transfer/exchange request is not +received by the 14th calendar day after the application-signed date, then the Contract will receive the interest rates and +Crediting Strategy rates in effect on the Contract Issue Date. + + + + For transfer/exchange requests, the initial Purchase Payment must +be received within 60 days of the application receipt date for the rate lock to apply. If these conditions are not met, the Contract +will receive the interest rates and Crediting Strategy rates in effect on the date the Contract is issued. + + + + 24 + + + + + + + +RIGHT TO CANCEL ( FREE LOOK ) + + + +You may return your Contract for cancellation and a refund during +your Free Look period. Your Free Look period is generally 10 calendar days beginning on the calendar day you receive your Contract, but +may vary according to state law. See STATE VARIATIONS. If you return your Contract during the Free Look period, we reserve the +right to prohibit you from purchasing another Pacific Life registered index-linked annuity ( RILA ) contract for 6 months. +We also reserve the right to rescind the Contract if you purchased it within 6 months of exercising the Free Look provision under another +Pacific Life RILA. + + + + If you return your Contract and provide cancellation instructions, +and it is post-marked during the Free Look period, it will be cancelled as of the date we receive your Contract and cancellation instructions +In Proper Form. The amount of your refund will generally be the Contract Value determined as of the date of cancellation, plus a refund +of any fees or charges deducted. If you invested in the ILOs when you purchase the Contract, your refund amount will be the Interim Value. +This means that you will be subject to the risk of loss during the Free Look period. You may contact us at our Service Center to obtain +your Interim Value(s) for any ILO in which you are invested. LIQUIDITY RISK and ACCESS TO YOUR MONEY. The amount of +the refund may vary according to state law, plan type, and when the Free Look is requested. Please reach out to your financial professional +for more details. Your refund amount may be subject to income tax consequences, which includes tax penalties, but will not be subject +to surrender charges or a market value adjustment. You should consult with a qualified tax advisor before cancelling your Contract for +a refund. + + + +In some states we are required to refund your Purchase Payments. If +your Contract was issued in such a state and you cancel your Contract during the Free Look period, we will return the greater of your +Purchase Payments (less any withdrawals made) or the Contract Value. In addition, if your Contract was issued as an IRA and you return +your Contract within 7 calendar days after you receive it, we will return the greater of your Purchase Payments (less any withdrawals +made) or the Contract Value, plus any amount that may have been deducted as Contract fees and charges. + + + +State Variations may apply to your Contact. See STATE VARIATIONS +for terms specific to some California residents. + + + +If a Purchase Payment is made by check other than a cashier s +check, we may hold the check and the payment of any refund during the Free Look period may be delayed until we receive confirmation in +our Service Center that your check has cleared. If you return your Contract and provide cancellation instructions and it is post-marked +during the Free Look period, your Contract will be cancelled as of the date we receive your Contract and cancellation instructions In +Proper Form. + + + +For replacement business, the Free Look period may be extended and +the amount returned (Purchase Payment versus Contract Value) may be different than for non-replacement business. Please consult with +your financial professional if you have any questions regarding your state s Free Look period and the amount of any refund. See +ADDITIONAL INFORMATION Replacement of Life Insurance or Annuities. + + + + 25 + + + + + + + + + INVESTING + IN YOUR CONTRACT + + + + + +ALLOCATING YOUR PURCHASE PAYMENTS + + + + You may allocate your Purchase Payments and Contract Value among +any of the available Interest Crediting Options, which include the Indexed-Linked Options ( ILOs ) and the Fixed Account +Option. Allocations of your initial Purchase Payment to the Interest Crediting Options you select will be effective on your Contract +Issue Date. Each Subsequent Purchase Payment will be allocated to the Interest Crediting Options according to the same allocation instructions +as the initial Purchase Payment, and will receive the same ILO crediting rates. Transfers of Contract Value into a new Interest Crediting +Option, or reallocations of Contract Value into the same ILO for a new Term are only permitted on the Term End Dates, which occur on +a Contract Anniversary, by providing new allocation instructions to us. See TRANSFERS AND REALLOCATIONS for more information. + + + +THE FIXED ACCOUNT OPTION + + + + The Fixed Account Option credits a fixed rate of interest daily +(the Guaranteed Rate ) that compounds over one year to the annual fixed rate. The initial interest rate for Purchase Payments +allocated to the Fixed Account Option is set on the Contract Issue Date and is guaranteed for one Contract Year. A new Guaranteed Rate +will be declared each Contract Anniversary, and will be guaranteed for one Contract Year. The Fixed Account Option Guaranteed Rate will +never be less than the Minimum Guaranteed Rate for the Fixed Account indicated in your Contract. + + + + Renewal Fixed Account Option Guaranteed Rates declared on Contract +Anniversaries may be different from Fixed Account Option Guaranteed Rates applied to new Purchase Payments offered at the same time, +subject to the Minimum Guaranteed Rate for the Fixed Account. The Minimum Guaranteed Rate for the Fixed Account will not change for the +entire time that you own your Contract. You bear the risk that the Guaranteed Rates we declare each Contract Anniversary for the Fixed +Account Option will not exceed the Minimum Guaranteed Rate or the initial declared rate. + + + + We will send you a notice 30 days prior to the Term End Date explaining +the ILOs available to you for transfer or reallocation on the next Contract Anniversary, and directing you to our website where you can +view renewal Guaranteed Rates and ILO crediting rates declared for the next Term. On the Contract Anniversary, the Fixed Account Option +Value will automatically be reinvested into the Fixed Account Option, subject to the renewal Guaranteed Rate, unless you provide new +allocation instructions to transfer such amount to one or more of the available ILOs, or you withdraw the amount from the Contract. See +TRANSFERS AND REALLOCATIONS and ACCESS TO YOUR MONEY. + + + +Payments from the Fixed Account Option are also subject +to minimum amounts required by state law. This amount is known as the Fixed Account Minimum Value. The Fixed Account Minimum Value is +equal to all amounts allocated to the Fixed Account Option multiplied by 87.5% (90% in some states), adjusted for any partial withdrawals +or transfers from the Fixed Account Option, then accumulated at the non-forfeiture rate, which ranges from 0.15% to 3.00% depending on +the applicable state law. See STATE VARIATIONS for more information. The Fixed Account Minimum Value applies only upon annuitization +from the Fixed Account Option, payment of a death benefit upon death of the Owner, or a full withdrawal from the Fixed Account Option. +We guarantee that if one of these events occurs, then the proceeds from the Fixed Account Option (the amount applied to annuity payments +or paid for a full withdrawal or death benefit) will be at least equal to the minimums required by state law. If necessary to meet this +minimum, charges will be waived. + + + +THE INDEX-LINKED OPTIONS + + + + You can allocate your Purchase Payments and Contract Value to one +or more of the Index-Linked Options ( ILOs ) offered under the Contract, in addition to the Fixed Account Option. Each ILO +consists of the following components to calculate the ILO Credit: + + + + A + reference Index; + + A + Term; + + A + Crediting Strategy; and + + A + Protection Level + + + + Each of these components is described in more detail +below. Each ILO is offered with the Performance Lock feature. We currently offer the following ILOs: + + + + + Index + Crediting + Strategy + Term + + + + Protection + Level + + + S&P + 500 + + Point + to Point with a Cap Rate + + 1 + Year + + 10% + Buffer + + + 15% + Buffer + + + -10% + Floor + + + 6 + Years + + 10% + Buffer + + + 15% + Buffer + + + 20% + Buffer + + + Point + to Point Cap Rate with Dual Direction Buffer + + 1 + Year + 10% + Buffer + + + 15% + Buffer + + + 6 + Years + + 10% + Buffer + + + 15% + Buffer + + + 20% + Buffer + + + Point + to Point with a Performance Triggered Rate + + 1 + Year + + 10% + Buffer + + + 15% + Buffer + + + -10% + Floor + + + Point + to Point with Tiered Participation Rate + 6 + Years + 10% + Buffer + + + Invesco + QQQ ETF + Point + to Point with a Cap Rate + 1 + Year + 10% + Buffer + + + + + 26 + + + + + + + + + + + + 15% + Buffer + + + + -10% + Floor + + + + 6 + Years + + 10% + Buffer + + + + 15% + Buffer + + + + 20% + Buffer + + + + Point + to Point Cap Rate with Dual Direction Buffer + + 1 + Year + 10% + Buffer + + + + 15% + Buffer + + + + 6 + Years + + 10% + Buffer + + + + 15% + Buffer + + + + 20% + Buffer + + + + Point + to Point with a Performance Triggered Rate + + 1 + Year + + 10% + Buffer + + + + 15% + Buffer + + + + -10% + Floor + + + + Point + to Point with Tiered Participation Rate + 6 + Years + 10% + Buffer + + + + MSCI + EAFE + + Point + to Point with a Cap Rate + + 1 + Year + + 10% + Buffer + + + + 15% + Buffer + + + + -10% + Floor + + + + 6 + Years + + 10% + Buffer + + + + 15% + Buffer + + + + 20% + Buffer + + + + Point + to Point Cap Rate with Dual Direction Buffer + + 1 + Year + 10% + Buffer + + + + 15% + Buffer + + + + 6 + Years + + 10% + Buffer + + + + 15% + Buffer + + + + 20% + Buffer + + + + Point + to Point with a Performance Triggered Rate + + 1 + Year + + 10% + Buffer + + + + 15% + Buffer + + + + -10% + Floor + + + + Point + to Point with Tiered Participation Rate + 6 + Years + 10% + Buffer + + + + iShares + Russell 2000 ETF + Point + to Point with a Cap Rate + + 1 + Year + + 10% + Buffer + + + + 15% + Buffer + + + + -10% + Floor + + + + 6 + Years + + 10% + Buffer + + + + 15% + Buffer + + + + 20% + Buffer + + + + Point + to Point Cap Rate with Dual Direction Buffer + 1 + Year + 10% + Buffer + + + + 15% + Buffer + + + + + + 6 + Years + + 10% + Buffer + + + + 15% + Buffer + + + + 20% + Buffer + + + + + + + + + + First + Trust Growth Strength Net Fee Index + Point + to Point with a Cap Rate + + 1 + Year + + 10% + Buffer + + + + 15% + Buffer + + + + -10% + Floor + + + + 6 + Years + + 10% + Buffer + + + + 15% + Buffer + + + + 20% + Buffer + + + + Point + to Point Cap Rate with Dual Direction Buffer + 1 + Year + 10% + Buffer + + + + 15% + Buffer + + + + 6 + Years + 10% + Buffer + + + + 15% + Buffer + + + + 20% + Buffer + + + + + + 27 + + + + + + + + + + Point + to Point with a Performance Triggered Rate + + 1 + Year + + 10% + Buffer + + + 15% + Buffer + + + -10% + Floor + + + Point + to Point with Tiered Participation Rate + 6 + Years + 10% + Buffer + + + Performance + Mix* + Point + to Point with a Participation Rate + 6 + Years + 10% + Buffer + + + + + * +The Index Return of the Performance Mix is determined based on the combined weighted average of three Indices: S&P 500 , +iShares Russell 2000 ETF, and MSCI EAFE. See INVESTING IN YOUR CONTRACT INDEX-LINKED OPTION CREDIT for +more information on how we calculate the Index Return of the Performance Mix. + + + + ** +Investment in 6-year Terms is only permitted at the beginning of an MVA Term. This means that that within the first 6 Contract +Years, you may only invest your Contract Value into a 6-year ILO Term at the beginning of the Initial MVA Term, which will be on the +Contract Issue Date. Upon the expiration of the Initial MVA Term, you must elect to renew the MVA Term in order to transfer or reallocate +Contract Value into another 6-year Term. Investment in certain 6-year ILOs is not permitted if you have elected the optional GLWB Rider +while the Rider is in effect. + + + +Certain ILOs and Indexes also may not be available through your financial +professional. You may obtain information about the ILOs and Indexes that are available to you by contacting your financial professional. + + + + You +may allocate your Contract Value to any number of the available ILOs, in addition to the Fixed Account Option. You may have multiple +ongoing Terms at the same time, and may allocate your Contract Value to both the 1-year and 6-year Terms of an ILO at the same time. +Allocations must be in whole percentages only. We reserve the right to add or remove ILOs and Indexes. We reserve the right +to stop offering any of the ILOs to new and existing Contracts, and to close any of the ILOs to new transfers at the end of the Term. +We may change the Crediting Strategy rates and Protection Level rates subject to the stated guaranteed minimum or maximum rates. There +is no guarantee that a particular ILO will be available during the entire time that you own your Contract. If we decide to discontinue +offering any ILOs or Indexes, we will amend this Prospectus. An ILO that is currently available may not be available for transfers from +other Interest Crediting Options or reallocations of Contract Value into the same ILO at the end of the Term (or the next Contract Anniversary +after you exercise the Performance Lock feature); however, the 1- year S&P 500 with Cap and 10% Buffer ILO will +always be available under your Contract. The guaranteed minimum Cap Rate for this ILO is [ ]%. + + + + We reserve the right to stop offering all but one ILO (the 1-year +S&P 500 with Cap and 10% Buffer ILO), in addition to the Fixed Account Option. If, in the future, you are not satisfied +with the available ILOs, you may choose to surrender your Contract, but you may be subject to surrender charges, a market value adjustment, +taxes, and tax penalties, and the calculation of the surrender amount based on Interim Value if the surrender is made before the end +of a Term. If you purchase another retirement vehicle, it may have different features, fees, and risks than the Contract. Discuss with +your financial professional whether the Contract is appropriate for you given our right to make such changes to the allowable ILOs. + + + + Term + + + + The Term is the investment duration of an ILO. This is the period +of time we use to measure the change in Index Price and credit interest, if any, to your Contract. We measure the change in Index Price, +or the Index Return, using a point-to-point method. The Point to Point method means that we compare the Index Price on the Term Start +Date to the Index Price on the Term End Date to determine the Index Return. The Index Return is used to calculate the amount of ILO Credit +we apply to your Contract (which may be positive, negative, or equal to zero) at the end of the Term. + + + + We currently offer Terms of 1 Contract Year and 6 Contract Years. +At the end of the Term, your ILO Credit will be added or subtracted from your ILO Value. The amount of the ILO Credit will depend on +the Index Return and the applicable ILO Crediting Strategy or Protection Level. The ILO Credit may be positive, negative, or equal to +zero. Each Term ends on a Contract Anniversary, and a new Term begins on the same Contract Anniversary as the previous Term End Date. + + + + Term +Restrictions. You may only invest your Contract Value into a 6-year ILO Term at the beginning of an MVA Term. MVA Terms last +for 6 Contract Years. This means that within the first 6 Contract Years, you may only invest your Contract Value into a 6-year ILO Term +at the beginning of the Initial MVA Term, which will be on the Contract Issue Date. After the expiration of the Initial MVA Term, you +will have the option to renew the MVA Term. If a subsequent MVA Term is not renewed, you will be unable to invest in 6-year ILOs, +and only 1-year ILOs will be available to you for investment for the remainder of the time you own the Contract. You will be unable +to reallocate or transfer your Contract Value to another 6-year ILO Term unless you elect to renew the MVA Term at the expiration of +the Initial MVA Term, and allocate your Contract Value into the 6-Year ILO at the start of the new MVA Term. This means that you may +only invest in a 6-year ILO every 6 Contract Years, and only if you elect to renew the MVA Term at the end of the Initial MVA Term, and +each subsequent 6-year ILO Term thereafter. The MVA may not apply in all states. See STATE VARIATIONS. + + + + 28 + + + + + + + + Term +Start Date. The Term Start Date is the date that a new Term begins. On this date, Contract Value (or your Purchase Payment) +is allocated to the ILO and the starting Index Price is determined. The Term Start Date for your initial Purchase Payment is the Contract +Issue Date. The Term Start Date for any Subsequent Purchase Payments will be the Business Day the Subsequent Purchase Payment is received +prior to market close. Because of this, Subsequent Purchase Payments will not be invested for the full initial Term. All future Term +Start Dates will be on a Contract Anniversary, on which date you will transfer or reinvest Contract Value into a new Term. + + + + Term +End Date. The Term End Date is the Contract Anniversary date that the Term ends. All Purchase Payments in an ILO will have +the same Term End Date regardless of when they were received. The Term End Date will occur on the same date as the subsequent Term Start +Date. Assuming the Performance Lock feature is not exercised during the Term, on the Term End Date, the ending Index Price is determined +and the Index Return is calculated. If the Contract Anniversary falls on a non-Business Day, then the Index Return will be determined +based on values of the prior Business Day. + + + + If the Performance Lock feature was not exercised during the Term, +the Term End Date is also the date on which transfers to other Interest Crediting Options and reallocations into the same ILO for a new +Term may occur. See TRANSFERS AND REALLOCATIONS for more information on effecting transfers and reallocations. + + + +Indices + + + + The Indices under the Contract are the benchmarks used to establish +the starting and ending Index Prices and the Index Return for each Term. Each Index is a price return index, and its performance does +not reflect any dividends or distributions paid by the component companies included in the Index. Each ILO credits or subtracts interest +(the Index-Linked Option Credit ) based on the performance of one (or three, in the case of the Performance Mix) of the +following Indices, each covering different asset classes. The following Indices are currently available: + + + + S&P + 500 . Widely regarded as the best gauge of the + U.S. stock market, this index tracks the performance of 500 large companies in leading industries + of the U.S. economy. The Index performance does not include dividends declared by any of + the component companies. + + + + MSCI + EAFE. The MSCI EAFE is composed of large- and mid-capitalization companies across 21 + developed markets around the world, including countries in Europe, Australia, and the Far + East, but excluding the U.S. and Canada. The Index performance does not include dividends + declared by any of the component companies. + + + + First Trust Growth Strength Net Fee Index. The + First Trust Growth Strength Net Fee Index seeks to identify high quality companies with a + history of revenue and cash flow growth. Through a multi-factor approach, the Index screens + for well-capitalized companies with strong balance sheets that also exhibit profit and revenue + growth over a sustained period of time. The Index begins with the largest 500 securities + by float-adjusted market capitalization with a minimum three-month average daily trading + volume of $5 million within the Nasdaq U.S. Benchmark Index. To be eligible for inclusion, + companies must have at least $1 billion (USD) in cash and short-term investments, a long-term + debt to market capitalization ratio of less than 30% and a return on equity greater than + 15%. Remaining securities are ranked by their three-year revenue percentage growth and three-year + cash flow percentage growth with the top 50 securities selected by combined ranking. If there + are more than 15 securities from any one industry, the security with the lowest ranking will + be removed and replaced with the next eligible security from a different industry. The securities + are equally-weighted, rebalanced and reconstituted quarterly. The daily performance of the + Index is reduced by 0.65% per annum. + + + + Invesco QQQ ETF (QQQ). The Invesco QQQ ETF is + an exchange-traded fund that seeks to track the investment results of the NASDAQ-100 Index . + The Index includes the 100 largest non-financial companies listed on the Nasdaq based + on market cap. + + + + iShares Russell 2000 ETF (IWM). The iShares Russell 2000 ETF seeks to track the investment + results of the Russell 2000 Index, an index composed of small-capitalization + U.S. equities. The Russell 2000 Index measures the performance of the small capitalization + sector of the U.S. equity market, as defined by FTSE Russell. + + + + Performance + Mix. The Performance Mix measures the performance of a combination of three Indices: + the S&P 500 , the iShares Russell 2000 ETF, and the MSCI + EAFE. The Index Return of the Performance Mix is determined based on the combined weighted + average of those stated Indices: 50% is based on the Index with the highest return, 30% is + based on the Index with the next best return, and 20% is based on the Index with the lowest + return. + + + + There are risks associated with each of the Indices. See INDEX +RISK and INVESTMENT RISKS FOR THE MARKET INDEXES for more information about these risks. + + + +We reserve the right to add, remove or replace any +Index at any time, subject to necessary regulatory approvals. We will notify you in writing at least 30 days prior to replacing an Index. +Changes to the ILO Crediting Strategies, if any, occur at the start of the next Term. If we add or remove an Index (as opposed to replacing +an Index with another Index), the changes will not be effective for your Contract until the start of the next Term. + + + + We may remove or replace an Index if it is discontinued, +if the calculation of the Index is substantially changed by the Index provider, if Index values should become unavailable for any reason, +if hedging instruments become difficult to acquire or the cost of hedging becomes excessive, or if its investment objectives, strategies, +or risks substantially change. If we substitute an Index, we will attempt to select a new Index that we determine in our judgment is +comparable to the old Index. In making this evaluation, we will look at factors such as asset class, Index composition, strategy +or methodology inherent to the Index and Index liquidity. If we replace an Index during a Term, we will calculate the Index Return using +the old Index up until the replacement date. After the replacement date, we will calculate the Index Return using the new Index, but +with a modified starting Index Price for the new Index. The modified starting Index Price for the new Index will reflect the Index Return +for the old Index from the start of the Term to the replacement date. If we replace an Index during the Term, the ILO Crediting Strategy +(which includes the Cap Rate, Performance Triggered Rate, Participation Rate, Tiered Participation Rate, or Cap Rate with Dual Direction +Buffer) and Protection Level for the current Term will remain the same. + + + + The performance of the new Index may differ from +the original Index, and this may negatively affect the interest that you earn during that Term. You may receive a greater loss or lower +gain than if we continued to use the original Index for the entire Term. You will have no right to reject the replacement of an Index +during a Term, and you will not be permitted to transfer ILO Value until the end of the Term. If we substitute an Index and you do not +wish to remain invested in the relevant ILO for the remainder of the Term, your only options will be to take a withdrawal from the ILO +or surrender the Contract, or exercise the Performance Lock feature and transfer your ILO Value on the next Contract Anniversary. Both +options will trigger an Interim Value + + + + 29 + + + + + + + + calculation, and taking a withdrawal may cause you to incur surrender +charges, a market value adjustment, and taxes. See ACCESS TO YOUR MONEY. + + + +Example: +The example is intended to show how we would calculate the Index Return during an Interest Term in which an Index was replaced. + + + +Index Return on replacement date for old Index + + + + + Old + Index Price at beginning of Interest Term + 4,000 + + + Old + Index Price on replacement date + 4,050 + + + Index + Return for old Index on replacement date + (4,050 + 4,000) / 4,000 = 1.25% + + + + +The Index Return percentage on the replacement date is then used to +calculate the modified starting Index Price for the new Index. + + + +Modified starting Index Price for new Index + + + + + Index + Return for old Index on replacement date + 1.25% + + + Index + Price for new Index on replacement date + 20,250 + + + Modified + starting Index Price for new Index + 20,250 + / (1 + 1.25%) = 20,000 + + + + +The Index Return calculation for the Term is then +determined based on the change between the modified starting Index Price for the new Index, and the ending Index Price for the new Index + + + +INDEX-LINKED OPTION VALUE + + + + Your ILO Value reflects the portion of your Contract +Value attributable to the ILO(s) at any given time. You will have a separate ILO Value for each ILO in which you are invested. For +the initial ILO Term, if you invest Subsequent Purchase Payments in the same ILO, each Purchase Payment will constitute a different segment +in the ILO. You will have a separate ILO Value in the same ILO Term for each ILO segment, each of which will earn a separate ILO Credit +on the initial ILO Term End Date. + + + + Term +Start Date. On the Term Start Date (which will be your Contract Issue Date for the initial Term), your ILO Value for a specific +ILO is equal to your Investment Base. Your Investment Base is the initial investment allocated to the ILO on the Term Start Date after +any applicable withdrawals or transfers. Each Term will have a separate Investment Base. In the initial Term, each segment in the same +ILO will each have a separate Investment Base. Your Investment Base in an ILO will not change for the remainder of the Term unless a +transaction results in a withdrawal from that ILO. Please see CONTRACT VALUE for additional information about the Investment Base. + + + + Term +End Date. If you do not exercise the Performance Lock feature during the Term, then on the Term End Date, your Value in an +ILO will be equal to the Investment Base plus or minus the ILO Credit determined on the Term End Date. In the initial Term, a separate +ILO Credit will be determined for each segment in the same ILO, and will be added to the respective Investment Base. For purposes of +calculating the ILO Credit, each segment will use the Index price on the date the Purchase Payment is received. The ILO Credit may be +positive, negative, or equal to zero, based on the Index Return, Crediting Strategy, and Protection Level of the ILO. + + + + During +the Term. On any Business Day during the Term after the Term Start Date and before the Term End Date, your ILO Value is equal +to your Interim Value. Each ILO will have a separate Interim Value. In the initial Term, each segment in an ILO will have a separate +Interim Value. We calculate the Interim Value for each ILO at the end of each Business Day between the beginning and end of the Term. +Your Interim Value fluctuates each Business Day independent of the value of your Investment Base in that ILO. The Interim Value is the +amount in that ILO available for full surrenders (including Free Look withdrawals), withdrawals (including required minimum distributions +( RMDs ), free withdrawal amounts, and pre-authorized withdrawals), rider charges, guaranteed withdrawal amounts under the +GLWB Rider , death benefit payments, and annuitization during the Term. The Interim Value for an ILO is calculated based on the value +of a hypothetical portfolio of derivative instruments using a formula designed to replicate the Value of the ILO as if it were held until +the end of the Term. See CONTRACT VALUE and APPENDIX B for a detailed explanation of how we calculate Interim Values. + + + + Withdrawals from an ILO during the Term will reduce +your Interim Value by the amount of the withdrawal, including any applicable surrender charges and taxes. Withdrawals from an ILO will +reduce the Investment Base in the same proportion that the Interim Value is reduced. Such reduction could be greater than the dollar +amount of the withdrawal. You may contact us at our Service Center to obtain your Interim Value(s) for any ILO in which you are +invested. See CONTRACT VALUE for more information. + + + + Performance +Lock Feature. If you choose to exercise the Performance Lock feature for an ILO during a Term, your entire ILO Value will +be locked-in at the Interim Value calculated at the end of the Business Day that the Performance Lock is exercised and +will be credited with a fixed rate of interest equal to the annualized ILO Budget rate until the next Contract Anniversary. The ILO Budget +rate is an interest rate equivalent to the fair value of the hypothetical derivatives supporting the ILO on the Term Start Date. This +means that your investment in the ILO will be terminated and you will not receive an ILO Credit or the application of the Crediting Strategy +or Protection Level. Contact us at our Service Center to obtain your Interim Value(s) for any ILO in which you are invested and +the current annualized ILO Budget rate. The locked-in value will + + + + 30 + + + + + + + + be reduced if you take a withdrawal (including +applicable surrender charges and taxes), in which case your ILO Value will be reduced by the amount withdrawn. The Performance Lock feature +is described in more detail under PERFORMANCE LOCK. + + + +INDEX-LINKED OPTION CREDIT + + + + For +each ILO to which you allocate Contract Value, we will add or subtract interest from your Investment Base at the end of the Term (unless +you exercise the Performance Lock feature during the Term). This interest is known as the Index-Linked Option Credit ( ILO +Credit ). The ILO Credit may be positive, negative, or equal to zero. If the ILO Credit is positive, your Investment Base in that +ILO will be increased by a dollar amount equal to the positive credit. If the ILO Credit is negative, your Investment Base will be decreased +by a dollar amount equal to the negative credit. If the ILO Credit is equal to zero, no interest will be credited and your ILO Value +at the end of the Term will remain equal to your Investment Base. + + + + If you allocate Contract Value +to multiple ILOs at once, assuming you do not exercise the Performance Lock feature for any ILO, each ILO in which you invest will apply +separate ILO Credits for the Term. Even if you receive a positive ILO Credit for one or more ILOs, your overall Contract Value may still +be reduced by any negative ILO Credit you receive for other ILOs during that Term. + + + +INDEX-LINKED OPTION CREDIT FORMULA + + + +Change in Index Price + + + + To determine the ILO Credit +applied to your Investment Base at the end of a Term, we first determine the change in Index Price for that ILO. The percentage change +in Index Price is the Index Return. The Index Return is calculated using the Point to Point method. + + + +Point +to Point. The Index Return for a Point to Point ILO is determined by comparing the Index Price on the Term Start Date to the +Index price on the Term End Date. The Index Return for all ILOs except for the Performance Mix ILOs is calculated using the following +formula: + + + + Index Return = (Ending +Index Price Starting Index Price) / Starting Index Price. + + + + Example: + + + + + Index + Price on Term Start Date: + 4,000 + + + Index + Price on Term End Date: + 4,050 + + + Index + Return on Term End Date = + (4,050 + 4,000) / 4,000 = 1.25% + + + + + The +Index Return of the Performance Mix, which is based on the combined performance of the S&P 500 , the iShares +Russell 2000 ETF, and the MSCI EAFE Indices, is calculated using the formula below: + + + + Index +Return = [Best Performing Index: 50% x (Ending Index Price Starting Index Price) +/ Starting Index Price] + + + [Next Best Performing Index: 30% +x (Ending Index Price Starting Index Price) / Starting Index Price] + + + [Lowest Performing Index: 20% x (Ending Index Price +Starting Index Price) / Starting Index Price] + + + + Example: + + + + + + Starting + Index Price + Ending + Index Price + Index + Return + + + Best + Performing Index + 6,000 + 7,800 + (7,800 + 6,000) / 6,000 = 30% + + + Next + Best Performing Index + 5,000 + 5,400 + (5,400 + 5,000) / 5,000 = 8% + + + Lowest + Performing Index + 6,500 + 5,850 + (5,850 + 6,500) / 6,500 = -10% + + + + + + + + + Index + Return for Performance Mix + [50% + x 30%] + [30% x 8%] + [20% x -10%] = 15.4% + + + + + + The starting and ending Index Prices are determined +based on the following rules: for the starting Index Price in the initial Term, each Purchase Payment will constitute a different segment +and will use the Index Price on the date the payment is received. For Subsequent Term, all amount allocated to an ILO Term will constitute +one segment and the starting Index Price will be the Index Price on the Contract Anniversary coinciding with the Term Start Date. If +the Contract Anniversary is not a Business Day, the starting Index Price will be the Index Price from the most recent Business Day prior +to the Contract Anniversary. The ending Index Price for all amounts in the initial Term and Subsequent Terms will be the Index Price +determined on the Contract Anniversary that coincides with the Term End Date. If the Contract Anniversary is not a Business Day, the +ending Index Price will be the Index Price from the most recent Business Day prior to the Contract Anniversary. + + + + 31 + + + + + + + +Adjusted Index Return + + + + After +the Index Return is calculated, we next determine the Adjusted Index Return. The Adjusted Index Return is a percentage of interest determined +at the end of each ILO Term by applying the Crediting Strategy, or the Protection Level, as applicable, to the Index Return. The +Adjusted Index Return may be positive, negative or zero. + + + + The Adjusted Index Return +is multiplied by the Investment Base (adjusted for any withdrawals, including applicable surrender charges and taxes) to yield the dollar +value of the ILO Credit at the end of each ILO Term. The ILO Credit, which may be positive, negative, or equal to zero, is then added +to the Investment Base on the Term End Date to determine the ending ILO Value. The application of a negative Adjusted Index Return will +result in a reduction of the Investment Base by the dollar amount of the ILO Credit. The application of a positive Adjusted Index Return +will result in an increase to the Investment Base by the dollar amount of the ILO Credit. + + + +ILO Credit = Investment Base x Adjusted Index +Return + + + +Examples + + + + + Investment + Base + $100,000 + + + Adjusted + Index Return + 5% + + + ILO + Credit + $100,000 + x 5% = $5,000 + + + + + + Investment + Base + $100,000 + + + Adjusted + Index Return + -5% + + + ILO + Credit + $100,000 + x -5% = -$5,000 + + + + +Crediting Strategies & Protection Levels + + + +The Contract offers ILOs with one of the following Crediting Strategies +and related Protection Level. Each Crediting Strategy and Protection Level is further explained below. + + + + Point to + Point with Cap Rate and Buffer + + Point to Point with Cap Rate and Floor + + Point to Point with Cap Rate and Dual Direction Buffer + + Point to Point with Performance Triggered Rate and Buffer + + Point to Point with Performance Triggered Rate and Floor + + Point to Point with Tiered Participation Rate and Buffer + + Point to Point with Participation Rate and Buffer + + + + Crediting +Strategies. Each ILO includes a Crediting Strategy, which is a method of determining how much positive interest, if any, will +be credited to your ILO Value at the end of the Term. The Crediting Strategy is applied to the Index Return to determine the positive +Adjusted Index Return. Crediting Strategies are not applied if the Index Return is negative. The Crediting Strategy for an ILO will be +in the form of a Cap Rate, Participation Rate, Tiered Participation Rate, Performance Triggered Rate, or Cap Rate with Dual Direction +Buffer. For 6-year ILOs, the Crediting Strategy Rates are for the entire Term and are not annualized,. + + + + We typically declare renewal Cap Rates, Participation Rates, Tiered +Participation Rates, Performance Triggered Rates, and Cap Rates with Dual Direction Buffer for the ILOs every two weeks, but we reserve +the right to declare these rates more frequently. The initial Crediting Strategy Rates in effect for your Contract are established according +to the procedures outlined above under RATE LOCK. These initial rates will not change after the Contract Issue Date +and apply to all Purchase Payments, and are guaranteed for the length of the initial Term. See RATE LOCK and TRANSFERS AND +REALLOCATIONS for additional details. We declare renewal Cap Rates, Participation Rates, or Performance Triggered Rates for each +Subsequent Term on the Contract Anniversary coinciding with the Term Start Date. These renewal rates may be higher or lower than the +initial rate, subject to the guaranteed minimum rates set forth in this Prospectus. Renewal rates may vary depending on the Index, Crediting +Strategy, Protection Level, Term length, and election to renew the MMVA Term. See FEES AND CHARGES for more information on the +MVA Term. Different Cap Rates, Participation Rates, or Performance Triggered Rates may be declared for different Indices and Protection +Levels. Guaranteed minimum rates are set at Contract issue and will not change. We may declare new guaranteed minimum rates for new Contract +issues. + + + +We will send you a notice 30 days prior to the Term End Date explaining +the ILOs available to you for transfer or reallocation on the next Contract Anniversary, and directing you to our website where you can +view renewal interest rates and ILO crediting rates declared for the next Term. + + + + The various Crediting Strategies (Cap Rates, +Participation Rates, Tiered Participation Rates, Performance Triggered Rates, and Cap Rates with Dual Direction Buffer) potentially limit +the highest possible Adjusted Index + + + + 32 + + + + + + + +Return +that you may receive and therefore limit the positive ILO Credit, if any, that may be applied to your Contract. Because of these limits, +the Adjusted Index Return may be less than the positive Index Return. These Crediting Strategies benefit us because they limit +the amount of positive interest that we may be obligated to credit for any Term. We set the Cap Rates, Participation Rates, and Performance +Triggered Rates at our discretion, however, they will never be less than the guaranteed minimums set forth in this Prospectus. You bear +the risk that we will not set Crediting Strategy rates higher than these minimums. + + + + Cap +Rate. The Cap Rate is a percentage that signifies the maximum amount of positive Adjusted Index Return that can be credited +to the Investment Base at the end of the Term. When Index Return is positive or equal to zero, the Adjusted Index Return will be the +lesser of the Index Return or the Cap Rate. This means that any positive Index Return up to the Cap Rate will be applied to your ILO +Value, and any positive Index Return in excess of the Cap Rate will not be applied your ILO Value. The minimum guaranteed Cap Rate is +[ ]%. + + + + Example: 10% Cap Rate + + + + + Index + Return + Adjusted + Index + +Return + + + 0% + 0% + + + 5% + 5% + + + 10% + 10% + + + 15% + 10% + + + + + Participation +Rate. The Participation Rate is a set percentage that determines what portion of the positive Index Return for the Term will +be used to determine the ILO Credit. When the Index Return is positive or equal to zero, the Participation Rate percentage is multiplied +by the Index Return to determine the Adjusted Index Return. The Participation Rate is not applied if the Index Return is negative. The +Participation Rate Crediting Strategy is only available with the Performance Mix ILOs. The minimum guaranteed Participation Rate is [ +]%. + + + + Example: 100% Participation Rate + + + + + Index + Return + Adjusted + Index + + Return + + + 0% + 0% + + + 5% + 5% + + + 10% + 10% + + + 15% + 15% + + + + + Tiered +Participation Rate. The Tiered Participation Rate includes two set percentages that determine what portion of any positive +Index Return that will be used to determine the ILO Credit. Tiered Participation Rates include a Tier One Participation Rate and a Tier +Two Participation Rate. Index Return equal to zero and any positive Index Return less than or equal to the Tier Level is multiplied by +the Tier One Participation Rate. Positive Index Return in excess of the Tier Level is multiplied by the Tier Two Participation Rate. +The Adjusted Index Return is equal to the sum of these two values. The Tiered Participation Rate is not applied if the Index Return is +negative. The minimum guaranteed Tiered Participation Rate is [ ]%. + + + + Example: Index Return = 40% + + Tier Level = 25% + + Tier 1 Participation Rate = 100% + + + Tier 2 Participation Rate = 125% + + + + + + Adjusted Index Return = (0.25 x 100%) + ((0.40 0.25) x 125%) = 0.4375 = 43.75% + + + + + + Performance +Triggered Rate. A Performance Triggered Rate is a flat percentage of interest that will be credited if the Index Return is +equal to zero or positive. This means that the Adjusted Index Return will always be equal to the Performance Triggered Rate, even if +the positive Index Return is greater or less than the Performance Triggered Rate. The minimum guaranteed Performance Triggered Rate is +[ ]%. + + + + Example: 8% Performance Triggered Rate + + + + + Index + Return + Adjusted + Index + + Return + + + 0% + 8% + + + 5% + 8% + + + 15% + 8% + + + + + Cap +Rate with Dual Direction Buffer: The Cap Rate with Dual Direction Buffer Crediting Strategy determines the maximum absolute +value of the Index Return that can be credited to the ILO Value at the end of the ILO Term. If the Index Return is greater than or equal +to zero, the Adjusted Index Return will be the lesser of the Cap Rate or the Index Return. If the Index Return is less than zero and +within or equal to the Buffer percentage, the Adjusted Index Return will be a positive rate of interest equal to the absolute value of +the Index Return. The absolute value of a number is the value of that number without regard to it being positive or negative. For example, +the absolute value of -10 is 10. This means that any positive Index Return up to the Cap Rate will be applied to your ILO Value, and +the absolute value of any negative Index Return up to the Buffer Rate will be credited to your ILO Value as positive interest. If negative +Index Return exceeds the Buffer Rate, then the Adjusted Index Return is equal to the negative Index Return in excess of the Buffer percentage. + + + + Example: +10% Cap Rate & 10% Dual Direction Buffer + + + + + Index + Return + + Adjusted + Index + +Return + + + 8% + 10% + Cap Rate + 8% + + + -5% + 10% + Dual Direction Buffer Rate + 5% + + + 15% + 10% + Cap Rate + 10% + + + -15% + 10% + Dual Direction Buffer Rate + -5% + + + + + 33 + + + + + + + + Protection +Levels. Each ILO also includes a Protection Level in the form of a Buffer or Floor, which may limit how much loss you will +incur at the end of the Term when the Index Return is negative. The Protection Level does not apply when the Index Return is positive +or equal to zero. On the Term End Date, the applicable Protection Level is applied to the negative Index Return to determine the Adjusted +Index Return. The Protection Levels provide only limited protection against downside risk. You may lose money. + + + + Buffer +(not including the Dual Direction Buffer). The Buffer Rate is the maximum loss we will protect you from at the end of the +Term for a Point to Point ILO. We protect your ILO Value from any loss up to and including the Buffer Rate. When the Index Return is +negative, then the Adjusted Index Return is equal to the lesser of the negative Index Return plus the Buffer Rate, or zero. You will +only incur a loss by the amount that the Index Return has declined in excess of the Buffer Rate. If the Index Return has declined less +than or up to your Buffer Rate, your Adjusted Index Return will be zero. We currently offer Buffer Rates of 10%, 15%, and 20%, depending +on which ILO(s) you choose. + + + + Example: +15% Buffer Rate + + + + + Index + Return + Adjusted + Index + + Return + + + 0% + 0% + + + -5% + 0% + + + -20% + -5% + + + + +Dual +Direction Buffer. Under the Dual Direction Buffer, we protect your ILO Value from any loss up to and including the Buffer +Rate. If the negative Index Return is less than zero and within or equal to the Buffer percentage, the Adjusted Index Return will be +a positive rate of interest equal to the absolute value of the Index Return. The absolute value of a number is the value of that number +without regard to it being positive or negative. For example, the absolute value of -10 is 10. If negative Index Return exceeds the Buffer +Rate, then the Adjusted Index Return is equal to the negative Index Return in excess of the Buffer percentage. This means that the absolute +value of any negative Adjusted Index Return up to and including the Buffer Rate will be credited to your ILO Value as positive interest. +You will only incur a loss by the amount that the Index Return has declined in excess of the Buffer Rate. + + + +Example: +10% Cap Rate & 10% Dual Direction Buffer + + + + + Index + Return + + Adjusted + Index + + Return + + + -5% + + 5% + + + -10% + 10% + Dual Direction Buffer Rate + 10% + + + -15% + + -5% + + + + + + Floor. +The Floor is the maximum loss you can incur due to negative Index Return at the end of a Term. If the Index Return is negative +on the Term End Date, then the Adjusted Index Return is equal to the greater of the Index Return or the Floor. This means that your ILO +Value will incur negative interest up to the amount of the Floor, and you will not incur any additional loss if the Index Return has +declined more than your Floor Rate. We currently offer a -10% Floor, depending on which ILO(s) you choose. + + + + Example: +-10% Floor Rate + + + + + Index + Return + Adjusted + Index + +Return + + + 0% + 0% + + + -5% + -5% + + + -10% + -10% + + + -15% + -10% + + + + + The +Buffer Rate and Floor provide only limited protection against negative Index Return. When you invest Purchase Payments and/or Contract +Value in an ILO, you bear the risk that negative Index performance may cause the Adjusted Index Return to be negative even after the +application of the Buffer or Floor. This would result in a negative ILO Credit and reduce your ILO Value. Additionally, Buffer Rates +and Floor Rates provide downside protection only on the ILO Term End Date, so your exposure to negative Index performance during a Term +is greatest before the ILO Term End Date. + + + + 34 + + + + + + + +PERFORMANCE LOCK + + + + If +you allocate Purchase Payments or Contract Value to any of the ILOs, you may request to exercise the Performance Lock feature at any +time after the 60th calendar day from the Term Start Date until and including the Business +Day before the Term End Date. If you choose to exercise the Performance Lock feature for an ILO during a Term, generally, your entire +value in the ILO will be locked-in at the Interim Value calculated at the end of the Business Day that the Performance +Lock is exercised. However, if you have made Subsequent Purchase Payments into the same ILO in the first Contract Year, each Purchase +Payment will constitute a different segment in the initial ILO Term with its own Investment Base and Interim Value, and +the investment performance of each segment will be tracked separately. If you have multiple segments in the same ILO in the initial Term +due to multiple Purchase Payments in the first Contract Year, the value of each segment may be locked-in independently. You may exercise +the Performance Lock feature once for each segment during the initial Term. When you exercise the Performance Lock feature, you must +clearly indicate which segment(s) to lock-in. + + + + The Performance Lock will be exercised on the Business +Day that we receive your request In Proper Form. The entire Value in an ILO (or segment) will be locked-in. The locked-in value will +remain in the ILO, but will be credited with a fixed rate of interest equal to the annualized ILO Budget rate until the next Contract +Anniversary. The ILO Budget rate is an interest rate equivalent to the fair value of the hypothetical derivatives supporting the ILO +on the Term Start Date. Your decision to exercise the Performance Lock will terminate your investment in the ILO and you will not receive +an ILO Credit or the application of the Crediting Strategy or Protection Level to protect against any loss. Withdrawals (including applicable +surrender charges and taxes) will reduce the locked-in value by the amount of the withdrawal. Withdrawals from the locked-in amount are +not subject to any Interim Value adjustment and will not result in negative adjustments to the Investment Base, but are subject to applicable +surrender charges, a market value adjustment, taxes, and a 10% federal penalty tax if made before age 59 . + + + + The locked-in value may not be reallocated until +the next Contract Anniversary. Because the ILO Protection Level only applies at the end of the ILO Term, the locked-in value will not +be protected from any negative Index performance. On the next Contract Anniversary, the locked-in value will begin a new Term in the +same 1-year ILO that was previously locked-in, unless you provide us with transfer instructions. If the Performance Lock is exercised +on a 6-year ILO, then on the next Contract Anniversary, the locked-in value will automatically begin a new Term in the corresponding +1-year ILO (i.e., a 1-year ILO with the same reference Index, type of Crediting Strategy and Protection Level, and Protection Level rate) +unless you provide us with transfer instructions. If a 1-year ILO is not available for a new Term, your previously-locked-in value will +be transferred to the Fixed Account Option unless you provide us with transfer instructions. If you exercise the Performance Lock on +a 6-year ILO, you will be unable to transfer or reallocate your Contract Value to another 6-year ILO until the end of the current MVA +Term, and only if you elect to renew the 6-year MVA Term at the expiration of the current MVA Term. See TRANSFERS AND REALLOCATIONS +for more information. + + + + You +may exercise the Performance Lock feature only once during a Term for each ILO (or once for each segment during any initial ILO Term +due to Subsequent Purchase Payments in the first Contract Year). This is because the entire value in an ILO (or segment) is locked-in, +and your investment in the ILO terminates. You may request to exercise the Performance Lock feature by notifying us before close of Business +on any Business Day prior to the Term End Date. See ADDITIONAL INFORMATION INQUIRIES AND SUBMITTING FORMS AND +REQUESTS for instructions on how to contact us. The request to exercise the Performance Lock feature must be received by us before +close of Business in order to lock-in that day s ending Interim Value. Requests received after close of Business are considered +received on the following Business Day, and will lock-in that Business Day s Interim Value. + + + +The exercise of the Performance Lock feature is irrevocable +and may only be cancelled if we receive the request to cancel before close of Business on the same Business Day that the request to exercise +the feature is received. + + + + See APPENDIX B for a description of how +Interim Values are calculated. You may contact us at our Service Center to obtain your Interim Value(s) for any ILO in which you +are invested and the current annualized ILO Budget rate. + + + + Because we determine the Interim Value at the end +of the Business Day that the Performance Lock request is received, you will not be able to determine the Interim Value that will be locked-in +prior to the Performance Lock request. Even if the Index s performance has been positive, it is possible that your Interim Value +may have decreased at the time we lock-in the ILO Value. Also, if the Index s performance has been negative, it is possible that +your Interim Value may have decreased further at the time you exercise the Performance Lock. You bear the risk that the Interim Value +you lock-in will be lower than the Interim Value you last obtained, and lower than the potential ILO Value you would receive at the end +of the Term. If you exercise the Performance Lock feature when the Interim Value is higher than your Investment Base at the beginning +of the Term, you will lock-in any positive gain with respect to that ILO for that Term (excluding the impact of any withdrawals taken +during the Term, including applicable surrender charges and taxes). If you exercise the Performance Lock feature when the Interim Value +is lower than your Investment Base at the beginning of the Term, you will lock-in any loss. If you have multiple segments in the same +ILO for the initial Term and you exercise the Performance Lock feature on a segment during the initial Term, you will lock-in the Interim +Value for that segment. It is possible that one segment s Interim Value may have increased, while other segment s Interim +Values may have decreased at the time the Performance Lock is exercised. + + + +Please keep in mind that the ILO Protection Level +only applies to protect you from limited negative Index performance at the end of the ILO Term. If you exercise the Performance Lock, +you bear the risk that the Interim Value that you lock-in will be lower than the potential ILO Value you would have received at the end +of the Term if the Protection Level were applied. You also bear the risk that any gain you may lock-in will be lower than the credit +you would have received at the end of the Term o after the application of the Crediting Strategy. If you exercise the Performance Lock +feature at a time when your Interim Value has declined, you will lock-in any loss. There may not be an optimal time to exercise the Performance +Lock feature. It may be better for you if you do not exercise the Performance Lock feature during a Term. We will not advise you as to +whether or when you should or should not exercise the Performance Lock, and we are not responsible for any losses that may occur due +to your decision to exercise this feature. See PERFORMANCE LOCK RISK. + + + +ORDER OF OPERATIONS FOR CONTRACT ANNIVERSARY PROCESSING + + + +The +following is the order in which transactions and other requests will be carried out on each Contract Anniversary, regardless of whether +or not the Contract Anniversary falls on a Business Day. + + + + Step 1: The ILO Credit is calculated +and applied to the Investment Base to determine the Term ending value. + + + + Step 2: Transactions effective +on the Contract Anniversary are processed in the following order, from first to last: + + + + Death + benefit, then + + Rider + charge (if applicable), then + + Withdrawals, + then + + Surrender, + then + + Annuitization, + then + + Transfers + + + + Step 3: The Investment Base for the next +Term beginning on the Contract Anniversary is determined + + + + Step 4: Rider resets (if applicable) + + + + 35 + + + + + + + + + +CONTRACT VALUE + + + + + +On the Contract Issue Date, your Contract Value is your initial Purchase +Payment. After the Contract Issue Date, your Contract Value is the sum of your investments in the ILOs ( ILO Value ) and +the Fixed Account Option ( Fixed Account Option Value ). + + + +FIXED ACCOUNT OPTION VALUE + + + + The Fixed Account Option value is the amount allocated to the Fixed +Account Option, plus the daily interest credited, less any withdrawals (including applicable surrender charges and taxes). + + + +INDEX-LINKED OPTION VALUE + + + +Investment Base + + + + On the Term Start Date (or your Contract Issue Date), your ILO +Value for a specific ILO is equal to your Investment Base. The Investment Base is your initial investment into a Term. Each ILO you invest +in will have a separate Investment Base. The Investment Base for the initial Term is the amount of your Purchase Payments allocated to +the ILO. In the initial Term, Subsequent Purchase Payments allocated to the same ILO will each constitute a separate segment in the ILO. +Each segment will have a separate Investment Base. You may have more than one Investment Base in the same ILO Term. On Subsequent Term +Start Dates, the Investment Base is the total amount allocated to the ILO on the Contract Anniversary after any applicable withdrawals +(including applicable surrender charges and taxes) and transfers. The Investment Base will remain the same during the Term unless a withdrawal +is taken from the ILO. Withdrawals (including applicable surrender charges and taxes) taken from the ILOs on any day other than the Term +Start Date and the Term End Date will reduce the Investment Base in the same proportion that the Interim Value (excluding any locked-in +value under the Performance Lock feature) is reduced. This reduction percentage will be determined by dividing the amount of the withdrawal +removed from the ILO (including applicable surrender charges and taxes) by the Interim Value of the ILO immediately prior to the withdrawal. +The percentage is then multiplied by the Investment Base prior to the withdrawal in order to determine the dollar value of the reduction +to the Investment Base. Withdrawals may reduce your Investment Base by an amount greater than the dollar value of the withdrawal. + + + +Example +1 ILO Interim Value less than the ILO Investment Base at time of the Withdrawal + + + +Investment Base (Prior to Withdrawal) = $100,000 + + + + Interim Value Immediately prior to Withdrawal = $85,000 + + Withdrawal Amount from ILO = $20,000 + + + + Investment Base Reduction = ($20,000 / $85,000) x $100,000 += $23,529.41 + + + + Investment Base (After Withdrawal) = $100,000 +$23,529.41 = $76,470.59 + + + +Example 2 ILO Interim Value greater than the +ILO Investment Base at the time of the Withdrawal + + + +Investment Base (Prior to Withdrawal) = $100,000 + +Interim Value Immediately prior to Withdrawal = $115,000 + + Withdrawal Amount from ILO = $20,000 + + + +Investment Base Reduction = ($20,000 / $115,000) x $100,000 += $17,391.30 + + + +Investment Base (After Withdrawal) = $100,000 $17,391.30 += $82,608.70 + + + +At the end of the Term, assuming you do not exercise the Performance +Lock feature, the Investment Base is used to determine the ILO + + + + 36 + + + + + + + + Credit, which may be positive, negative, or equal to zero, and +the ILO Credit is applied to your Investment Base to determine your ending ILO Value. In the initial Term, each segment in an ILOs (due +to Subsequent Purchase Payments) will each receive a separate ILO Credit, which will be added to the respective Investment Base. Your +ending ILO Value may be reallocated into a new Term in the same ILO, if available, or transferred into a new Interest Crediting Option +on the Contract Anniversary coinciding with the Term End Date and the Subsequent Term Start Date. + + + +Adjusted Index Return + + + +The ILO Adjusted Index Return is a percentage used to determine the +ILO Credit at the end of the Term. The Adjusted Index Return is determined by adjusting the Index Return by the applicable Protection +Level or Crediting Strategy. Once the Adjusted Index Return is calculated, it is multiplied by the Investment Base in that ILO to determine +the dollar value of the ILO Credit. See INVESTING IN YOUR CONRACT INDEX-LINKED OPTION CREDIT for more information on how +we determine the Adjusted Index Return. + + + +INTERIM VALUE + + + + On any day during the Term except for the Term Start Date and the +Term End Date, your ILO Value is equal to the Interim Value. In the initial Term, Subsequent Purchase Payments invested in the same ILO +will each constitute a different segment in the initial ILO Term, and each ILO segment will have its own associated Interim Value and +Investment Base during the initial Term. Changes to your Interim Value are not directly tied to the performance of the relevant Index +(although Index performance impacts your Interim Value). Rather, we calculate the Interim Value each Business Day between the Term Start +Date and the Term End Date based on the value of a hypothetical portfolio of derivative financial instruments designed to replicate the +ILO Value if it were held until the end of the Term. We calculate the Interim Value of your investment in an ILO at the end of each Business +Day between the Term Start Date and the Term End Date. The Interim Value fluctuates each Business Day. The Interim Value on a given Business +Day determines the amount available from that ILO for withdrawals, surrenders, and the other transactions listed below that may occur +on that date. + + + +The Interim Value for an ILO will generally change each Business Day, +and the change may be positive or negative compared to the last Business Day, even if the Index has increased in value. You should understand +that the Interim Value for an ILO on a Business Day will not impact your initial investment (your Investment Base) in that ILO unless +one of the following transactions occurs on that Business Day: + + + + A + Rider charge is deducted from the ILO + + An + amount is deducted from the ILO as a result of a full surrender (including Free Look withdrawals) + or withdrawal (including pre-authorized withdrawals, required minimum distributions ( RMDs ), + free withdrawal amounts, guaranteed withdrawal amounts under the GLWB Rider, or any other + withdrawal) + + The + Contract is annuitized; + + The + death benefit is paid; or + + You + exercise the Performance Lock feature. + + + + In any of the above circumstances, the transaction will be processed +based on the Interim Value for that ILO calculated on that Business Day. If you have multiple ongoing ILOs, the transactions listed above +will be based on an Interim Value for some or all of your ILOs. You may contact us at our Service Center to obtain your Interim Value(s) for +any ILO in which you are invested. + + + + The Interim Values generally reflect less gain and more downside +than would otherwise apply at the end of the Term. As such, when a transaction is processed based on an Interim Value, the Interim Value +could reflect less gain or more loss (perhaps significantly less gain or more loss) than would be applied at the end of the Term. This +means that there could be significantly less money available under your Contract for withdrawals, annuitization, and the death benefit. +The application of an Interim Value may result in a loss even if the Index performance at the time of withdrawal or other transaction +listed above is higher than at the beginning of the Term. Please see ACCESS TO YOUR MONEY Effect of Withdrawals from the ILOs +for more information on the impact of withdrawals. If you use the Performance Lock feature to lock-in an Interim Value that is lower +than your Investment Base on the Term Start Date, you may lock-in a loss. See PERFORMANCE LOCK for more information. + + + +The Interim Value for an ILO is calculated +using the following formula: + + + +A x (1 + B ( C x D )), where: + + + + + A = Investment Base + + + + + B = Market Value of Derivatives supporting the + ILO + + + + C = ILO Budget + rate + + + + D = Percentage + of ILO Term time remaining. + + + + Investment + Base. Similar to the end of a Term, we calculate the Interim Value of an ILO by applying + a percentage gain or loss to your Investment Base. + + + + Market + Value of Derivatives supporting the ILO. Gains and losses for Interim Values are not + directly tied to the + + + + 37 + + + + + + + + performance of the Index for the ILO. We calculate the +Interim Value by using a formula that looks to changes in the values of hypothetical derivative financial instruments, less the prorated +fair value of the hypothetical derivatives supporting the ILO if it were held until the end of the Term. The hypothetical derivatives +used are designed to approximate the market value of the Index. The values of these instruments can be affected by factors such as Index +performance since the Term Start Date, implied volatility, dividend rates, interest rates, and the time remaining in the ILO Term. This +formula is intended to produce an estimated fair value for your investment in the ILO on that Business Day. The estimated fair value +is intended to reflect factors such as the likelihood, and magnitude of, a positive or negative Index Return at the end of the Term, +and the risk of loss and the possibility of gain at the end of the Term. + + + + ILO + Budget Rate. The ILO Budget rate is an interest rate equivalent to the fair value of + the hypothetical derivatives supporting the ILO on the Term Start Date. Pacific Life supports + the index-linked options available under this Contract through the purchase or sale of derivative + instruments. Derivatives are purchased on each ILO Term Start Date to align with the ILO + Crediting Strategies. For withdrawals taken during the ILO Term, the ILO Interim Value calculation + approximates the fair value change in the portion of hypothetical derivative instruments + that must be sold to fund the withdrawal, including the recapture of the unvested portion + of the ILO Budget used to purchase the derivatives calculated on the ILO Term Start Date. + The recapture of the unvested portion of the ILO Budget Rate represents lost fixed income + investment income to the company that would have been realized if the withdrawal had instead + remained invested until the ILO Term End Date. The vesting period is equal to the length + of the ILO Term. The ILO Budget rate (as calculated on the ILO Start Date) that remains unvested + is equal to the number of days remaining in the ILO Term, as of the date the ILO Interim + Value is calculated due to the withdrawal, divided by the length (in days) of the ILO Term. + + + + Percentage + of ILO Term Time Remaining. This percentage is calculated by dividing the total number + of days remaining in the Term by the total number of days in the Term (including leap days + when applicable). + + + +Please see APPENDIX A and APPENDIX B for more details +and examples of our process for calculating Interim Values, including the formula we use to measure the changes in the values of the +underlying financial instruments. + + + + Interim +Value Maximum Potential Loss. Certain transactions, such as (i) taking a withdrawal or surrendering your Contract, (ii) exercising +the Performance Lock feature, (iii) annuitization, or (iv) the payment of a death benefit to your Beneficiaries, are based +on the Interim Values when they occur before the Term End Date. Withdrawals or surrenders that cause the ILO Interim Value to be recalculated +could result in the loss of principal and previously-credited earnings in the Contract, and such losses could be as high as 100%. The +maximum loss would occur if there is a total distribution from an ILO during the Term at a time when the Index Price has declined to +zero. + + + + 38 + + + + + + + + + +ACCESS TO YOUR MONEY + + + + + +WITHDRAWALS + + + +Optional Withdrawals + + + +You may, on or prior to your Annuity Date, withdraw all or a portion +of the amount available under your Contract while the Owner (or Annuitant in the case of a Non-Natural Owner) is living and your Contract +is in force. Withdrawals are not permitted after the Annuity Date. Partial withdrawals are generally not permitted until 30 calendar +days after your Contract Issue Date; however, we are currently not enforcing this limitation. You may also make a full withdrawal of +your Contract Value at any time, which is referred to as a surrender. Withdrawals will be effective as of the end of the Business Day +on which we receive the request In Proper Form. If you surrender your Contract, it will be terminated as of the effective date of the +withdrawal. + + + + You may request to withdraw a specific dollar amount or a specific +percentage of your Contract Value. You may choose to make your partial withdrawal from specified Interest-Crediting Options, or your +entire Contract Value. If you do not specify the Interest Crediting Options, your withdrawal will typically be taken from all of your +Interest Crediting Options proportionately on the date of the withdrawal. If Subsequent Purchase Payments are allocated to the ILOs in +the first Contract Year, partial withdrawals will be taken on a First-In, First-Out ( FIFO ) basis during the initial ILO +Term for purposes of interest calculations. Partial withdrawals will be taken from all of the Interest Crediting Options proportionately +for all Subsequent Terms. + + + +Each withdrawal must be for $500 or more. Pre-authorized partial withdrawals +must be at least $250, except for pre-authorized withdrawals distributed by Electronic Funds Transfer (EFT), which must be at least $100. +Upon taking a withdrawal, we will send you the amount of the Net Partial Withdrawal, which is equal to the amount of the gross withdrawal +requested, adjusted for any applicable surrender charge, market value adjustment, and premium taxes and/or other taxes. + + + + Amounts transferred or withdrawn from the Fixed Account Option +may be delayed under extraordinary circumstances. See ADDITIONAL +INFORMATION TIMING OF PAYMENTS AND TRANSACTIONS. + + + +Distributions made due to divorce instructions or under Code Section 72(t)/72(q) (substantially +equal periodic payments) are treated as withdrawals for Contract purposes and may result in a surrender charge assessment. + + + +Amount Available for Withdrawal + + + + The amount available for withdrawal is your Cash Surrender Value, +which is your Contract Value at the end of the Business Day on which your withdrawal request is effective, adjusted for any applicable +rider charges, surrender charges, market value adjustment, and charge for premium taxes and/or other taxes. Any amounts withdrawn +(including withdrawals free of a surrender charge and pre-authorized withdrawals) from an ILO during a Term will subject to an Interim +Value calculation. You may contact us at our Service Center to obtain your Interim Value(s) for any ILO in which you are invested. +The amount we send to you will also be adjusted for any required or requested federal and state income tax withholding. If you elected +the GLWB Rider, taking a withdrawal before the age of 59 may result in adverse tax consequences such as a 10% tax penalty, and +taking a withdrawal that is greater than the allowed annual withdrawal amount under the Rider may result in adverse consequences such +as a reduction in Rider benefits, failure to receive lifetime withdrawals under the Rider, or termination of the Rider. + + + +You assume investment risk on Purchase Payments +in the ILOs. As a result, the amount available to you for withdrawal from any ILO may be more or less than the total Purchase Payments +you have allocated to that ILO, or your Investment Base in the ILO. See RISK FACTORS. + + + +Withdrawals Free of a Surrender Charge + + + + Subject to the provisions described above, each Contract Year during +the surrender charge period you may withdraw a portion of your Purchase Payments and Contract Value without incurring a surrender charge +or market value adjustment. This amount is referred to as the free withdrawal amount. While the Contract is in the surrender +charge period, the free withdrawal amount in each Contract Year is equal to 10% of the aggregate Purchase Payments. For subsequent MVA +Terms, the free withdrawal amount in each Contract Year is equal to 10% of the Contract Value on the Contact Anniversary corresponding +to the start of the MVA Term. Withdrawals of mandatory required minimums ( RMDs ) from certain Qualified Plans and the maximum +annual withdrawal amount allowed under the GLWB Rider count towards the calculation of the free withdrawal amount for a Contract Year. +Any eligible portion of your Purchase Payments or Contract Value not withdrawn during a Contract Year may not be carried over to the +next Contract Year. The annual free withdrawal amount may be subject to an Interim Value adjustment, premium taxes and/or other taxes, +federal income tax on its taxable portion, and may be subject to a tax penalty of 10% if the investor has not reached age 59 . + + + +Pre-Authorized Withdrawals + + + +If your Contract Value is at least $5,000, you may select the pre-authorized +withdrawal option any time before your Annuity Date. You may choose monthly, quarterly, semi-annual or annual withdrawals. Each withdrawal +must be for at least $500, except for withdrawals distributed by Electronic Funds Transfer (EFT), which must be at least $100. Each pre-authorized +withdrawal may also be subject to surrender charges, a market value adjustment, premium taxes and/or other taxes, federal income tax +on its taxable portion, and may be subject to a tax penalty of 10% if you have not reached age 59 . Pre-authorized withdrawals +cannot be used to continue the Contract beyond the Annuity Date. See FEDERAL TAX ISSUES and THE GENERAL ACCOUNT. + + + +Special Requirements for Withdrawals and Payments to Third Party +Payees + + + +Withdrawals may not be directed to individual third-party payees. +If you wish to have a full or partial withdrawal check made payable to a third-party payee that is a financial institution, trust, or +charity, you must provide complete instructions and the request may require an original signature and/or signature guarantee. + + + +Special Restrictions Under Qualified Plans + + + + Qualified Plans may have additional rules regarding +withdrawals from a Contract purchased under such a Plan. In general, if your Contract was issued under certain Qualified Plans, you +may not withdraw amounts attributable to contributions made pursuant to a salary reduction agreement (as defined in Code Section 402(g)(3)(A)) +or to transfers from a custodial account (as defined in Code Section 403(b)(7)) except in cases of your: + + + + severance + from employment, + + death, + + disability + as defined in Code Section 72(m)(7), + + distributions + upon termination of a Qualified Plan, + + reaching + age 59 , or + + hardship + as defined for purposes of Code Section 401. + + + + 39 + + + + + + + +These limitations do not affect certain rollovers or exchanges between +Qualified Plans, and do not apply to rollovers from these Qualified Plans to an individual retirement account or individual retirement +annuity. In the case of a 403(b) plan, these limitations do not apply to certain salary reduction contributions made, and investment +results earned, prior to dates specified in the Code. Hardship withdrawals under the exception provided above are restricted to amounts +attributable to salary reduction contributions, and do not include investment results. This additional restriction does not apply to +salary reduction contributions made, or investment results earned, prior to dates specified in the Code. + + + + Certain distributions, including rollovers, may be subject to mandatory +withholding of 20% for federal income tax and to an additional tax of 10% if the distribution is not transferred directly to the trustee +of another Qualified Plan, or to the custodian of an individual retirement account or issuer of an individual retirement annuity. See +FEDERAL TAX ISSUES - Tax Withholding for Qualified Contracts. Distributions may also trigger withholding for state income taxes. +The tax and ERISA rules relating to withdrawals from Contracts issued to Qualified Plans are complex. We are not the administrator +of any Qualified Plan. You should consult your qualified tax advisor and/or your Plan Administrator before you withdraw any portion of +your Contract Value. + + + +Effective Date of Withdrawal Requests + + + +Withdrawal requests we receive before the close of the New York Stock +Exchange, which usually closes at 4:00 p.m. Eastern time, will be effective at the end of the same Business Day that we receive +them In Proper Form unless the transaction or event is scheduled to occur on another Business Day. Withdrawal requests received +after the close of the New York Stock Exchange will be effective on the following Business Day. We will normally send the proceeds within +7 calendar days after your request is effective. See ADDITIONAL INFORMATION TIMING OF PAYMENTS AND TRANSACTIONS. +If a Purchase Payment is made by check and you submit a withdrawal request immediately afterwards, we may hold the check and the payment +of any withdrawal proceeds may be delayed until we receive confirmation in our Service Center that your check has cleared. In general, +a delay of the payment of withdrawal proceeds during the check hold period will not exceed ten Business Days after we receive your withdrawal +request In Proper Form. If we delay the payment of withdrawal proceeds during the check hold period, we will calculate the value of your +withdrawal proceeds as of the end of the Business Day we received your withdrawal request In Proper Form. + + + +Tax Consequences of Withdrawals + + + +All withdrawals, including pre-authorized withdrawals, will generally +have federal income tax consequences, which could include tax penalties. You should consult with a qualified tax advisor before making +any withdrawal or selecting the pre-authorized withdrawal option. See FEDERAL TAX ISSUES - 10% Tax Penalty Applicable to Certain +Withdrawals and Annuity Payments. + + + +Effect of Withdrawals from the ILOs + + + + If you take a partial withdrawal (including required minimum distributions +( RMDs ), free withdrawal amounts, pre-authorized withdrawals, rider charges, and any guaranteed withdrawal amounts under +the GLWB Rider), from an ILO on the Contract Anniversary corresponding with the Term End Date, the withdrawal will reduce the Investment +Base by the dollar amount of the withdrawal (plus applicable surrender charges and taxes) after the ILO Credit is applied. + + + + If you take a partial withdrawal (including required minimum distributions +( RMDs ), free withdrawal amounts, pre-authorized withdrawals, rider charges, and guaranteed withdrawal amounts under the +GLWB Rider) from an ILO during a Term, the withdrawal will trigger an Interim Value calculation. The Interim Value calculated could be +less than your investment in the ILO even if the Index is performing positively. Withdrawals or surrenders that cause the ILO Interim +Value to be recalculated could result in the loss of principal investment and previously credited Contract earnings, and such losses +could be as high as 100%. The withdrawal will reduce your Interim Value by the amount of the withdrawal (including applicable surrender +charges and taxes) and reduce your Investment Base in the ILO and the death benefit by the same proportion that the Interim Value is +reduced by the withdrawal. If applicable, the MVA will subsequently be applied to increase or decrease the amount paid to you from the +withdrawal or surrender. The resulting reduction in your Investment Base may be more than the amount of the withdrawal and may be significant, +and will reduce your Investment Base for the remainder of the Term. Reductions to your Investment Base will result in potentially significant +reductions to your ILO Value for the remainder of the Term, and will result in a lower positive ILO Credit, if any, at the end of the +Term because the amount of the ILO Credit is calculated based on the Investment Base, which will be reduced proportionately by the withdrawal. +Any withdrawal or surrender taken before the end of the Term could also result in a greater loss or lower gain than the ILO would provide +at the end of the Term, and the Crediting Strategy or Protection Level will not be applied. + + + + A reduction in your Interim Value may cause your ILO Value for +the remainder of the Term to be lower than if you did not take the withdrawal. The Interim Value for that ILO is reduced by the amount +of the withdrawal. Because your Value in the ILO is equal to your Interim Value on any given Business Day during a Term between the Term +Start Date and the Term End Date, lower Interim Values will result in lower ILO Value. Additionally, at the end of a Term, assuming that +you do not exercise the Performance Lock feature, any positive gain credited to you will be lower than if you did not take the withdrawal. +This is because the Adjusted Index Return is multiplied by your Investment Base in order to calculate your ILO Credit, and a withdrawal +reduces your Investment Base by the same proportion as the Interim Value. + + + + While you may still exercise the Performance Lock feature after +taking a withdrawal, because your Interim Value for the remainder of the Term will likely be lower than if you did not take the withdrawal +as explained above, the Interim Value that you are able to lock-in with the Performance Lock feature will likely be lower than the Interim +Value that would have been possible had you not taken the withdrawal. See PERFORMANCE LOCK for more information. + + + + 40 + + + + + + + + + + TRANSFERS AND REALLOCATIONS + + + + + + You may transfer Contract Value among the available Interest Crediting +Options, free of charge, or reallocate your ILO Value into the same ILO for a new Term, on the Contract Anniversary coinciding with the +Term End Date. Transfers and reallocations are not permitted during a Term (except transfers permitted on the next Contract Anniversary +after the exercise of the Performance Lock on a 6-year ILO). You may transfer or reallocate Contract Value into one or more of the available +ILOs and the Fixed Account Option. At the end of a 6-year Term, you will be unable to transfer or reallocate your Contract Value into +another 6-year Term unless you elect to renew the MVA Term at the expiration of the current MVA Term, and allocate your Contract Value +into the 6-year ILO at the start of the new MVA Term. Transfers and reallocations may only be made into a 6-year ILO Term at the beginning +of an MVA Term. See MARKET VALUE ADJUSTMENT below for more information. If you elect the GLWB Rider, you must transfer and reallocate +your Contract Value in accordance with the investment allocation restrictions. You will be unable to allocation Contract Value into ineligible +Interest Crediting Options. See INCOME GUARD BENEFIT for more information. + + + + Transfer requests may only be submitted to us within +30 days prior to the close of the Business Day on the upcoming Contract Anniversary date, and must be provided at least prior to the +close of Business on the Contract Anniversary date coinciding with the Term End Date. If we receive your request on a non-Business Day +or after the close of a Business Day, your request will be deemed to be received on the next Business Day. Transfer instructions can +be requested, changed or cancelled any time prior to close of Business on the Contract Anniversary coinciding with the Term End Date. + + + + If +we do not receive transfer instructions from you within the appropriate time frame, we will automatically reallocate or transfer your +ILO Value. Your Contract Value in any expiring 1-year Term will remain in its current allocations for the next Term, subject to the renewal +Crediting Strategy Rates declared for that Term, unless other instructions are provided. The Protection Levels (Buffer and Floor +Rates) for the ILOs are guaranteed not to change for as long as we offer those ILOs. Any Contract Value in an expiring 6-year Term will +also remain in its current allocation for the next 6-year Term, subject to the renewal Crediting Strategy Rates, as long as the ILO remains +available and the MVA Term is renewed. The Protection Level will not change. Amounts that are automatically reallocated or transferred +in the absence of transfer instructions cannot be reallocated until the next Contract Anniversary. If no transfer instructions are received +and your Contract Value is invested in a 1-year ILO that is not available for reallocation for a Subsequent Term, the Contract Value +in the expiring ILO will automatically be transferred to the Fixed Account Option, subject to the renewal Guaranteed Rate, until the +next Contract Anniversary. If your Contract Value is invested in a 6-year ILO that is not available for reallocation for a Subsequent +Term, or if you do not renew the MVA Term, in the absence of transfer instructions, the Contract Value in the expiring ILO will automatically +be transferred to the corresponding 1-year ILO (i.e., a 1-year ILO with the same reference Index, type of Crediting Strategy and Protection +Level, and Protection Level rate), subject to the renewal Crediting Strategy Rates, until the next Contract Anniversary. If the corresponding +1-year ILO is not available for investment, the Contract Value in the expiring ILO will automatically be transferred to the Fixed Account +Option, subject to the renewal Guaranteed Rate, until the next Contract Anniversary. + + + +We will send you a notice 30 days prior to the Term End Date explaining +the ILOs available to you for transfer or reallocation on the next Contract Anniversary, and directing you to our website where you can +view the renewal interest rates and ILO crediting rates declared for the next Term. + + + +We have the right, at our discretion (unless otherwise +required by law), to require certain minimums in the future in connection with transfers. These may include a minimum transfer amount +and a minimum Contract Value, if any, in the Interest-Crediting Option from which the transfer is made or to which the transfer is made. +If your transfer request results in your having a remaining Contract Value in an Interest-Crediting Option that is less than $500 immediately +after such transfer, we may (with prior written notice) transfer that Contract Value to the other Interest-Crediting Options you are +invested in on a pro rata basis, relative to your most recent allocation instructions. + + + +Any policy we may establish with regard to the exercise +of any of these rights will be applied uniformly to all Contract Owners. + + + + 41 + + + + + + + + INCOME GUARD BENEFIT + + + +GENERAL INFORMATION + + + + The Income Guard benefit (the GLWB Rider or the + Rider ) is subject to availability (including state availability) and may be discontinued for purchase at any time. If we +decide to discontinue offering the optional Rider, we will amend this Prospectus. The Rider may not be available through your financial +professional. You may obtain information about the optional benefits that are available to you by contacting your financial professional. +Withdrawals taken under the GLWB Rider from the ILOs may trigger the use of Interim Value for withdrawals. You may contact us at our +Service Center to obtain your Interim Value(s) for any ILO in which you are invested. Before purchasing the optional Rider, make +sure you understand the terms and conditions and the risk of potentially negative adjustments. Consult with your financial professional +for advice on whether the optional Rider is appropriate for you. Your election to purchase the optional Rider must be received In Proper +Form. Investors should not purchase the GLWB Rider if they intend to take regular withdrawals in excess of the Rider Annual Withdrawal +Amount or do not intend to take any regular withdrawals. Withdrawals in excess of the GLWB Rider Annual Withdrawal Amount or taking a +withdrawal before the age of 59 , may result in adverse consequences such as a 10% tax penalty, a permanent reduction in Rider +benefits, the failure to receive lifetime withdrawals under the Rider, or termination of the Rider. + + + + The Income Guard benefit rider available through this Contract +for an additional cost, is categorized as a guaranteed lifetime withdrawal benefit rider. + + + + The GLWB Rider focuses on providing an income stream for life through +withdrawals during the accumulation phase, if certain conditions are met. The Rider may vary in the percentage that may be withdrawn +each year, and how long the withdrawals may last (for example, for a Single Life or for Joint Lives). The Rider also offers the potential +to lock in-gains on each Contract Anniversary, which may increase the annual amount you may withdraw each year under the Rider. Such +locked-in gains are only used to calculate annual Rider withdrawal limits and are not added to the Contract Value, used to calculate +interest on amounts allocated to the Fixed Account Option or determine any ILO Credit, withdrawable as a lump sum, payable as a death +benefit, or used in calculating any annuity option under the Contract. + + + + When certain conditions are met, the GLWB (Single or Joint) Rider +provides an income stream regardless of market performance, even if your Contract Value is reduced to zero (due to Compliant Withdrawals, +fees, market performance, or otherwise). Withdrawals made under the Rider are from the Owner s Contract Value until the Contract +Value goes to zero. The Company is only required to make lifetime income payments to the Owner from its own assets once the Contract +Value is reduced to zero (unless due to Excess Withdrawals or Early Withdrawals), which may never occur. + + + + For +purposes of this Rider, the term withdrawal includes any applicable surrender charges, MVA, and taxes. Compliant +Withdrawals under the Rider are not subject to surrender charges or the MVA. However, Excess Withdrawals and Early Withdrawals will be +subject to applicable surrender charges and the MVA. Amounts withdrawn under this Rider will be subject to the same conditions, limitations, +restrictions and deductions, if applicable, as withdrawals otherwise made under the provisions of the Contract. Withdrawals taken under +the GLWB Rider from the ILOs may trigger the use of Interim Value for withdrawals. Withdrawals under this Rider are not annuity payouts. +Annuity payouts generally receive a more favorable tax treatment than other withdrawals. + + + + If your Contract is a Qualified Contract, including a TSA/403(b) Contract, +you are subject to restrictions on withdrawals you may take prior to a triggering event (e.g. reaching age 59 , separation from +service, disability) and you should consult your tax or legal advisor prior to purchasing this optional Rider, the primary benefit of +which is guaranteeing withdrawals. If the Contract is a Qualified Contract, taking withdrawals before age 59 may subject the +investor to a 10% penalty tax for early withdrawal. For additional information regarding withdrawals and triggering events, see FEDERAL +TAX ISSUES IRAs and Qualified Plans. + + + +Overview of the Rider + + + + If you choose to purchase the Rider, beginning at age 59 , +or three years from the Rider Effective Date, whichever is later, you will have the option to withdraw up to a maximum amount (the Protected +Payment Amount, plus any Income Rollover Amount) each year until the Rider terminates. On the Rider Effective Date, you will elect either +a single or joint life benefit. You will have the opportunity to change this election, and/or the Designated Lives under the Rider, prior +to the Income Commencement Date. + + + + The Rider provides a Protected Payment Amount that you can withdraw +each Contract Year after the Income Commencement Date. The Protected Payment Amount is first determined on the Income Commencement Date, +and re-determined for each year thereafter on the next Contract Anniversary. The Protected Payment Amount is equal to your Protected +Payment Base, multiplied by the applicable Withdrawal Percentage. If the Rider is purchased on, or within 60 days after, the Contract +Issue Date, your Protected Payment Base is initially equal to your initial Purchase Payment. If the Rider is elected on, or within 60 +days after, a Contract Anniversary, the Protected Payment Base is initially equal to your Contract Value as of the Contract Anniversary +Date. The Withdrawal Percentage is initially determined based on your age (or the age of the youngest Designated Life for Joint Life) +on the Rider Effective Date, and will be increased by Deferral Credits each Contract Anniversary for 10 Contract Years or until you choose +to begin receiving Lifetime Withdrawals under the Rider, whichever occurs first. The Rider also provides for automatic increases ( Resets ) +to the Protected Payment Base each Contract Anniversary after the Rider Effective Date if the Contract Value is at least $1.00 greater +than the current Protected Payment Base on the Contract Anniversary. + + + + The GLWB Rider may be purchased with or without the Return of Purchase +Payment Death Benefit Rider. Once the Rider is purchased, you cannot voluntarily terminate the Rider. See TERMINATION for more +information. The GLWB Rider is subject to investment restrictions. Please see the detailed Rider description below for complete information +about the optional GLWB Rider and its features and benefits. Work with your financial professional to understand all of the terms +and conditions of the GLWB Rider prior to purchase. Together, you can decide whether the optional living benefit Rider is appropriate +for you. + + + + 42 + + + + + + + + PURCHASING THE RIDER + + + + Prior to purchase, you must obtain our approval if your total Purchase +Payments total $1,000,000 or greater. + + + + Subject to availability and certain conditions, you may purchase +the Rider on, or within 60 days after, the Contract Issue Date or a subsequent Contract Anniversary. To purchase the Rider on, or within +60 days after, the Contract Issue Date, you must elect the Rider on the Contract application. To purchase the Rider on, or within 60 +days after, a Contract Anniversary, you may request to receive the applicable form by contacting our Service Center and submitting the +completed form to us In Proper Form. The rider request form must be submitted to us In Proper Form within 60 days after the Contract +Issue Date or Contract Anniversary date, and will be effective on the Contract Issue Date or corresponding Contract Anniversary date. +In order for the request to add the Rider to be In Proper Form, your Contract Value must only be allocated to eligible Interest Crediting +Options under the Rider as of the Rider Effective Date, which will be the Contract Issue Date or Contract Anniversary date. Pacific Life +reserves the right to restrict purchase of the Rider to the Contract Issue Date and/or cease offering the Rider to new purchasers. For +Contract Owners, this means if you do not elect the Rider on the Contract Issue Date, the Rider may not be available at a later date. + + + +To purchase the Rider, the following conditions must be met: + + + + Age + requirement. The Designated Life/lives must be between the ages of 45 and 85 years old + at the time of Rider purchase. Any Joint, or Contingent Annuitant must also be between the + ages of 45 and 85 years old at the time of Rider purchase. + + + + Investment + requirements. You must allocate your entire Contract Value in accordance with the investment + allocation restrictions listed under INVESTMENT ALLOCATION REQUIREMENTS. + + + + Single + or Joint Life must be elected on the Rider Effective Date and the registration requirements + below will apply based on the election. You may change this election and/or Designated Lives + prior to the Income Commencement Date. Please see ELIGIBILITY OF LIFETIME BENEFITS & + CHANGE OF SINGLE/JOINT LIFE OPTION for restrictions and further details. + + + + Single Life Rider ownership requirements. + + o The Designated Life must be an Owner and must also be an + Annuitant. + + o The Designated Life is the youngest Annuitant for a non-natural + ownership. + + o Single Life Rider is permitted with Joint Ownership, as long + as the Designated Life is identified on the Rider Effective Date. Either Owner may be chosen + as the Designated Life. + + + + Joint Life Rider ownership requirements. + + o Both Designated Lives must be natural persons who are each + other s spouses on the Rider Effective Date. + + o The Contract must be structured such that upon death of one + Designated Life, the surviving Designated Life may retain or assume ownership of the Contract. + + o Any Owner/Annuitant must be a Designated Life (except for + custodial-owned IRA or TSA). + + o For purposes of meeting these eligibility requirements, both + Designated Lives must be any one of the following: + + Joint Owners, where the Owners are each other s + spouses; or + + A sole Owner with the Owner s spouse designated + as the sole primary beneficiary; or + + If the Contract is registered as a custodial IRA or + TSA, the beneficial Owner must be the Annuitant and the Annuitant s spouse must be + designated as the sole primary beneficiary under the Contract. The custodian, under a custodial + owned IRA or TSA, for the benefit of the beneficial Owner, may be designated as the sole + primary beneficiary, provided that the spouse of the beneficial Owner is the sole primary + beneficiary of the custodial account. + + o Joint + Life Rider is not permitted with non-natural Ownership or qualified plans. + + + + Unpermitted + Plan Types. The Rider is not allowed on any of the following plan types: + + o Post-death Non-qualified, Inherited IRAs, Inherited + Roth IRAs and Inherited TSAs + + + + INVESTMENT ALLOCATION REQUIREMENTS + + + + If you elect the Rider, your Contract Value may only be allocated +to the eligible Interest Crediting Options under the Rider as of the Rider Effective Date, which will be the Contract Issue Date or applicable +Contract Anniversary date, depending on when you request the Rider. The eligible Interest Crediting Options under the Rider are the Fixed +Account Option, any of the available ILOs with a 1-year Term, or the 6-year ILO with Cap and Buffer. If the Rider is elected, you will +be unable to allocate Contract Value to any ineligible ILO. + + + + Requests to transfer your Contract Value into eligible Interest +Crediting Options may only be submitted to us within 30 days prior to the close of the Business Day on the upcoming Contract Anniversary +date, and must be provided at least prior to the close of Business on the Contract Anniversary date coinciding with the Rider Effective +Date. If we receive your request on a non-Business Day or after the close of a Business Day, your request will be deemed to be received +on the next Business Day. Transfer instructions can be requested, changed or cancelled any time prior to close of Business on the Contract +Anniversary date coinciding with the Rider Effective Date. No transfers will be permitted after the Contract Anniversary date. + + + + By adding the Rider to your Contract, you agree to the investment +allocation requirements for the entire period that you own the Rider. These requirements limit the number of Interest Crediting Options +that are otherwise available to you under your Contract. We reserve the right to add, remove or change the allowable Interest Crediting +Options under the Rider at the end of a Term. We may make such a change due to changes in market conditions, an Index substitution, or +to help protect our ability to provide the guarantees under the Rider. + + + + If you have already invested in an eligible Interest Crediting +Option, a change to an existing eligible Interest Crediting Option will not require you to transfer the total amount of Contract Value +allocated to an affected Interest Crediting Option, except when an ILO is made unavailable for investment at the end of a Term. If we +change the eligible Interest Crediting Options under the Rider at the end of a Term, we will provide notice at least 30 days prior to +the Term End Date, and you will be able to provide us with instructions to transfer any affected Contract Value into eligible Interest +Crediting Options as of that Contract Anniversary date. If no transfer instructions are received within the appropriate timeframe, we +will automatically transfer your affected Contract Value into a corresponding 1-year ILO that is an eligible Interest Crediting Option +under the Rider, if available. If a corresponding 1-year ILO that is an eligible Interest Crediting Option under the Rider is not available +for investment, we will transfer your affected Contract Value into the Fixed Account Option. + + + + Our right to add or remove allowable Interest Crediting Options, +may limit the number of Interest Crediting Options that are available to you under your Contract in the future. We have the right to +significantly reduce the number of allowable Interest Crediting Options + + + + 43 + + + + + + + + even to a single conservative Interest Crediting Option and the +Fixed Account Option. The S&P 500 1-year ILO with Cap and 10% Buffer, in addition to the Fixed Account, will always +be available under your Contract. Please discuss with your financial professional if this Contract is appropriate for you given our right +to make changes to the allowable Interest Crediting Options. + + + + The +allowable Interest Crediting Options seek to minimize the Company s risk and may reduce overall volatility in investment performance, +which may reduce investment returns, and may reduce the likelihood that we will be required to make payments under the optional benefit +Rider. The reduction in volatility permits us to more effectively provide the guarantees under the Contract. + + + + TRANSFERS + + + + Transfer provisions as stated in the TRANSFERS AND REALLOCATIONS +section earlier in this Prospectus remain unchanged by this Rider. Transfers into ineligible ILOs will not be permitted. + + + +SUBSEQUENT PURCHASE PAYMENTS + + + + Subsequent Purchase Payments will increase the Contract Value immediately +following the payment, by the amount of the Purchase Payment. Increasing your Contract Value through Subsequent Purchase Payments may +increase the amount you may withdraw annually under the Rider without taking an Excess Withdrawal. + + + +IMPORTANT RIDER TERMS AND MINIMUM RIDER AMOUNTS + + + + Compliant +Withdrawal Withdrawals taken on or after the Income Commencement Date of up to the allowable Protected Payment Amount, +plus any applicable Income Rollover Amount in a Contract Year. A Required Minimum Distribution ( RMD ) is deemed a Compliant +Withdrawal when it is made in accordance with the terms described under the WITHDRAWALS provision below. + + + + Deferral +Credit The annual percentage increase that is added to the Withdrawal Percentage each year until the earliest of the +Income Commencement Date or the end of the Deferral Credit Period. The initial Deferral Credit Percentage is based on the Designated +Life s (youngest Designated Life for Joint Life Option) age on the Rider Effective Date. If the Income Commencement Date has not +occurred, then a Deferral Credit is added to the Withdrawal Percentage on each Contract Anniversary during the Deferral Credit Period +shown in the Rider Specifications. Early Withdrawals do not stop the Deferral Credit but will reduce the Protected Payment Base. Upon +making an allowable Rider change, the amount of the Deferral Credit will be re-determined based on the age of the new Designated Life +(youngest Designated Life for Joint Life Option) on the Rider Effective Date. An Automatic Reset will not restart the Deferral Credit +Period. + + + + Designated +Lives (each, a Designated Life) The person(s) upon whose life or lives the benefits of this Rider are +based. The Designated Life or Lives is/are elected on the Rider Effective Date. The Designated Life or Lives may only be changed prior +to the Income Commencement Date (See ELIGIBILITY FOR LIFETIME BENEFITS & CHANGE OF SINGLE/JOINT LIFE OPTION below). + + + +Early +Withdrawal Any withdrawal (including RMDs) taken prior to the Income Commencement Date. + + + + Eligible +Lifetime Withdrawal Date The earliest date that the Owner may designate as the Income Commencement Date. The Eligible +Lifetime Withdrawal Date is the later of the date the Designated Life (youngest Designated Life for Joint Life) attains age 59 , +or three years from the Rider Effective Date. The Eligible Lifetime Withdrawal Date will be recalculated if the Single/Joint Life Option +or Designated Lives are changed. + + + + Excess +Withdrawal (Non-compliant Withdrawals) Any withdrawal (except an RMD Withdrawal) taken after the Income Commencement +Date in excess of the Protected Payment Amount, plus any applicable Income Rollover Amount. + + + + Income +Commencement Date The date that the Owner designates Lifetime Withdrawals to begin. If the Owner designates Lifetime +Withdrawals to begin on a date that is a non-Business Day, Lifetime Withdrawals will begin on the next Business Day. The Income Commencement +Date must be on or after the Eligible Lifetime Withdrawal Date. + + + + Income +Rollover Amount Any remaining portion of the Protected Payment Amount that was not withdrawn during a Contract Year, +and that can be withdrawn during the following Contract Year without reducing the Rider benefits. The Income Rollover Amount will not +be carried over more than one Contract Year and is not cumulative. The Income Rollover Amount is available beginning on the first Contract +Anniversary after the Income Commencement Date. The Income Rollover Amount will not apply beginning in the Contract Year following the +year that the Contract Value is reduced to zero. + + + + Lifetime +Withdrawals Withdrawals of the Protected Payment Amount each Contract Year under the Rider beginning after the Income +Commencement Date. + + + + 44 + + + + + + + + Protected +Payment Amount The total dollar amount that can be withdrawn during a Contract Year under this Rider without reducing +the Protected Payment Base. The Protected Payment Amount is equal to the Withdrawal Percentage multiplied by the Protected Payment Base. +The Protected Payment Amount may be taken in a lump sum, in multiple withdrawals, or as a series of pre-authorized payments within the +Contract Year. If withdrawals are taken during the Term of an ILO, the ILO s Interim Value will be used for purposes of accounting +for the withdrawal. This will reduce the Investment Base in the ILO in the same proportion that the Interim Value was reduced. The resulting +reduction to the Investment Base may be more than the amount of the withdrawal and may be significantly more. See ACCESS TO YOUR MONEY + Effect of Withdrawals from the ILOs. Any remaining portion of the Protected Payment Amount not withdrawn during a Contract +Year can be withdrawn the following Contract Year as a Compliant Withdrawal. This amount is referred to as the Income Rollover Amount, +as defined above. The Protected Payment Amount is not cumulative. + + + + Protected +Payment Base An amount used to determine the Protected Payment Amount. The Protected Payment Base is initially equal +to the initial Purchase Payment if the Rider is added on, or within 60 days after, the Contract Issue Date. If the Rider is added on, +or within 60 days, after a Contract Anniversary, the Protected Payment Base is initially equal to the Contract Value as of that Contract +Anniversary date. The Protected Payment Base is reduced for Early Withdrawals by same proportion that an Early Withdrawal reduces the +Contract Value. The Protected Payment Base is reduced by Excess Withdrawals by the same proportion that the amount of the withdrawal +in excess of the Protected Payment Amount (plus any Income Rollover Amount) reduces the Contract Value minus the Compliant Withdrawal +amount. On each Contract Anniversary after the Rider Effective Date, a Reset of the Protected Payment Base will occur if the Contract +Value is at least $1.00 greater than the Protected Payment Base. + + + + Reset + An automatic increase to the Protected Payment Base to equal the Contract Value on certain Contract Anniversaries. + + + + Reset +Date Any Contract Anniversary on which a Reset occurs. + + + + Rider +Effective Date The date the guarantees and charges for the Rider become effective. This will be either the Contract +Issue Date or the Contract Anniversary date corresponding with the date that the Rider was purchased. + + + + Withdrawal +Percentage The percentage that is multiplied by the Protected Payment Base each Contract Anniversary after the Income +Commencement Date to determine the Protected Payment Amount for that Contract Year. The initial Withdrawal Percentage for each age band +is indicated in the table below in this section. After the Rider Effective Date, the Withdrawal Percentage will be increased by the Deferral +Credit on each Contract Anniversary for 10 Contract Years or until the Income Commencement Date, whichever occurs first. The Withdrawal +Percentage will not change after the Income Commencement Date. + + + +HOW THE RIDER WORKS + + + + Protected Payment Amount + + + + Beginning +at age 59 , or three years from the Rider Effective Date, whichever is later (the Eligible Lifetime Withdrawal Date), +you can elect to begin Lifetime Withdrawals (the Income Commencement Date). On or after the Income Commencement Date, you can withdraw +up to the Protected Payment Amount, plus any Income Rollover Amount, each Contract Year, regardless of market performance, until the +Rider terminates. The Protected Payment Amount is determined on each Contract Anniversary after the Income Commencement Date by multiplying +the applicable Withdrawal Percentage by the Protected Payment Base. There is no Protected Payment Amount prior to the Income Commencement +Date. + + + + The +Withdrawal Percentage is initially determined based on the Designated Life s (youngest Designated Life for Joint Life) age on the +Rider Effective Date. The applicable Withdrawal Percentage will apply for each age band, as indicated in the table below in this +section. After the Rider Effective Date, the Withdrawal Percentage will be increased by the amount of the Deferral Credit percentage +each Contract Anniversary for 10 Contract Years or until the Income Commencement Date, whichever occurs first. The Withdrawal Percentage +will not change after the Income Commencement Date. + + + + The +Protected Payment Base is initially equal to the initial Purchase Payment if the Rider is added on, or within 60 days after, the Contract +Issue Date. If the Rider is added on, or within 60 days after, a Contract Anniversary, the Protected Payment Base is initially equal +to the Contract Value as of that Contract Anniversary date. On each Contract Anniversary after the Rider Effective Date, the Protected +Payment Base may increase due to any Reset if the Contract Value is at least $1.00 greater than the Protected Payment Base on that date. +Please see Reset of Protected Payment Base below for more information. The Protected Payment Base during a Contract +Year will be reduced (possibly to zero) due to Excess or Early Withdrawals. See WITHDRAWALS below for more information. When recalculated +each year, if the Protected Payment Base is less than that of the prior Contract Anniversary, the new Protected Payment Amount will also +be less. If the Protected Payment Base is greater than that of the prior Contract Anniversary, the new Protected Payment Amount will +also be greater. Please see APPENDIX E for examples demonstrating the determination of the Protected Payment Base, the Protected +Payment Amount, and the application of the Withdrawal Percentage and Deferral Credits. + + + + The Protected Payment Amount may be taken in a lump sum, in multiple +withdrawals, or as a series of pre-authorized payments within the Contract Year. If withdrawals are taken during the Term of an ILO, +the ILO s Interim Value will be used for purposes of accounting for the withdrawal. This will reduce the Investment Base in the +ILO in the same proportion that the Interim Value was reduced. The resulting reduction in the investor s Investment Base may be +more than the amount of the withdrawal and may be significantly more. See ACCESS TO YOUR MONEY Effect of Withdrawals from +the ILOs. Contract Owners are advised to schedule withdrawals after the expiration of the surrender charge period and MVA Term, and +to coincide with Term End Dates in order to avoid the use of Interim Value for withdrawals. + + + + Beginning on the first Contract Anniversary after the Income Commencement +Date, any remaining portion of the Protected Payment Amount not withdrawn during a Contract Year (the Income Rollover Amount ) +may be carried over to the next Contract Year and is available for withdrawal during that Contract Year as a Compliant Withdrawal. The +Income Rollover Amount will not be carried over more than one Contract Year and is not cumulative. If a withdrawal does not exceed the +Protected Payment Amount plus any Income Rollover Amount immediately prior to that withdrawal, the withdrawal will be considered a Compliant +Withdrawal. Withdrawals during a Contract Year will first be taken from any available Income Rollover Amount, and then from the current +year s Protected Payment Amount. The Income Rollover Amount does not apply beginning in the Contract Year following the year that +the Contract Value is reduced to zero. Please see WITHDRAWALS below for more information. + + + + 45 + + + + + + + + Deferral Credit + + + + On +the Rider Effective Date, the Deferral Credit percentage is determined based on the age of the of the Designated Life (youngest Designated +Life for Joint Life) on the Rider Effective Date, as indicated in the table below. The Deferral Credit percentage will not change after +the Rider Effective Date, unless the Single/Joint Life Option or the Designated Lives change. After the Rider Effective Date, the Withdrawal +Percentage will be increased by the amount of the Deferral Credit percentage on each Contract Anniversary during the first 10 Contract +Years or until the Income Commencement Date, whichever occurs first. After the last Deferral Credit is applied, the Withdrawal Percentage +will no longer change. + + + + Upon a change to the Single/Joint Life Option or Designated Lives, +the initial Withdrawal Percentage and Deferral Credit will be re-determined based on the attained age of the new Designated Life (youngest +Designated Life for Joint Life) on the Rider Effective Date. Upon a re-determination of the initial Withdrawal Percentage and Deferral +Credit due to a change to the Single/Joint Life Option or Designated Lives, the Deferral Credit period will not be re-started. + + + + Withdrawals that occur prior to the Income Commencement Date ( Early +Withdrawals ) do not alter the amount or application of the Deferral Credit, but will reduce the Protected Payment Base. Please +see WITHDRAWALS below for more information. + + + + + Age + on Rider + + Effective Date + Deferral + Credit + + + 45 + 49 + [ ]% + + + 50 + 54 + [ ] + + + 55 + 59 + [ ] + + + 60 + 64 + [ ] + + + 65 + 69 + [ ] + + + 70 + 74 + [ ] + + + 75 + 79 + [ ] + + + 80 + 84 + [ ] + + + 85 + [ ] + + + + + Reset of Protected Payment Base + + + + The +Protected Payment Base may change over time, which would affect your Protected Payment Amount. On each Contract Anniversary after +the Rider Effective Date until the Annuity Date, the Protected Payment Base will automatically be increased ( Reset ) to +an amount equal to 100% of the Contract Value on the Reset Date if the Contract Value is at least $1.00 greater than the Protected Payment +Base on that date. Reset Dates will always occur on a Contract Anniversary. + + + + The Protected Payment Amount will be recalculated on each Contract +Anniversary by multiplying the Withdrawal Percentage by the Protected Payment Base. Any increase in the Protected Payment Base due to +a Reset will increase your Protected Payment Amount for the following Contract Year. On and after each Reset Date, the provisions of +this Rider shall apply in the same manner as they applied when the Rider was originally issued. The limitations and restrictions on withdrawals, +the deduction of Rider charges, and any future reset options available on and after the Reset Date will again apply and will be measured +from that Reset Date. + + + + WITHDRAWAL PERCENTAGE + + + + The +applicable Withdrawal Percentage (including Deferral Credits) is multiplied by the Protected Payment Base on the Income Commencement +Date and each Contract Anniversary thereafter to determine the Protected Payment Amount for that Contract Year. The initial Withdrawal +Percentage is determined based on the Designated Life s (youngest Designated Life for Joint Life) age on the Rider Effective Date, +as indicated in the table below. The Withdrawal Percentage will not change after the Rider Effective Date (other than due to Deferral +Credits), unless the Single/Joint Life Option or the Designated Lives change. Upon a change to the Single/Joint Life Option or Designated +Lives, the initial Withdrawal Percentage will be re-determined based on the attained age of the new Designated Life (youngest Designated +Life for Joint Life) on the Rider Effective Date. + + + + The Withdrawal Percentage will be increased by the Deferral Credit +each year thereafter on the Contract Anniversary for 10 Contract Years or until the Income Commencement Date, whichever occurs first. +Upon the Income Commencement Date (or the 10th Contract Anniversary after the Rider Effective Date, if sooner), the Withdrawal +Percentage (including Deferral Credits) will be established and will not change for the life of the Contract. + + + + + Initial + Withdrawal Percentage + + + Age + on Rider + + Effective Date + Single + Life + Joint + Life + Age + on Rider + + Effective Date + Single + Life + Joint + Life + + + Up + to 44 + [0.0]% + [0.0]% + 65 + [ ] + [ ] + + + 45 + [ ] + [ ] + 66 + [ ] + [ ] + + + 46 + [ ] + [ ] + 67 + [ ] + [ ] + + + 47 + [ ] + [ ] + 68 + [ ] + [ ] + + + 48 + [ ] + [ ] + 69 + [ ] + [ ] + + + 49 + [ ] + [ ] + 70 + [ ] + [ ] + + + 50 + [ ] + [ ] + 71 + [ ] + [ ] + + + 51 + [ ] + [ ] + 72 + [ ] + [ ] + + + 52 + [ ] + [ ] + 73 + [ ] + [ ] + + + 53 + [ ] + [ ] + 74 + [ ] + [ ] + + + 54 + [ ] + [ ] + 75 + [ ] + [ ] + + + 55 + [ ] + [ ] + 76 + [ ] + [ ] + + + 56 + [ ] + [ ] + 77 + [ ] + [ ] + + + 57 + [ ] + [ ] + 78 + [ ] + [ ] + + + 58 + [ ] + [ ] + 79 + [ ] + [ ] + + + 59 + [ ] + [ ] + 80 + [ ] + [ ] + + + 60 + [ ] + [ ] + 81 + [ ] + [ ] + + + 61 + [ ] + [ ] + 82 + [ ] + [ ] + + + 62 + [ ] + [ ] + 83 + [ ] + [ ] + + + 63 + [ ] + [ ] + 84 + [ ] + [ ] + + + 64 + [ ] + [ ] + 85 + [ ] + [ ] + + + + + + 46 + + + + + + + + WITHDRAWALS + + + + All withdrawals under the Rider reduce the Contract Value in the +same manner as any other withdrawal, according to the terms described earlier in this Prospectus under ACCESS TO YOUR MONEY +WITHDRAWALS. + + + + Compliant Withdrawals + + + + After +the Income Commencement Date, you may withdraw up to the Protected Payment Amount, plus any income Rollover Amount, each Contract +Year, regardless of market performance, until the Rider terminates. Compliant Withdrawals are withdrawals, taken on or after the Income +Commencement Date, of amounts up to the allowable Protected Payment Amount, plus any Income Rollover Amount, in a Contract Year. + + + + If +a withdrawal is a Compliant Withdrawal, the Protected Payment Base for that Contract Year will remain unchanged. The Protected Payment +Amount will be adjusted each Contract Anniversary according to the terms described above. Any portion of the Protected Payment Amount +not withdrawn during a Contract Year (the Income Rollover Amount ) may be carried over to the following Contract Year and +is available for withdrawal during that Contract Year as a Compliant Withdrawal. The Income Rollover Amount will not be carried over +more than one Contract Year and is not cumulative. The Income Rollover Amount does not apply in the Contract years following the +year that that the Contract Value is reduced to zero. If a withdrawal does not exceed the Protected Payment Amount plus any Income Rollover +Amount immediately prior to that withdrawal, the withdrawal will be considered a Compliant Withdrawal. Withdrawals during a Contract +Year will first be taken from any available Income Rollover Amount, and then from the current year s Protected Payment Amount. +The Protected Payment Amount, plus any Income Rollover Amount, may be taken in a lump sum, in multiple withdrawals, or as a series of +pre-authorized payments within the Contract Year. The Protected Payment Amount is not cumulative. Please see APPENDIX E for examples +demonstrating the operation of a Compliant Withdrawal. + + + + For qualified Contracts, the amount taken to satisfy the Required +Minimum Distribution after the Income Commencement Date will be considered a Compliant Withdrawal under the following circumstances: + + + + The + Owner is participating in Pacific Life s automated Required Minimum Distribution ( RMD ) + program; and + + + + The + amount taken satisfies the RMD under the Contract. + + + +For more detail on RMD s please see Required Minimum +Distributions below. + + + + 47 + + + + + + + + Non-Compliant Withdrawals + + + + Excess Withdrawals + + + + Excess +Withdrawals are any withdrawals (except an RMD withdrawal) taken after the Income Commencement Date in excess of the Protected Payment +Amount, plus any applicable Income Rollover Amount, for that Contract Year. Excess Withdrawals will reduce the Protected Payment +Base. If a withdrawal (except an RMD Withdrawal) exceeds the Protected Payment Amount, plus any Income Rollover Amount, immediately prior +to that withdrawal, the Protected Payment Base will be reduced by the same proportion that the amount of the withdrawal in excess of +the Protected Payment Amount (plus any Income Rollover Amount) reduces the Contract Value minus the Compliant Withdrawal amount. + + + + Excess Withdrawals will reduce the benefits provided by the Rider, +perhaps significantly. If the Contract Value is lower than the Protected Payment Base immediately prior to the Excess Withdrawal, the +Excess Withdrawal will reduce the Protected Payment Base by an amount that is greater than the excess amount withdrawn, and may reduce +the Protected Payment Base and the Protected Payment Amount to zero for the remainder of the Contract Year. A new Protected Payment Amount +for the next Contract Year will be determined on the next Contract Anniversary, as described above, by multiplying the Withdrawal Percentage +by the Protected Payment Base. A reduction in the Protected Payment Base due to an Excess Withdrawal may cause a significant reduction +in your Protected Payment Amount in next and subsequent Contract Years. Excess Withdrawals that reduce the Contract Value to zero will +terminate the Rider. Please see the example below for a demonstration of how an Excess Withdrawal will affect the Protected Payment Base. +Please see APPENDIX E for additional examples demonstrating the effect of an Excess Withdrawal. + + + +If you would like to make an Excess Withdrawal and are uncertain how +an Excess Withdrawal will reduce your future guaranteed withdrawal amounts, then you may contact us prior to requesting the withdrawal +to obtain a personalized, transaction specific calculation showing the effect of the Excess Withdrawal. + + + + Example + + + + (1) Step One Determine the Excess Withdrawal amount. The + Excess Withdrawal amount is the amount that is in excess of the Protected Payment Amount + plus any applicable Income Rollover Amount (total withdrawal amount less the Compliant Withdrawal + amount). + + + + Protected Payment Amount = $5,000 + +Withdrawal = $12,000 + +Excess Withdrawal amount = $12,000 $5,000 = $7,000 + + + + (2) Step Two Determine the ratio of the Excess Withdrawal + amount to the Contract Value immediately after the Compliant Withdrawal amount (Excess Withdrawal + amount divided by the Contract Value prior to the withdrawal less the Compliant Withdrawal + amount). + + + + Contract Value (Prior to Withdrawal) = $95,000 + + Ratio = $7,000 / ($95,000 $5,000) = 0.0778 + + + + (3) Step Three Adjust the Protected Payment Base. The new + Protected Payment Base will be the Protected Payment Base before the withdrawal multiplied + by 1 minus the ratio determined in Step Two. After an Excess Withdrawal, the Protected Payment + Amount will be reduced to zero for the remainder of the Contract Year. The new Protected + Payment Amount for the next Contract Year will be determined on the next Contract Anniversary + as defined above. + + + + Protected Payment Base (Prior to Withdrawal) = $100,000 + + Protected Payment Base (After Withdrawal) = $92,220 ($100,000 x +(1- 0.0778)) + + + + 48 + + + + + + + +Early Withdrawals + + + + Early +Withdrawals are any withdrawal (including RMDs) taken prior to the Income Commencement Date. Early Withdrawals will reduce the +Protected Payment Base and negatively impact the calculation of the Protected Payment Amount. + + + + Early +Withdrawals reduce the Protected Payment Base in the same proportion that the Early Withdrawal reduces the Contract Value. To determine +this reduction, first determine the ratio of the Early Withdrawal amount to the Contract Value immediately prior to the withdrawal (Early +Withdrawal amount divided by the Contract Value prior to the withdrawal). Next, multiply the Contact Value by 1 minus the ratio determined +in the previous step to yield the amount of the reduction to the Protected Payment Base. Early Withdrawals that reduce the Contract +Value to zero will terminate the Rider. + + + + Reductions +to the Protected Payment Base due to Early Withdrawals may result in a lower initial Protected Payment Base on the Income Commencement +Date, which may result in a lower initial Protected Purchase Payment Amount than if you had not taken an Early Withdrawal. Additionally, +a lower Contract Value due to Early Withdrawals may result in lower or no Resets to the +Protected Payment Base on subsequent Contract Anniversaries after the Income Commencement Date, which may result in lower Protected Payment +Amounts in subsequent Contract Years. Please see APPENDIX E for examples demonstrating the effect of an Early Withdrawal. + + + + Required Minimum Distributions ( RMDs ) + + + + No adjustment will be made to the Protected Payment Base as a result +of a withdrawal after the Income Commencement Date that exceeds the Protected Payment Amount, plus any applicable Income Rollover Amount, +immediately prior to the withdrawal, provided: + + + + such withdrawal (an RMD Withdrawal ) is for + purposes of satisfying the minimum distribution requirements of Code Section 401(a)(9) and + related Treasury Regulations, + + + + you have authorized us to calculate and make periodic + distribution of the Annual RMD Amount for the Calendar Year required based on the payment + frequency you have chosen, + + + + the Annual RMD Amount is based on the previous year-end + fair market value of this Contract only, and + + + + On and after the Income Commencement Date, the only withdrawals + made from the Contract during the Contract Year are RMD withdrawals. + + + + If an RMD withdrawal is taken prior to the Income Commencement +Date it will be considered an Early Withdrawal and impact the Rider according to the terms described above under Early Withdrawals. +If RMD withdrawals on or after the Income Commencement Date exceed the Protected Payment Amount, plus any applicable Income Rollover +Amount, but are considered Compliant Withdrawals, the Protected Payment Base will remain unchanged. + + + +We reserve the right to modify or eliminate the treatment of RMD +withdrawals under this Rider if there is any change to the Internal Revenue Code or IRS rules relating to required minimum distributions, +including the issuance of relevant IRS guidance. If we exercise this right, we will provide notice to the Owner. + + + +See FEDERAL TAX ISSUES for more information on Required Minimum +Distributions. + + + +RIDER CHARGES + + + + The Rider charge will be assessed in arrears as a percentage of +the Protected Payment Base annually on each Contract Anniversary after the Rider Effective Date. The charge is equal to the rider charge +percentage multiplied by the Protected Payment Base on the day the charge is deducted. The charge amount will be deducted from all Interest +Crediting Options on a pro-rata basis relative to the Contract Value of each Interest Crediting Option. The portion of the Rider charge +deducted from each of the ILOs on the Contract Anniversary will reduce the Investment Base dollar-for-dollar in the same manner as a +withdrawal. Any portion of the Rider charge deducted from a 6-year ILO prior to the Term End Date will reduce the ILO Interim Value dollar-for-dollar +and adjust the Investment Base proportionally in the same manner as a withdrawal. The deduction of the Rider charge will not be subject +to an MVA or surrender charge. The Rider charge is [ ]%. + + + + When the Charge Applies + + + + The charge will apply each year that the Rider is in effect, and +upon termination of the Contract or Rider. If the charge is assessed upon Rider or Contract termination before the Contract Anniversary, +the charge may be prorated. If the terminating event happens on the Contract Anniversary, then the full-year charge will apply. If the +charge is prorated, it will be based on the Protected Payment Base at the time the Rider terminates, and will be deducted from the Contract +Value on the earlier of the date the Contract or Rider terminates or the next Contract Anniversary. + + + +DEPLETION OF CONTRACT VALUE AND OTHER INFORMATION + + + + If the depletion of the Contract Value to zero occurs prior to +the Income Commencement Date due to a full surrender, the Rider will terminate. + + + + 49 + + + + + + + + If the depletion of the Contract Value to zero occurs prior to +the Income Commencement Date due to insufficient funds to deduct the Rider charge, we will trigger the Income Commencement Date. The +Protected Payment Amount will be calculated using the Protected Payment Base and Withdrawal Percentage on the date of Contract Value +depletion, and the Owner will be limited to withdrawing the Protected Payment Amount each year until the death of the Designated Life +(death of both Designated Lives for Joint Life), or when a death benefit becomes payable under the Contract. The Owner must set up scheduled +payments on a monthly, quarterly, semiannual, or annual basis, and the death benefit amount available on the Contract will be equal to +zero (including under the ROP Death Benefit Rider). + + + + If the depletion of the Contract Value to zero occurs after the +Income Commencement Date and the Contract Value was not reduced to zero as a result of an Excess Withdrawal, we will pay the remaining +Protected Payment Amount plus any applicable Income Rollover Amount for that Contract Year. You will be limited to withdrawing the Protected +Payment Amount each Contract Year until the death of the Designated Life (death of both Designated Lives for Joint Life), or when a death +benefit becomes payable under the Contract. The Owner must set up scheduled payments on a monthly, quarterly, semiannual, or annual basis, +and the death benefit amount available under the Contract will be equal to zero (including under the ROP Death Benefit Rider). + + + + If the available Contract Value is below the Protected Payment +Amount, plus any applicable Income Rollover Amount for that Contract Year, you may not withdraw more than the Protected Payment Amount, +plus any applicable Income Rollover Amount, for that Contract Year. + + + + Example + + + + Contract Value on Contract Anniversary = $2,000. + + Protected Payment Amount = $5,000. + + Income Rollover Amount = $3,000 + + + + Owner may withdraw up to the $8,000, which equals the Protected +Payment Amount plus the Income Rollover Amount for that Contract Year. + + + +ELIGIBILITY FOR LIFETIME BENEFITS & CHANGE OF SINGLE/JOINT +LIFE OPTION + + + + The Income Option (Single Life or Joint Life) must be elected on +the Rider Effective Date. Prior to the Income Commencement Date, you may change the Income Option and/or the Designated Lives for the +Joint Life Option. To change the Income Option, the option eligibility requirements described above under PURCHASING THE RIDER must +be met. To change the Designated Lives, an existing Designated Life must continue after the change. You may make the following eligible +changes described below: + + + + A Single Life option may be changed to Joint Life option, + + Joint Life option may be changed to Single Life option, + or + + One Designated Life on a Joint Life option may be changed. + + + + The election to change a Designated Life must be submitted to Pacific +Life In Proper Form. Changing the Income Option or the Designated Lives may change the Withdrawal Percentage and the Deferral Credit, +which may increase or decrease the maximum annual Protected Payment Amount that may be withdrawn under the Rider. Any option change will +not affect the ability to receive the Deferral Credit. + + + + Distributions made due to divorce instructions or under Code Section 72(t)/72(q) (substantially +equal periodic payments) are treated as withdrawals for Contract purposes and may adversely affect Rider benefits. + + + + If the Income Commencement Date has occurred, the Income Option +election and the Designated Life (Lives) may not be changed. + + + + DEATH BENEFITS + + + + The standard death benefit or any optional death benefit riders +that apply to the Contract remain unchanged by this Rider. Withdrawals that are taken as part of this Rider reduce death benefits in +the same manner as any other withdrawal. The Protected Payment Base, Protected Payment Amount, or any Income Rollover Amount are not +used as values in determining death benefit amounts. The Pre-determined Beneficiary Option is not available on the Joint Life option. +The Pre-determined Beneficiary Option is available for contingent beneficiaries. + + + +SPOUSAL CONTINUATION & NON-SPOUSAL BENEFICIARIES + + + +General Information + + + +The surviving spouse may continue the Contract on or after the Notice +Date if he or she is the sole designated recipient of the death benefit. The Contract Value on the date the surviving spouse continues +the Contract will be set equal to the death benefit proceeds that would have been paid as a death benefit. + + + +Single Life Option + + + + If the Single Life option is elected and the Income Commencement +Date has occurred, the Rider will terminate at the earlier of the date of death of the Designated Life, or when a death benefit becomes +payable under the Contract. A surviving spouse may repurchase the Rider after continuation, assuming they meet all the age and issue +requirements and the Rider is still available. If the Joint Owner/spouse who was not the Designated Life passes away, the living spouse/Designated +Life may continue the Contract, and the Rider will continue as Single Life upon continuation. + + + + If the Single Life option is elected and the +Income Commencement Date has not occurred, the surviving spouse must continue the Contract in order for the Rider to continue. The Rider +will automatically be changed to a Joint Life Rider upon the processing of a death benefit. The spouse must meet the minimum age requirement +of 45 and the maximum age requirement of 85 as of the Rider Effective Date. If age + + + + 50 + + + + + + + + requirements are not met, the Contract will be continued without +the Rider. The Joint Life Withdrawal Percentage will be based on the surviving spouse s age on the Rider Effective Date plus any +Deferral Credits added before the Income Commencement Date. + + + +Joint Life Option + + + +If the Joint Life option is elected and the Income Commencement Date +has occurred, the surviving spouse must continue the Contract in order to continue the Rider (unless the surviving spouse was already +the sole Owner of the Contract). The Rider will continue as a Joint Life Rider upon the processing of the death benefit. + + + + The Protected Payment Amount and Protected Payment Base will carry +over after the spousal continuation takes place. A Reset does not reinstate the ability to change the Joint Life option and the option +must remain Joint Life. + + + + If Joint Life is elected and the Income Commencement Date has not +occurred, the surviving spouse must continue the Contract in order to continue the Rider (unless the surviving spouse was already the +sole Owner of the Contract). The Rider will automatically be changed to a Single Life Rider upon the processing of a death benefit. The +Single Life Withdrawal Percentage will be based on the surviving spouse s age on the Rider Effective Date plus any Deferral Credits +added before the Income Commencement Date. + + + +Non-Spousal Beneficiaries + + + +The designated beneficiary will receive the Contract s +death benefit if there was any Contract Value at the time that a death benefit becomes payable under the Contract. The Protected Payment +Base and Protected Payment Amount will not be used as a value in determining amounts due under the death benefit. + + + + Ownership and Beneficiary Changes + + + + Single and Joint Options Changes to the Contract Owner, Annuitant +and/or Beneficiary designations and changes in marital status (changes to the Contract Owner and/or Annuitant for Single Option), including +a dissolution of marriage, may adversely affect the benefits of this Rider. A particular change may make a Designated Life ineligible +to receive lifetime income benefits under this Rider. As a result, the Rider may remain in effect and you may pay for benefits that you +will not receive. You are strongly advised to work with your financial professional and consider your options prior to making any Owner, +Annuitant and/or Beneficiary changes to your Contract. + + + +RIDER TERMINATION + + + + The Rider may not be voluntarily terminated by the Owner. The Rider +will automatically terminate on the earliest of: + + + + - Full surrender of the Contract; + + + + - On Single Life only, + + + + if + the Income Commencement Date has occurred, the day of the death of the Designated Life; or + + + + the + date a death benefit is payable under the Contract, and the Contract is not continued according + to the Spousal Continuation provision; or + + + + the + day we are notified of an ownership change of a Non-Qualified Contract (excluding ownership + changes: to or from certain trusts, adding or removing the Owner's spouse, or for Riders + issued in California), + + + + - On Joint Life only, + + + + the + day of the death of all Designated Lives eligible for lifetime benefits; or + + + + the + day of death of the first Designated Life, if a death benefit is payable and a spouse who + chooses to continue the Contract is not a Designated Life eligible for lifetime benefits; + or + + + + the + day of death of the first Designated Life, if a death benefit is payable and the Contract + is not continued according to the Spousal Continuation provision; or + + + + the + day of death of the first Designated Life eligible for lifetime benefits, if both Designated + Lives are Joint Owners and there has been a change in marital status; or + + + + the + day that neither Designated Life is an Owner (or Annuitant, in the case of a custodial owned + IRA or TSA) (unless the Contract is issued in California. See STATE VARIATIONS); or + + + + in + California, if neither Designated Life is an Owner (or Annuitant, in the case of a custodial + owned IRA or TSA), upon the earlier of the death of the first Designated Life or when a death + benefit becomes payable under the Contract. See STATE VARIATIONS. + + + + the + day that we are notified of an ownership change and neither Designated Life is an Owner (this + does not apply if this Rider is issued in California), + + + + - An Early or Excess Withdrawal that reduces the Contract + Value to zero; + + + + - The Annuity Date; or + + + + 51 + + + + + + + + Repurchasing the Rider + + + + If the Rider has been terminated and the Owner +wishes to purchase a new Rider, the Owner may repurchase the Rider on, or within 60 days after, any Contract Anniversary, if the Rider +is available. The Rider Effective Date will be the Contract Anniversary corresponding to the date that the Rider is repurchased. The +Protected Payment Base at the time of repurchase will be equal to the Contract Value on Contract Anniversary date. The Withdrawal Percentage +and Deferral Credits will be recalculated based on the new Rider Effective Date. + + + +ANNUITIZATION + + + + If you annuitize the Contract at the maximum Annuity Date specified +in your Contract, and this Rider is still in effect at the time of your election and a Life Only Annuity Option (Joint and Survivor Life +Only for the joint option) is elected, the annuity payments will be equal to the greater of: + + + + the + Life Only (Joint and Survivor Life for the joint option) fixed annual payment amount based + on the terms of your Contract, or + + + + the + Protected Payment Amount in effect at the maximum Annuity Date. If Income Commencement has + not occurred, the Protected Payment Amount will be calculated on the Annuity Date. + + + + If you annuitize the Contract at any time prior to the maximum +Annuity Date specified in your Contract, your annuity payments will be determined in accordance with the terms of your Contract. The +Protected Payment Base and Protected Payment Amount under this Rider will not be used in determining any annuity payments and your annuity +payments received may be less than the Protected Payment Amount you are entitled to receive for life under the Rider. Work with your +financial professional to determine if you should annuitize your Contract before the maximum Annuity Date or stay in the accumulation +phase and continue to take withdrawals under the Rider. + + + +ANNUITIZATION + + + +SELECTING YOUR ANNUITANT + + + +When you submit your Contract application, you must choose a sole +Annuitant or Joint Annuitants. Once your Contract is issued, the sole Annuitant or Joint Annuitants cannot be changed. You must make +your choices based on the following: + + + + If you are buying a Non-Qualified Contract, you may + choose yourself as the Annuitant, another person as the Annuitant, or you may choose Joint + Annuitants. If you do not choose Joint Annuitants when your Contract is issued, you may only + add a Joint Annuitant on the Annuity Date. You may choose a Contingent Annuitant only if + you have a sole Annuitant (cannot have Joint Annuitants and a Contingent Annuitant at the + same time). You may add or change the Contingent Annuitant prior to the Annuity Date, provided + the Contingent Annuitant is not the sole surviving Annuitant. If the Contract is owned by + a Non- Natural Owner, you may not designate a Contingent Annuitant. + + + + If + you are buying a Qualified Contract, you must be the sole Annuitant. You may only add a Joint + Annuitant on the Annuity Date and no Contingent Annuitant can be chosen. + + + +No Annuitant (sole, Joint or Contingent) may be named upon or after +reaching his or her 86th birthday. We reserve the right to require proof of age or survival of the Annuitant(s). + + + +If the sole surviving Annuitant predeceases the Owner, the Owner (or +youngest Owner if there are Joint Owners) becomes the Annuitant. + + + +ANNUITIZATION + + + +You may annuitize your Contract Value at any time after the first +Contract Anniversary. The annuitized amount will based on the Contract Value (which may include Interim Value(s) if annuitization +occurs before the end of an ILO Term). Annuitization occurs on the Annuity Date when you convert your Contract from the accumulation +phase to the annuitization (income) phase. You may choose both your Annuity Date and your Annuity Option. At the Annuity Date, you must +annuitize your entire Contract Value, less any applicable charge for premium taxes and/or other taxes, (the Conversion Amount ). +Surrender charges and the MVA do not apply to the annuitized amount. Annuitization of only a portion of your Contract Value is not permitted. +The Conversion Amount annuitized must be at least $10,000. We will send the annuity payments to the payee that you designate. You will +not be able to distribute or withdraw any Contract Value amount after the Annuity Date. You should consult a qualified tax advisor for +information on annuitization. + + + + Annuitizing based on your Interim Values could result in a greater +loss or lower gain than the ILO would provide at the end of the Term because the Protection Level and Crediting Strategy do not apply +on any day other than the Term End Date. + + + + 52 + + + + + + + +CHOOSING YOUR ANNUITY DATE + + + +You should choose your Annuity Date when you submit your Contract +application or we will apply a default Annuity Date to your Contract. You may change your Annuity Date by notifying us, In Proper +Form, at least 10 Business Days prior to the earlier of your current Annuity Date or your new Annuity Date. Your Annuity Date cannot +be earlier than your first Contract Anniversary. Adverse federal tax consequences may result if you choose an Annuity Date that is prior +to an Owner s attained age 59 . See FEDERAL TAX ISSUES Impact of Federal Income Taxes. + + + +If you have a sole Annuitant, your Annuity Date cannot be later than +the sole Annuitant s 100th birthday. If you have Joint Annuitants, your Annuity Date cannot be later than your younger Joint Annuitant s +100th birthday. Different requirements may apply as required by any applicable state law or the Code. We may, at our sole discretion, +allow you to extend your Annuity Date. We reserve the right, at any time, to not offer any extension to your Annuity Date regardless +of whether we may have granted any extensions to you or to any others in the past. Some Broker/Dealers may not allow their clients to +extend the Annuity Date beyond age 100. + + + + If your Contract is a Qualified Contract, you may also be subject +to additional restrictions. In order to meet the Code minimum distribution rules, your Required Minimum Distributions ( RMDs ) +may begin earlier than your Annuity Date. For instance, under Code Section 401 (for Qualified Plans) and Code Section 408 (for +IRAs), the entire interest under the Contract must be distributed to the Owner/Annuitant no later than the Owner/Annuitant s Required +Beginning Date ( RBD ), or distributions over the life of the Owner/Annuitant (or the Owner/Annuitant and his or her Beneficiary) +must begin no later than the RBD. For more information see FEDERAL TAX ISSUES Required Minimum Distributions. + + + +DEFAULT ANNUITY DATE AND OPTIONS + + + + If +you have a Non-Qualified Contract and you do not choose an Annuity Date when you submit your application, your Annuity Date will be your +Annuitant s 100th birthday or your younger Joint Annuitant s 100th birthday, whichever +applies. If you have a Qualified Contract and you do not choose an Annuity Date when you submit your application, your Annuity Date will +be your Annuitant s 100th birthday. However, some states laws may require a different Annuity Date. See STATE VARIATIONS. +Certain Qualified Contracts (e.g., plans under Code Sections 401 and 408) may require distributions to occur at an earlier age. If you +have not specified an Annuity Option or do not instruct us otherwise, at your Annuity Date your Contract Value, less any charges for +premium taxes and/or other taxes, will be converted (if this net amount is at least $10,000) to a fixed annuity payout option. + + + +Additionally: + + + + If you have a Non-Qualified Contract, your default Annuity + Option will be Life with a ten year Period Certain. + + If you have a Qualified Contract, your default Annuity + Option will be Life with a ten year Period Certain or a shorter period certain as may be + required by federal regulation. If you are married, different requirements may apply. Please + contact your plan administrator for further information, if applicable. + + If + the net amount is less than $10,000, the entire amount will be distributed in one lump sum. + + + + 53 + + + + + + + +CHOOSING YOUR ANNUITY OPTION + + + + You should carefully review the Annuity Options with a qualified +tax advisor, and, for Qualified Contracts, reference should be made to the terms of the particular plan and the requirements of the Code +for pertinent limitations regarding annuity payments, RMDs, and other matters. Under Qualified Contracts, beginning with deaths happening +on or after January 1, 2020, subject to certain exceptions, most non-spouse beneficiaries must now complete death benefit distributions +within ten years of the Owner s death. Consult a tax adviser before electing a payout option. + + + +Annuity payments will be in a fixed dollar amount. This Contract does +not offer variable-dollar amount annuity payments, which vary with the investment performance of the Interest-Crediting Options you select. +You may make 2 basic decisions about your annuity payments. First, you may choose the form of annuity payments (see Annuity Options +below). Second, you may decide how often you want annuity payments to be made (the frequency of the payments). You +may not change these selections after the Annuity Date. + + + +Fixed +Payment Options. Fixed annuity payments are based on a fixed rate and the 2012 Individual Annuity Mortality Period Life Table +with the ages set back 10 years. Each periodic annuity payment received will be equal to the initial annuity payment, unless you select +a Joint and Survivor Life annuity with reduced survivor payments when the Primary Annuitant dies. The Conversion Amount you convert to +fixed annuity payments will be held in our General Account (but not under the Fixed Account Option). + + + +Annuity Options + + + + Nine Annuity Options are currently available under the Contract, +as listed below. Additional options may become available in the future. Only fixed payment options are available. + + + + 1. Life Only. Periodic payments are made to the designated + payee during the Annuitant s lifetime. Payments stop when the Annuitant dies. Annuitization + becomes effective when the first payment is processed. If the Annuitant dies prior to the + first payment the death benefit would be calculated as described under the DEATH BENEFIT + section of the Prospectus and no annuity payment would be made. If the Annuitant passes + away after the first payment has processed, payments will cease and there would be no death + benefit. + + + + 2. Life with Period Certain. Periodic payments are made + to the designated payee during the Annuitant s lifetime, with payments guaranteed for + a specified period. You may choose to have payments guaranteed from 5 through 30 years (in + full years only). The guaranteed period may be limited on Qualified Contracts to comply with + required minimum distribution ( RMD ) regulations and this option may be restricted + for certain Qualified Contracts or Qualified Plans. Annuitization becomes effective when + the first payment is processed. If the Annuitant dies prior to the first payment the death + benefit would be calculated as described under the DEATH BENEFIT section of the Prospectus + and no annuity payments would be made. If the Annuitant dies after the first payment has + processed, payments will continue for any remainder of the Period Certain time frame. + + + + 3. Joint and Survivor Life. Periodic payments are made + to the designated payee during the lifetime of the Primary Annuitant. After the death of + the Primary Annuitant, periodic payments will continue to be made during the lifetime of + the secondary Annuitant named in the election. You may choose to have the payments during + the lifetime of the surviving secondary Annuitant equal 50%, 66 2/3% or 100% of the original + amount payable during the lifetime of the Primary Annuitant (you must make this election + when you choose your Annuity Option). If you elect a reduced payment based on the life of + the secondary Annuitant, fixed annuity payments will be equal to 50% or 66 2/3% of the original + fixed payment payable during the lifetime of the Primary Annuitant. Payments stop when both + Annuitants have died. Annuitization becomes effective when the first payment is processed. + If one or both Annuitants die prior to the first payment the death benefit would be calculated + as described under the DEATH BENEFIT section of the Prospectus and no annuity payment + would be made. If both Annuitants pass away after the first payment has processed, payments + will cease and there would be no death benefit. + + + + 54 + + + + + + + + 4. Period Certain Only. Periodic payments are made to + the designated payee, guaranteed for a specified period. You may choose to have payments + guaranteed from 5 through 30 years (in full years only). Additional guaranteed time periods + may become available in the future. Before you annuitize your Contract, please contact + us for additional guaranteed time period options that may be available. The guaranteed + period may be limited on Qualified Contracts to comply with required minimum distribution + (RMD) regulations and this option may be restricted for certain Qualified Contracts or Qualified + Plans. Annuitization becomes effective when the first payment is processed. If the Annuitant + dies prior to the first payment the death benefit would be calculated as described under + the DEATH BENEFIT section of the Prospectus and no annuity payments would be made. + If the Annuitant dies after the first payment has processed, payments will continue for any + remainder of the Period Certain time frame. + + + + 5. Life with Cash Refund. Periodic payments are made + to the designated payee during the Annuitant s lifetime. Annuitization becomes effective + when the first payment is processed. If the Annuitant dies prior to the first payment the + death benefit would be calculated as described under the DEATH BENEFIT section of + the Prospectus and no annuity payment would be made. If the Annuitant dies after the Annuity + Date and the total of all annuity payments received is less than the amount annuitized, an + amount equal to the amount annuitized less the total annuity payments made, will be made + in a single sum. + + + + 6. Life with Installment Refund. Periodic payments are + made to the designated payee during the Annuitant s lifetime. If the Annuitant dies + after the Annuity Date but before the total of all annuity payments made equals or exceeds + the amount annuitized, annuity payments will continue to be made until the total amount of + annuity payments made equals the amount annuitized; the final annuity payment may be less + than the periodic annuity payment. Annuitization becomes effective when the first payment + is processed. If the Annuitant dies prior to the first payment the death benefit would be + calculated as described under the DEATH BENEFIT section of the Prospectus and no annuity + payment would be made. If the Annuitant dies and the total amount of annuity payments made + is equal to or exceeds the amount annuitized, then no additional annuity payments will be + made. This annuity option is not available for Qualified Contracts. + + + + 7. Joint Life with Period Certain. Periodic payments + are made to the designated payee during the Primary Annuitant s lifetime, with payments + guaranteed for a specified period. After the death of the Primary Annuitant, periodic payments + will continue to be made during the lifetime of the secondary Annuitant named in the election + or until the end of the period certain period, whichever is later. You may choose to have + payments guaranteed from 5 through 30 years (in full years only). The guaranteed period may + be limited on Qualified Contracts to comply with required minimum distribution (RMD) regulations + and this option may be restricted for certain Qualified Contracts and Qualified Plans. Annuitization + becomes effective when the first payment is processed. If one or both Annuitants die prior + to the first payment the death benefit would be calculated as described under the DEATH + BENEFIT section of the Prospectus and no annuity payment would be made. If both Annuitants + die after the first payment has been processed, payments will continue for any remainder + of the Period Certain time frame. + + + + 8. Joint Life with Cash Refund. Periodic payments are + made to the designated payee during the lifetimes of the Primary Annuitant and Joint Annuitant. + If both Annuitants die before the total of all annuity payments made equal the amount annuitized, + an amount equal to the amount annuitized, less total annuity payments made under the Contract, + will be made in a single sum. Annuitization becomes effective when the first payment is processed. + If one or both Annuitants die prior to the first payment the death benefit would be calculated + as described under the DEATH BENEFIT section of the Prospectus and no annuity payment + would be made. If both Annuitants die and the total amount of annuity payments made under + the Contract is equal to or exceeds the amount annuitized, then no additional lump sum or + annuity payments will be paid. This option may be restricted for certain Qualified Contracts + or Qualified Plans. + + + + 9. Joint Life with Installment Refund. Periodic Payments + are made to the designate payee during the lifetimes of the Primary Annuitant and Joint Annuitant. + If both Annuitants die before the total of all annuity payments made equals or exceeds the + amount annuitized, annuity payments will continue to be made until the total amount of annuity + payments made equals the amount annuitized; the final annuity payment may be less than the + periodic annuity payment. Annuitization becomes effective when the first payment is processed. + If one or both Annuitants die prior to the first payment the death benefit would be calculated + as described under the DEATH BENEFIT section of the Prospectus and no annuity payment would + be made. If both Annuitants die and the total amount of annuity payments made under the Contract + is equal to or exceeds the amount annuitized, then no additional annuity payments will be + paid. This annuity option is not available for Qualified Contracts. + + + +If the Annuitant dies before the guaranteed payments under Annuity +Options 2 and 4 are completed, we will pay the remainder of the guaranteed payments to the first person among the following who is (1) living; +or (2) an entity or corporation entitled to receive the remainder of the guaranteed payments: + + + + the Owner; + + the Joint Owner; + + the Beneficiary; or + + the Contingent Beneficiary. + + + +If none are living (or if there is no entity or corporation entitled +to receive the remainder of the guaranteed payments), we will pay the remainder of the guaranteed payments to the Owner s estate. + + + +If any Owner dies on or after the Annuity Date, but payments have +not yet been completed, then distributions of the remaining amounts payable under the Contract must be made at least as rapidly as the +method of distribution that was being used at the date of the Owner s death. All of the Owner s rights granted by the Contract +will be assumed by the first among the following who is (1) living; or (2) an entity or corporation entitled to assume the +Owner s rights granted by the Contract: + + + + the Joint Owner; + + the Beneficiary; or + + Contingent Beneficiary + + + +If none are living (or if there is no entity or corporation entitled +to assume the Owner s rights granted by the Contract), all of the Owner s rights granted by the Contract will be assumed +by the Owner s estate. + + + +Beneficiary of Qualified Contracts + + + + For Qualified Contracts, upon the death of the owner (Annuitant +if the contract is held as a custodial IRA), if there are any remaining guaranteed payments, we may shorten such payment period in order +to ensure that payments to the beneficiary do not continue beyond the 10-year death distribution rule under Code section 401(a)(9). +In such instances, we will use the present value of any remaining guaranteed payments to determine the amount and pay out the lump sum +to the designated beneficiary. The present value is determined using Moody s Long-Term Corporate Bond Yield Averages less 0.75%. + + + + 55 + + + + + + + +For Qualified Contracts, please refer to the CHOOSING YOUR ANNUITY +DATE section in this Prospectus for additional distribution requirements that may apply to these contracts. If your Contract was +issued in connection with a qualified plan subject to Title I of the Employee Retirement Income Security Act of 1974 ( ERISA ), +your spouse s consent may be required when you seek any distribution under your Contract, unless your Annuity Option is Joint and +Survivor Life with survivor payments of at least 50%, and your spouse is your Joint Annuitant. + + + +We may discontinue offering any of the additional annuity options +referenced above or add additional annuity options in the future. If we discontinue offering or add additional annuity options, we will +amend this Prospectus to reflect any changes. + + + +YOUR ANNUITY PAYMENTS + + + +Frequency of Payments + + + +You may choose to have annuity payments made monthly, quarterly, semi-annually, +or annually. The payment amount will be determined on the date corresponding to your Annuity Date, and payment will be made on the next +Business Day. Your initial annuity payment must be at least $240. Depending on the amount you annuitize, this requirement may limit your +options regarding the period and/or frequency of annuity payments. The minimum payment may vary by state. Please see STATE VARIATIONS. + + + +Amount of the First Payment + + + +Your Contract contains tables that we use to determine the amount +of the first annuity payment under your Contract, taking into consideration the annuitized Contract Value at the Annuity Date. This amount +will vary, depending on the annuity period and payment frequency you select. This amount will be larger in the case of shorter Period +Certain annuities and smaller for longer Period Certain annuities. Similarly, this amount will be greater for a Life Only annuity than +for a Joint and Survivor Life annuity, because we will expect to make payments for a shorter period of time on a Life Only annuity. If +you do not choose the Period Certain Only annuity, this amount will also vary depending on the age of the Annuitant(s) on the Annuity +Date and, for some Contracts in some states, the sex of the Annuitant(s). + + + +The guaranteed income factors in our tables are +based on an annual interest rate of 1.0% and the 2012 Individual Annuity Mortality Period Life Table with the ages set back 10 years. +Fixed annuity payments will be based on the periodic income factors in effect for your Contract on the Annuity Date which are at least +the guaranteed income factors under the Contract. + + + + 56 + + + + + + + + + +DEATH BENEFIT + + + + + + DEATH BENEFITS + + + +See the Death Benefits section and STATE VARIATIONS below +for Contracts issued in California. + + + +Death benefit proceeds may be payable before the Annuity Date upon +the death of any Contract Owner or any Annuitant in the case of a Non-Natural Owner, while the Contract is in force. Any death benefit +payable will be calculated on the Notice Date, which is the Business Day on which we receive, In Proper Form, proof of death and +instructions regarding payment of death benefit proceeds. See ADDITIONAL INFORMATION INQUIRIES AND SUBMITTING FORMS AND REQUESTS +for information on how to contact us. If a Contract has multiple Beneficiaries, death benefit proceeds will be calculated when we +first receive proof of death and instructions, In Proper Form, from any Beneficiary. The death benefit proceeds still remaining +to be paid to other Beneficiaries will be transferred to the Fixed Account Option. + + + +Death benefit payments on any day other than +a Term End Date will be based on your Interim Values. This could result in a greater loss or lower gain than the ILO would provide at +the end of the Term. + + + +Death Benefit Proceeds + + + +Death benefit proceeds will be payable on the Notice Date. If proceeds +are used to purchase an Annuity Option from us, such proceeds will be reduced by any charge for premium taxes and/or other taxes. The +death benefit proceeds may be payable in a single sum, as an Annuity Option available under the Contract, towards the purchase of any +other Annuity Option we then offer, or in any other manner permitted by the IRS and approved by us. The Owner s spouse may continue +the Contract (see DEATH BENEFIT Spousal Continuation). In addition, there may be legal requirements that limit +the recipient s Annuity Options and the timing of any payments. State unclaimed property regulations may shorten the amount of +time a recipient has to make a death benefit election. A recipient should consult a qualified tax advisor before making a death benefit +election. + + + +The death benefit proceeds will be paid to the first among the following +who is (1) living; or (2) an entity or corporation entitled to receive the death benefit proceeds, in the following order: + + + + Owner, + + Joint Owner, + + Beneficiary, or + + Contingent Beneficiary. + + + +If a contract has Joint Owners, and the surviving Joint Owner dies +before the Notice Date, the death benefit proceeds will be paid to the Beneficiary or Contingent Beneficiary. If the Beneficiary or Contingent +Beneficiary is living at the time of the Owner s death but dies prior to the claim being paid, the proceeds will be paid to the +Beneficiary or Contingent Beneficiary s estate. If none are living (or if there is no entity or corporation entitled to receive +the death benefit proceeds), the proceeds will be payable to the Owner s Estate. + + + +Death Benefit Amount + + + +The Death Benefit Amount is the standard death +benefit. If the Contract Owner is between the ages of 81 to 85 on the Contract Issue Date, the optional Return of Purchase Payment Death +Benefit Rider may be elected for an additional charge, which may increase the Death Benefit Amount. See Return of Purchase +Payment Death Benefit Rider below for more details. + + + + If the Contract Owner was 80 years of age or younger at Contract +issue, the Death Benefit Amount as of any Business Day before the Annuity Date is equal to the greater of the Contract Value as of the +Notice Date, or the Total Adjusted Purchase Payments as of the Notice Date. The Total Adjusted Purchase Payments is equal to the sum +of all Purchase Payments made into the Contract, reduced by a Pro Rata Reduction for each prior withdrawal. This amount may be adjusted +if there is a change in Owner. The Pro Rata Reduction is the reduction percentage that is calculated at the time of a withdrawal by dividing +the amount of the withdrawal (including any applicable surrender charges and taxes. The MVA will not apply to the pro-rata calculation) +by the Contract Value (which may include Interim Values) immediately prior to the withdrawal. If the Contract Owner was over 80 years +of age at Contract issue, the Death Benefit Amount as of any Business Day before the Annuity Date is equal to the Contract Value (which +may be based on Interim Value(s) if the death benefit is paid before the end of a Term) as of the Notice Date. Surrender charges +and the market value adjustment do not apply to the Death Benefit Amount. Death benefit proceeds will be reduced by any charges for premium +taxes and/or other taxes. If the death benefit is paid during a Term, the death benefit will be determined using Interim Values. + + + + 57 + + + + + + + +We calculate the Death Benefit Amount as of the Notice Date and the +death benefit proceeds will be paid in accordance with the Death Benefit Proceeds section above. + + + + After the Death Benefit is processed, the Death Benefit Amount +will be transferred to the Fixed Account Option. The amount in the Fixed Account Option will earn interest at the Guaranteed Rates declared +on the prior Contract Anniversary. Transfers out of the Fixed Account Option will be permitted on the following Contract Anniversary; +however, the 6-year Terms will be unavailable for investment. + + + + Owner Change + + + + If there is an Owner change to someone other than the previous +Owner s spouse, to a Trust or non-natural entity where the Owner and Annuitant are not the same person prior to the Owner change, +or if an Owner is added that is not the Owner s spouse, the Total Adjusted Purchase Payments will be reset to equal the lesser +of: + + + + the Contract + Value as of the effective date of the Owner change ( Change Date ), or + + Total Adjusted + Purchase Payments as of the Change Date. + + + + After the Change Date, the Total Adjusted Purchase Payments will +be reduced by any Pro Rata Reduction for any withdrawals made after the Change Date. An Owner change to a Trust on-natural entity where +the Owner and the Annuitant are the same person prior to the Owner change will not trigger a reset. + + + + Any death benefit paid will be paid in accordance with the Death +Benefit Proceeds subsection above. + + + +Spousal Continuation + + + + Generally, a sole designated recipient who is the Owner s +spouse may elect to become the Owner (and sole Annuitant if the deceased Owner had been the Annuitant) and continue the Contract until +the earliest of the spouse s death, or the Annuity Date, except in the case of a Contract issued to a Qualified Plan. The spousal +continuation election must be made by the fifth anniversary of the death of the Contract Owner for Non-Qualified Contracts. On the Notice +Date, if the surviving spouse is deemed to have continued the Contract, we will set the Contract Value equal to the death benefit proceeds +that would have been payable to the spouse as the deemed Beneficiary/designated recipient of the death benefit proceeds. + + + +An Add-In Amount may be added to the death benefit proceeds if the +surviving spouse continues the Contract. This Add-In Amount is the difference between the Contract Value and the death +benefit proceeds that would have been payable. The Add-In Amount will be added to the Contract Value on the Notice Date and allocated +to the Fixed Account Option. The surviving spouse may transfer the Contract Value out of the Fixed Account on the next Contract Anniversary. +The remaining Contract Value will continue to be allocated to the same Interest Crediting Options that were elected prior to the Notice +Date, and may be transferred on the next Contract Anniversary, subject to the terms outlined in the TRANSFERS section above. There +will be no adjustment to the Contract Value if the Contract Value is equal to or greater than the death benefit proceeds as of the Notice +Date. Upon spousal continuation, the current MVA Term will continue, if applicable, and the surviving spouse may elect to renew the MVA +at the end of the current MVA Term. The Add- In Amount may, under certain circumstances, be considered earnings. The Add-In Amount is +not treated as a new Purchase Payment. + + + +A Joint Owner who is the designated recipient, but not the Owner s +spouse, may not continue the Contract. Under IRS Guidelines, once a surviving spouse continues the Contract, the Contract may not be +continued again in the event the surviving spouse remarries. If you have purchased the optional living benefit Rider, please refer to +the Rider attached to your Contract to determine how any guaranteed amounts may be affected when a surviving spouse continues the Contract. + + + +Example: +On the Notice Date, the Owner s surviving spouse elects to continue the Contract. On that date, the death benefit proceeds +were $100,000 and the Contract Value was $85,000. Since the surviving spouse elected to continue the Contract in lieu of receiving the +death benefit proceeds, we will increase the Contract Value by an Add-In Amount of $15,000 ($100,000 - $85,000 = $15,000). If the Contract +Value on the Notice Date was $100,000 or higher, then nothing would be added to the Contract Value. + + + +The continuing spouse is subject to the same fees, charges and expenses +applicable to the deceased Owner of the Contract. + + + +Death of Annuitant + + + +If an Annuitant (who is not an Owner) dies before the Annuity Date +and there is a surviving Joint Annuitant, the surviving Joint Annuitant becomes the Annuitant. If there is no surviving Joint Annuitant +but there is a Contingent Annuitant, the Contingent Annuitant becomes the Annuitant. If there is no surviving Joint + + + + 58 + + + + + + + +Annuitant or Contingent Annuitant, the youngest Owner becomes the +Annuitant, provided that the Owner is not a Non-Natural Owner. No death benefit will be paid, except as otherwise provided under the +Death Benefit Proceeds section. + + + + If an Annuitant dies after the Annuity Date, any further annuity +benefit will be paid based on the life of the Joint Annuitant, if a Joint income option was in effect at the time of death. If the annuitization +option included a period certain, remaining period certain payments will be paid in accordance with the Death Benefit Proceeds section +and in accordance with federal income tax distribution at death rules discussed in the FEDERAL TAX ISSUES Contract Owner s +Estate section. + + + +Death of Owner + + + +If any Owner (or first Annuitant if a non-natural Owner) dies before +the Annuity Date, the amount of the death benefit will be equal to the Death Benefit Amount as of the Notice Date and will be paid in +accordance with the Death Benefit Proceeds section and in accordance with the federal income tax distribution at death rules discussed +in the FEDERAL TAX ISSUES Contract Owner s Estate section. + + + +If any Owner, who is not the Annuitant, dies after the Annuity Start +Date, the payments continue to the Joint Owner, if any, otherwise to the Beneficiary, if living, and otherwise to the Contingent Beneficiary. +The Annuitant and the Annuity Payout option remain the same. + + + +Non-Natural Owner + + + + If you are a Non-Natural Owner of a Contract other than a Qualified +Contract, the Annuitant (either Annuitant if there are Joint Annuitants) will be treated as the Owner of the Contract for purposes of +the Non-Qualified Contract Distribution Rules. If there are Joint Annuitants, the death benefit proceeds will be payable on proof of +death of the first annuitant. If there is a change in the Primary Annuitant prior to the Annuity Date, such change will be treated as +the death of the Owner (however, under the terms of your Contract, you cannot change the Primary Annuitant). The Death Benefit Amount +will be: (a) the Contract Value, if the Non-Natural Owner elects to maintain the Contract and reinvest the Contract Value into a +new contract in the same amount as immediately prior to the distribution; or (b) the Contract Value, less any surrender charge and +charges for premium taxes and/or other taxes, if the Non-Natural Owner elects a cash distribution and will be paid in accordance with +the Death Benefits Proceeds section and in accordance with the federal income tax distribution at death rules discussed in +the FEDERAL TAX ISSUES Non-Natural Persons as Owners section. + + + +Non-Qualified Contract Distribution Rules + + + + The Contract is intended to comply with all applicable provisions +of Code Section 72(s) and any successor provision, as deemed necessary by us to qualify the Contract as an annuity contract +for federal income tax purposes. If an Owner of a Non-Qualified Contract dies before the Annuity Date, distribution of the death benefit +proceeds must begin within 1 year after the Owner s death or complete distribution within 5 years after the Owner s death. +In order to satisfy this requirement, the designated recipient must receive a final lump sum payment by the 5th anniversary of the Contract +Owner s death, or elect to receive an annuity for life or over a period that does not exceed the life expectancy of the designated +recipient with annuity payments that start within 1 year after the Owner s death or, if permitted by the IRS, elect to receive +a systematic distribution over a period not exceeding the beneficiary s life expectancy using a method that would be acceptable +for purposes of calculating the minimum distribution + + + + 59 + + + + + + + + required under section Code 401(a)(9). If +an election to receive an annuity is not made within 60 calendar days of our receipt of proof, In Proper Form, of the Owner s +death or, if earlier, 60 calendar days (or shorter period as we permit) prior to the 1st anniversary of the Owner s death, the +option to receive annuity payments is no longer available. If a Non-Qualified Contract has Joint Owners, this requirement applies to +the first Contract Owner to die. + + + +The Owner may designate that the Beneficiary will receive death benefit +proceeds in a lump sum, or through annuity payments for life, life with period certain, period certain only, or a scheduled payout option. +Any life with period certain or period certain only option may not exceed the life expectancy of the Beneficiary. The Owner must designate +the payment method in writing in a form acceptable to us. The Owner may revoke the designation only in writing and only in a form acceptable +to us. Once the Owner dies, the Beneficiary cannot change or revoke the Owner s instructions regarding the payment of death benefit +proceeds. + + + +Qualified Contract Distribution Rules + + + + Under Treasury regulations and our administrative procedures, if +the Contract is owned under a Qualified Plan as defined in Code Sections 401, 403, 457(b), 408, or 408A of the Code distributions to +the Beneficiary must satisfy the Required Minimum Distribution (RMD) rules of Code Section 401(a)(9). For Owner/Annuitants +who die after December 31, 2019, the RMD rules for Beneficiaries who inherit an account or IRA are different depending on whether +the Beneficiary is an Eligible Designated Beneficiary (EDB) or not. An EDB includes a surviving spouse, a disabled individual, +a chronically ill individual, a minor child, or an individual who is not more than 10 years younger than the Owner/Annuitant. Certain +trusts created for the exclusive benefit of disabled or chronically ill Beneficiaries are included. These EDBs may take their distributions +over the longer of the Beneficiary's life expectancy or the remaining life expectancy of the Owner/Annuitant and those distributions +must commence by December 31st of the year following the death of the Owner/Annuitant. Alternatively, if the Owner/Annuitant died +prior to the date RMDs are required to commence, rather than take lifetime distributions, the EDB may elect to have the entire interest +distributed by the end of the year containing the tenth anniversary of the Owner/Annuitant s death. If the EDB is a minor child +of the Owner/Annuitant, all amounts must be fully distributed by the earlier of (1) the end of the year the child reaches age 31 +(i.e. 10 years after reaching age 21) or (2) the end of the year containing the tenth anniversary of the minor child s death. +Additionally, a surviving spouse Beneficiary may elect to delay commencement of distributions until the later of the end of the year +that the Owner/Annuitant would have attained age their RMD Age (73, or such later age that may be applicable under Code Section 401(a)(9)(C)), +or when the surviving spouse turns their RMD Age. Upon the death of an EDB who elected lifetime income, the entire interest of the Contract +must be distributed to any successor Beneficiary within 10 years of the EDB s death. + + + +The Owner may designate that the Beneficiary will receive death benefit +proceeds in a lump sum, or through annuity payments period certain only. Period certain only annuity options are limited. The Owner must +designate the payment method in writing in a form acceptable to us. The Owner may revoke the designation only in writing and only in +a form acceptable to us. Once the Owner dies, the Beneficiary cannot change or revoke the Owner s instructions regarding the payment +of death benefit proceeds. + + + +Designated Beneficiaries, who are not an EDB, must withdraw the entire +account by the 10th calendar year following the death of the Owner/Annuitant. + + + + 60 + + + + + + + +Non-designated Beneficiaries must withdraw the entire account within +5 years of the Owner/Annuitant s death if distributions have not begun prior to death unless the owner dies after commencing his +or her RMD payments. + + + +If the Owner/Annuitant dies after the commencement of RMDs (except +in the case of a Roth IRA when RMDs do not apply) but before the Annuitant s entire interest in the Contract (other than a Roth +IRA) has been distributed, the remaining interest in the Contract must be distributed to the non-designated Beneficiary at least as rapidly +as under the distribution method in effect at the time of the Annuitant s death. + + + +You are responsible for monitoring distributions that must be taken +to meet IRS guidelines. + + + +The Owner may designate that the Beneficiary will receive death benefit +proceeds in a lump sum, or through annuity payments for a Period Certain of 5 through 9 years. The Owner must designate the payment method +in writing in a form acceptable to us. The Owner may revoke the designation only in writing and only in a form acceptable to us. Once +the Owner dies, the Beneficiary cannot change or revoke the Owner s instructions regarding the payment of death benefit proceeds. + + + +OPTIONAL DEATH BENEFIT RIDER + + + +The optional death benefit rider is subject to availability and +may be discontinued for purchase at any time. The optional death benefit rider may not be available through your financial professional. +You may obtain information about the optional benefits that are available to you by contacting your financial professional. Before purchasing +the rider, make sure you understand all of the terms and conditions and consult with your financial professional for advice on whether +the rider is appropriate for you. + + + +Return of Purchase Payment Death Benefit Rider + + + + This rider is not available for Contracts issued in California. +Please see Return of Purchase Payment Death Benefit Rider II below for Contracts issued in California. + + + +The Return of Purchase Payment Death Benefit Rider (the Rider ) +is only available for an additional charge to Contract Owners who are between the ages of 81 to 85 on the Contract Issue Date. This optional +Rider allows your Death Benefit Amount, as of the Notice Date, to be the greater of the Contract Value (which may be based on Interim +Value(s) if the death benefit is paid before the end of a Term) or the Total Adjusted Purchase Payments. An Owner change may only +be elected if the age of any new Owner is 85 years or younger on the effective date of the Owner change (see the Owner Change subsection +below). + + + +Purchasing the Rider + + + + You may purchase this optional Rider at the time your application +is completed and before your Contract is issued. You may not purchase this Rider after the Contract Issue Date. This Rider may only be +purchased if the age of the oldest Owner or Annuitant is between the ages of 81 to 85 on the Contract Issue Date. + + + + Rider Charge + + + + The annual rider charge of [ ]% is assessed in arrears as a percentage +of your Contract Value and deducted each Contract Anniversary (including during a 6-year ILO Term) proportionately from the Interest +Crediting Options in which you are invested. The portion of the rider charge deducted from each of the ILOs on the Contract Anniversary +will reduce the Investment Base by the amount of the charge in the same manner as a withdrawal. The deduction of the Rider charge will +not be subject to an MVA or surrender charge. + + + + Rider Terms + + + + Total +Adjusted Purchase Payments. The sum of all Purchase Payments made to the Contract, reduced by a Pro Rata Reduction for each +prior withdrawal, including withdrawals under a withdrawal benefit rider or RMDs. This amount may be adjusted if there is an Owner change. + + + + Pro +Rata Reduction. The reduction percentage that is calculated at the time of the withdrawal by dividing the amount of each withdrawal +(including any applicable surrender charges and taxes) by the Contract Value immediately prior to the withdrawal. The reduction made, +when the Contract Value is less than the Total Adjusted Purchase Payments made into the Contract, may be greater than the actual amount +withdrawn. See APPENDIX F: RETURN OF PURCHASE PAYMENT DEATH BENEFIT RIDER SAMPLE CALCULATIONS for an example and description of +how the Pro Rata Reduction is calculated. + + + + 61 + + + + + + + + How the Rider Works + + + + Upon the death of the first Owner (any Annuitant for Non-Natural +Owners), before the Annuity Date, the Death Benefit Amount under this Rider will be equal to the greater of: + + + + the Contract Value + as of the Notice Date, or + + Total Adjusted Purchase Payments as of the Notice Date. + + + + Owner Change + + + + If there is an Owner change to someone other than the previous +Owner s spouse, to a Trust or non-natural entity where the Owner and Annuitant are not the same person prior to the Owner change, +or if an Owner is added that is not the Owner s spouse, the Total Adjusted Purchase Payments will be reset to equal the lesser +of: + + + + the Contract Value + as of the effective date of the Owner change ( Change Date ), or + + Total Adjusted Purchase Payments as of the Change Date. + + + + After the Change Date, the Total Adjusted Purchase Payments will +be reduced by any Pro Rata Reduction for any withdrawals made after the Change Date. An Owner change to a Trust on-natural entity where +the Owner and the Annuitant are the same person prior to the Owner change will not trigger a reset. + + + + Any death benefit paid under this Rider will be paid in accordance +with the Death Benefit Proceeds subsection. + + + + See APPENDIX: RETURN OF PURCHASE PAYMENT DEATH BENEFIT RIDER +SAMPLE CALCULATIONS for an example of how the death benefit is calculated following an Owner change. + + + + Termination + + + + The Rider will remain in effect until the earlier of: + + + + the date you reduce + your Contract Value to zero through a withdrawal, including a withdrawal or charge under + the GLWB Rider, + + when death benefit proceeds become payable under the Contract + (except where the spouse of the deceased Owner continues the Contract. See Spousal + Continuation above, + + the Contract is terminated in accordance with the provisions + of the Contract, or + + the Annuity Date + + + + The Rider may not otherwise be cancelled. + + + + Return of Purchase Payments Death Benefit II + + + + This Rider is only available for Contracts issued in California. + + + + This optional Rider allows you to have your +Death Benefit Amount, as of the Notice Date, be the greater of the Contract Value or the Total Adjusted Purchase Payments. The Notice +Date is the day on which we receive, In Proper Form, proof of death and instructions regarding payment of any death benefit proceeds. + + + + Purchasing the Rider + + + + You may purchase this optional Rider at the time your application +is completed and before your Contract is issued. You may not purchase this Rider after the Contract Date. This Rider may only be purchased +if the age of each Owner and Annuitant is 85 or younger on the Contract Date. + + + + The Rider Charge + + + + Rider Charge + + + + The annual rider charge of [ ]% is assessed in arrears as a percentage +of your Contract Value and deducted each Contract Anniversary (including during a 6-year ILO Term) proportionately from the Interest +Crediting Options in which you are invested. The portion of the rider charge deducted from each of the ILOs on the Contract Anniversary +will reduce the Investment Base by the amount of the charge in the same manner as a withdrawal. + + + +Rider Terms + + + +Total +Adjusted Purchase Payments. The sum of all Purchase Payments made to the Contract, reduced by a Pro Rata Reduction for each +prior withdrawal, including withdrawals under a withdrawal benefit rider or RMDs. This amount may be adjusted if there is an Owner change. + + + + Pro +Rata Reduction. The reduction percentage that is calculated at the time of the withdrawal by dividing the amount of each withdrawal +(including any applicable surrender charges and taxes) by the Contract Value immediately prior to the withdrawal. The reduction made, +when the Contract Value is less than the Total Adjusted Purchase Payments made into the Contract, may be greater than the actual amount +withdrawn. See APPENDIX F: RETURN OF PURCHASE PAYMENT DEATH BENEFIT RIDER SAMPLE CALCULATIONS for an example and description of +how the Pro Rata Reduction is calculated. + + + + How the Rider Works + + + + Upon the death of the first Annuitant, before +the Annuity Date, the Death Benefit Amount under this rider will be equal to the greater of (a) or (b) below: + + + + (a) the + Contract Value as of the Notice Date. + + (b) Total Adjusted Purchase + Payments as of the Notice Date. + + + + Any +death benefit paid under this Rider will be paid in accordance with the Death Benefit Proceeds subsection. See the +APPENDIX F: RETURN OF PURCHASE PAYMENTS DEATH BENEFIT RIDER SAMPLE CALCULATIONS for an example of how the death +benefit is calculated. + + + + Termination + + + +The Rider will remain in effect until the earlier of: + + + + the + date you reduce your Contract Value to zero through a withdrawal, including a withdrawal + or charge under the GLWB Rider, + + when + death benefit proceeds become payable under the Contract (except where the spouse of the + deceased Owner continues the Contract. See Spousal Continuation above, + + the + Contract is terminated in accordance with the provisions of the Contract, or + + the + Annuity Date. + + + + The Rider may not otherwise be cancelled. + + + +RESTRICTED BENEFICIARY DESIGNATION / PRE-DETERMINED BENEFICIARY +OPTION + + + +For Non-Qualified, Traditional IRA, and Roth IRA Contracts, the Owner +may choose how death benefit proceeds are paid (e.g., annuity payments rather than a lump sum) to a Beneficiary through the Restricted +Beneficiary Provision. The Owner may choose from the following methods of payment, which are also described above under ANNUITIZATION + CHOOSING YOUR ANNUITY OPTION. Only fixed payment options are available. The terms of each payment option may differ for Qualified +and Non-Qualified Contracts. + + + + 100% + lump sum, or in a lump sum combination with one of the annuity payout options listed below; + + Annuity Payout + + 1. Life Only. + + 2. Life with Period Certain. + + 3. Period Certain Only. + + Systematic + Withdrawals + + 1. Life Expectancy with No Additional Cash Access. + + 2. Life Expectancy with Future Cash Access. + + + +The Owner may choose the frequency of death benefit payments to the +Beneficiary, which may be monthly, quarterly, semi-annually, or annually. To elect a method of payment, the Owner must complete and sign +the Pre-Determined Beneficiary Form to name a Restricted Beneficiary and to select the pre-determined beneficiary options. +See ADDITIONAL INFORMATION INQUIRIES AND SUBMITTING FORMS AND REQUESTS for information on submitting forms to our Service +Center. Once elected, only the Owner may remove or modify these pre-determined beneficiary options. This may be done by completing and +signing an additional Pre-Determined Beneficiary Form. The Beneficiary cannot revoke or modify the pre-determined beneficiary +options. A minimum death benefit proceeds amount of $5,000 is required for payments to the Beneficiary under this provision. + + + + 62 + + + + + + + +FEDERAL TAX ISSUES + + + +The +following \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001138978_novo_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001138978_novo_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..f3887b84b1501452602b9a9ac234ba0c29687418 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001138978_novo_prospectus_summary.txt @@ -0,0 +1,2125 @@ +PROSPECTUS +SUMMARY + + + +This +prospectus summary highlights certain information about our company and other information contained elsewhere in this prospectus or in +our most recent Annual Report on Form 10-K filed with the SEC, as revised or supplemented by our Quarterly Reports on Form 10-Q filed +with the SEC since the filing of our most recent Annual Report on Form 10-K, all of which are incorporated by reference into this prospectus. +This summary does not contain all of the information that you should consider before making an investment decision. You should carefully +read the entire prospectus, any prospectus supplement, our Annual Report on Form 10-K including "Item 1. Business," the section +entitled "Risk Factors" and the documents incorporated by reference into this prospectus, before making an investment decision. + + + +Business +Overview + + + +Novo +Integrated Sciences, Inc. ("Novo Integrated") was incorporated in Delaware on November 27, 2000, under the name Turbine Truck +Engines, Inc. On February 20, 2008, the Company was re-domiciled to the State of Nevada. Effective July 12, 2017, the Company s +name was changed to Novo Integrated Sciences, Inc. When used herein, the terms the "Company," "we," "us" +and "our" refer to Novo Integrated and its consolidated subsidiaries. + + + +The +Company owns Canadian and U.S. subsidiaries which provide, or intend to provide, essential and differentiated solutions to the delivery +of multidisciplinary primary care and related wellness products through the integration of medical technology, interconnectivity, advanced +therapeutics, diagnostic solutions, unique personalized product offerings, and rehabilitative science. + + + +We +believe that "decentralizing" healthcare, through the integration of medical technology and interconnectivity, is an essential +solution to the rapidly evolving fundamental transformation of how non-catastrophic healthcare is delivered now and how it will be delivered +in the future. Specific to non-critical care, ongoing advancements in both medical technology and inter-connectivity are allowing for +a shift of the patient/practitioner relationship to the patient s home and away from on-site visits to primary medical centers +with mass-services. This acceleration of "ease-of-access" in the patient/practitioner interaction for non-critical care diagnosis +and subsequent treatment minimizes the degradation of non-critical health conditions to critical conditions as well as allowing for more +cost-effective and efficient healthcare distribution. + + + +The +Company s decentralized healthcare business model is centered on three primary pillars to best support the transformation of non-catastrophic +healthcare delivery to patients and consumers: + + + + + + + First + Pillar - Service Networks: Deliver multidisciplinary primary care services through (i) an affiliate network of clinic facilities, + (ii) small and micro footprint sized clinic facilities primarily located within the footprint of box-store commercial enterprises, + (iii) clinic facilities operated through a franchise relationship with the Company, and (iv) corporate operated clinic facilities. + + + + + + + + + + Second + Pillar - Technology: Develop, deploy, and integrate sophisticated interconnected technology, interfacing the patient to the healthcare + practitioner thus expanding the reach and availability of the Company s services, beyond the traditional clinic location, to + geographic areas not readily providing advanced, peripheral based healthcare services, including the patient s home. + + + + + + + + + + Third + Pillar - Products: Develop and distribute effective, personalized health and wellness product solutions allowing for the customization + of patient preventative care remedies and ultimately a healthier population. The Company s science-first approach to product + innovation further emphasizes our mandate to create and provide over-the-counter preventative and maintenance care solutions. + + + + +Innovation +through science, combined with the integration of sophisticated, secure technology, assures Novo Integrated of continued cutting edge +advancement in patient first platforms. + + + +First +Pillar - Service Networks for Hands-on Patient Care + + + +Our +clinicians and practitioners provide certain multidisciplinary primary health care services, and related products, beyond the medical +doctor first level contact identified as primary care. Our clinicians and practitioners are not licensed medical doctors, physicians, +specialist, nurses or nurse practitioners. Our clinicians and practitioners are not authorized to practice primary care medicine and +they are not medically licensed to prescribe pharmaceutical based product solutions. + + + +Our +team of multidisciplinary primary health care clinicians and practitioners provide assessment, diagnosis, treatment, pain management, +rehabilitation, education and primary prevention for a wide array of orthopedic, musculoskeletal, sports injury, and neurological conditions +across various demographics including pediatric, adult, and geriatric populations through our 16 corporate-owned clinics, a contracted +network of affiliate clinics, and eldercare related long-term care homes, retirement homes, and community-based locations in Canada. + + + + 3 + + + + + + + +Our +specialized multidisciplinary primary health care services include physiotherapy, chiropractic care, manual/manipulative therapy, occupational +therapy, eldercare, massage therapy (including pre- and post-partum), acupuncture and functional dry needling, chiropody, stroke and +traumatic brain injury/neurological rehabilitation, kinesiology, vestibular therapy, concussion management and baseline testing, trauma +sensitive yoga and meditation for concussion-acquired brain injury and occupational stress-PTSD, women s pelvic health programs, +sports medicine therapy, assistive devices, dietitian, holistic nutrition, fall prevention education, sports team conditioning programs +including event and game coverage, and private personal training. + + + +Additionally, +we continue to expand our patient care philosophy of maintaining an on-going continuous connection with our current and future patient +community, beyond the traditional confines of brick-and-mortar facilities, by extending oversight of patient diagnosis, care and monitoring, +directly through various Medical Technology Platforms either in-use or under development. + + + +The +occupational therapists, physiotherapists, chiropractors, massage therapists, chiropodists and kinesiologists contracted, by NHL, to +provide occupational therapy, physical therapy and fall prevention assessment services are registered with the College of Occupational +Therapists of Ontario, the College of Physiotherapists of Ontario, College of Chiropractors of Ontario, College of Massage Therapists +of Ontario, College of Chiropodists of Ontario, and the College of Kinesiologists of Ontario regulatory authorities. + + + +Our +strict adherence to public regulatory standards, as well as self-imposed standards of excellence and regulation, have allowed us to navigate +with ease through the industry s licensing and regulatory framework. Compliant treatment, data and administrative protocols are +managed through a team of highly trained, certified health care and administrative professionals. We and our affiliates provide service +to the Canadian property and casualty insurance industry, resulting in a regulated framework governed by the Financial Services Commission +of Ontario. + + + +Affiliate +Clinics + + + +In +order to strengthen our position within the Canadian Preferred Provider Network ("PPN"), we ve built a contracted affiliate +relationship with 127 clinics across Canada with 97 affiliate clinics in Ontario province and 30 affiliate clinics located throughout +Alberta, Nova Scotia and Newfoundland. + + + +The +PPN is a network of five major insurance companies and their subsidiaries, totaling 26 insurance companies. PPN member insurance companies, +in need of specific multidisciplinary primary health care solutions for their patients, send referrals to specific clinics registered +through the PPN. We, as one of three major providers to the PPN, receive referrals through the PPN. This subset of business is a continuous +source of referrals, from the insurance company payer to the approved group of clinics meeting the insurance companies pre-determined +set of criteria for what they believe to be an appropriate clinical setting. Affiliate clinics pay us a mix of a flat fee and a percentage-based +fee upon receipt of a payment for a service referral through the PPN. + + + +The +services provided by our affiliate clinics are consistent with the multidisciplinary primary health care services provided by our own +corporate clinics. While each affiliate clinic may provide additional unique health care solutions, all affiliate clinics must meet specific +criteria established under the PPN, creating a single standard of excellence across all clinics within our network. + + + +LA +Fitness U.S. and Canada Micro Clinics + + + +In +September 2019, through its U.S. subsidiary Novomerica Health Group, Inc. ("Novomerica") and its Canadian subsidiary, Novo +Healthnet Limited, the Company entered into exclusive Master Facility License Agreements ("License Agreement") to establish +and operate reduced footprint clinics, or "micro-clinics", to provide outpatient physical and/or occupational therapy services +and related products within LA Fitness facilities in both the U.S. and Canada. In March 2020, as a result of guidelines issued by local, +state, federal, and provincial authorities due to the COVID-19 pandemic, LA Fitness U.S. and Canada closed all facilities nationwide. +As a result, all contractual terms and conditions of both our U.S. and Canada Master Facility License Agreements were placed on hold +through fiscal year 2021 with all parties expressing the intent to amend both the U.S. and Canada License Agreements and related timelines +to launch our LA Fitness micro-clinic facilities as "normal" activity resumes in the LA Fitness U.S. and Canada facilities. + + + +On +December 15, 2021, NHL entered into an Amended and Restated Master Facility License Agreement (the "Amended and Restated Canada +License Agreement") with LAF Canada Company ("LA Fitness Canada"). The Amended and Restated Canada License Agreement +had the effect of (i) removing NHL s obligation to develop and open a certain number of facilities within certain designated time +periods; and (ii) revising the default provisions such that certain defaults will result only in termination with respect to a specific +facility, rather than of the license itself. As a result of the Amended and Restated Canada License Agreement, NHL may continue to develop +and open additional facilities for business. The initial location is in the Brampton Ontario LA Fitness facility with more locations +to follow in Ontario province. + + + +We +cannot guarantee that the U.S. License Agreement will be amended to allow for an extension of its timeline. Opening of our micro-clinic +facilities may vary from state to state; however, our model plan to partner and sub-license with existing local clinic ownership to launch +and operate in U.S. based LA Fitness locations remains intact and we are unable to verify our schedule to commence opening our micro-clinics +in U.S. based LA Fitness locations. + + + + 4 + + + + + + + +Eldercare + + + +The +Company s eldercare related operations provide physiotherapy ("PT"), occupational therapy ("OT"), assessment +and application assistance for assistive devices, fall prevention programs, community-based strengthening and general flexibility exercise +classes, rehabilitative strategies and continuing education to eldercare clients, including caregivers and family members as applicable, +in various long-term care homes, retirement homes and community-based locations across the province of Ontario, Canada. + + + +As +a result of NHL s September 2013 asset acquisition of Peak Health LTC Inc, an Ontario corporation formed in 2006, NHL has more +than 15-years experience of providing certain multidisciplinary related healthcare services and products to the eldercare community. +In 2017, based on the philosophical overlap and synchronicity between PT and OT, NHL launched its occupational therapy sector of services +for our eldercare clients. NHL s eldercare focused OT and PT services and products are in direct competition with the top providers +in this sector. We offer an extensive roster of both OT and PT clinicians certified by the Ministry of Health for assistive device assessment +under the Assistive Device Program which, when the individual meets the criteria, allows our eldercare clients access to significant +funding subsidies to purchase varying mobility aids (such as walkers, wheelchairs, seating, and power wheelchairs/scooters). + + + +Additionally, +our proprietary Electronic Rehabilitation Record and Management Reporting software solution provides us the ability to deliver each eldercare +location with a wide-array of detailed PT and OT reports that include, among other things: (i) client specific treatment details, (ii) +identifying cost and optimization possibilities, (iii) outlining a wide variety of client outcome measurements, (iv) analyzing overall +contract effectiveness, and (v) producing indicators which assist the NHL team to target opportunities for improved team efficiency. +This software comes with an ability to provide a graphically illustrated , ' ': report card for contribution to annual, interdisciplinary +care conferences with staff and family members, as well as fall reporting capacities, which are central to many homes fall prevention +committee meetings. Additionally, data generated by the software allows members from both the NHL team and the eldercare facility team +to identify residents who fall frequently and allow for the inter-disciplinary team to put strategies in place to better reduce a resident s +"fall-risk". + + + +NHL +has created and delivers, through online virtual technology, a variety of eldercare related educational in-service programs which include +topics such as nursing restorative education, back education and other eldercare-relevant topics such as osteoporosis, fall prevention, +wheelchair positioning, and least restraints. NHL has designed its virtual online education in-service programs and modules to be presented +in a variety of formats to facilitate the different capacity and styles of learning common to senior-aged individuals. + + + +Our +eldercare PT services are provided as follows: + + + + + + 1. + Long-Term + Care Homes. NHL contracts with long-term care homes to provide individualized, onsite PT and group exercise classes for its residents. + Registered physiotherapists are assisted by on-site support personnel to deliver individualized care, based on assessed needs, and + with a goal of assisting each resident to attain and maintain their highest level of function possible with their activities of daily + living. These services are primarily funded by the Ontario Ministry of Long-Term Care ("MLTC"). The NHL team assists + in providing assistive device assessments allowing residents access to funding assistance for varying mobility aids (such as walkers, + wheelchairs, seating, and power wheelchairs/scooters). In addition to providing PT services, our team assists the long-term care + home s interdisciplinary team in the homes annual care conferences with its residents. Through the provision of education + regarding nursing restorative programming, our team assists the long-term care home s team in back education, fall prevention + and many other subjects related to PT or physical health and wellness. The NHL team works together with the interdisciplinary team + to assist with mandatory coding of Canada s Resident Assessment Instrument Minimum Data Set ("RAI-MDS") which is + the standardized assessment tool required for the home to access payment from the MLTC for each resident. Additionally, through NHL s + proprietary software, the homes have access to abundant reporting solutions to help provide objective and quantitative measures for + their continuous quality improvement program. NHL s proprietary software provides our eldercare client locations with the unique + ability to login and access multiple data points related to a multitude of therapy services provided to its residents, allowing for + detailed, rapid reporting and accountability. + + + + + + + + + 2. + Retirement + Homes. We contract with client retirement homes to provide individualized PT and group exercise classes to the retirement homes + residents. Registered physiotherapists are assisted by the onsite support personnel to deliver individualized care based on assessed + needs, again with a goal of assisting the residents participating in therapy to attain and maintain their level of function related + to the activities of daily living. These services are partially funded by the individual and partly funded by the MLTC. Similar to + the long-term care sector, our team assists with education of the nursing/interdisciplinary team, provides in depth service reports + to the homes to measure desired service delivery and our proprietary software allows for the retirement home to have the same unique + login capacity. In addition to the services above, some of the residents in the retirement homes, and as applicable the resident s + family members, can request and authorize receiving an increased level of physiotherapy related services available privately on a + fee-for-service basis paid by the individual. In addition, access to Registered Massage Therapists and Speech Language Pathologists + is also offered on a fee-for-service basis. + + + + 5 + + + + + + + + + 3. + Community + Based Home Care Physiotherapy. Throughout the province of Ontario, the MLTC operates 14 Home and Community Care Support Services + organizations ("HCCSS") which are health authorities responsible for regional administration of public health care services. + The HCCSS s serve as contact points, information clearing houses, referral resources, and assessment / care coordinators for + eligible residents who need health care assistance at home or a safer place to live through aging at home strategies that can be + put in place by health care providers. Through service contracts, the HCCSS s engage "cluster providers" to provide + services to clients living in the community, clients living at-home or clients living in a retirement home. These service contracts + are funded by the MLTC. + + + + + + + + + + NHL + is a "cluster provider" sub-contractor for home care physiotherapy in the Northeast HCCSS which encompasses more than + 565,000 people across 400,000 square kilometers and five sub-regions. Through this subcontract arrangement, we provide one-on-one + physiotherapy assessment and treatment to clients who cannot easily access outpatient services due to mobility challenges. Primarily, + these clients are elderly with multiple co-morbidities, although some clients are not elderly and are instead simply post-operative + with mobility challenges. + + + + + + + + + 4. + Community + Based Group Exercise Classes & Fall Prevention Programs. NHL has contracted with 2 "cluster providers" to provide + group exercise classes and fall prevention programs (consisting of an assessment accompanied by education and group exercise classes) + in 3 separate HCCSS s (Central, Toronto Central and Central East) which encompass the Greater Toronto area with an estimated + aggregate population of 4.4 million people. In 2013, the MLTC introduced several initiatives designed to assist seniors in maintaining + an active and healthy lifestyle while still living at home. Under the 2013 initiative, exercise instructors under contract with NHL, + deliver group exercise classes over a 48-week period each year. + + + + + + + + In + addition, another component of the 2013 MLTC initiative is the delivery of fall prevention programs with entry and exit assessments + completed by specialized registered providers such as kinesiologists and physiotherapists with the assistance of exercise instructors + for the group class and education portion of the program. The goal of these classes is to assess seniors general health status, + identify defined levels of risk pertaining to balance and falling, and educate seniors about fall prevention through a combination + of increased knowledge and teaching exercises designed to improve strength and balance. + + + + + + + 5. + Community-based + Outpatient Clinics. NHL provides outpatient physiotherapy, chiropractic, and laser technology services through a community-based + clinic in the province of Ontario. The services provided at the clinic are funded by Motor Vehicle Accident treatment plans, extended + health benefits insurance coverage, or private payment. A portion of the services provided at the clinic are funded by the MLTC in + the form of Episodes of Care and these services are specifically targeted to be delivered to clients who meet the following criteria: + + + + + + + + Aged + 65 years of age and older or aged 18 years of age and younger, and + + + + + Are + post-operative, or + + + + + Have + just been discharged from a hospital, or + + + + + Are + receiving services from the Ontario Disability Services Program or Ontario Works. + + + + +Our +eldercare OT services are provided, through two separate sectors, as follows: + + + + + + 1. + Long-Term + Care Sector. We contract with client homes to provide the following OT services: + + + + + + + + Assessments + and interventions to support maintenance and restoration of function related to seating, mobility, positioning for self-care, prevention + of pressure ulcers, falls and use of restraints, + + + + + Speech + language pathology services, including evaluation and treatment, + + + + + Swallowing + and eating assessments and interventions, + + + + + Cognitive + behavioral assessments and care planning, + + + + + Our + occupational therapists have specialized training in mobility providing assistive device assessments when required. This service + is funded primarily by the MLTC. + + + + + + + 2. + Retirement + Home & Community. We provide the following OT services through individual contracts with private payers: + + + + + + + + Home + safety assessments, + + + + + Functional + assessments, + + + + + In-home + activities of daily living assessments, + + + + + Assessment + and completion of applications for assistive devices (mobility aids), + + + + + Custom + seating and mobility consultations, + + + + + Case + management services, and + + + + + Speech + language pathology services, including evaluation and treatment. + + + + + 6 + + + + + + + +Second +Pillar - Interconnected Technology for Virtual Ecosystem of Services, Products and Digital Health Offerings + + + +Decentralization +through the integration of interconnected technology platforms has been adopted and is thriving in a variety of sectors and industries +such as transportation (Uber, Lyft), real estate (Zillow, Redfin, Airbnb, VRBO), used car sales (Carvana, Vroom), stock and financial +markets (Robinhood, Acorns, Webull) and so many other sectors. Yet decentralization of the non-critical primary care and wellness sector +of healthcare is lagging significantly in capability and benefit for patient access and delivery of services and products. The COVID +pandemic has taught both patients and healthcare providers the viability, importance, and benefits of decentralized access to primary +care simply through the rapid adoption of telehealth/telemedicine. + + + +The +Company s focus on a holistic approach to patient-first health and wellness, through innovation and decentralization, includes +maintaining an on-going continuous connection with our current and future patient community, beyond the traditional confines of brick-and-mortar +facilities, by extending oversight of patient evaluation, diagnosis, treatment solutions, and monitoring, directly through various Medical +Technology Platforms and periphery tools either in-use or under development. Through the integration and deployment of sophisticated +and secure technology and periphery diagnostic tools, the Company is working to expand the reach of our non-critical primary care services +and product offerings, beyond the traditional clinic locations, to geographic areas not readily providing advanced primary care service +to date, including the patient s home. + + + +Novo +Connect + + + +The +Company believes the healthcare industry is in the early stages of a fundamental transformation of the patient-practitioner-health insurer +relationship whereby the patient is demanding greater control and care collaboration for their health and wellness needs while the practitioner +desires dramatic improved efficiency in the delivery of their expertise to the patient. Novo Connect, the Company s proprietary +mobile application, is a secure, cloud-based health and commerce web application intended to assist patients as they explore, connect, +manage, and have direct control of their personalized health and wellness needs. Novo Connect is designed to integrate the Company s +interconnected technology and provide the patient a single platform with a robust healthcare ecosystem of services, products, and digital +health offerings. + + + +The +current system for delivery and access to primary care is fragmented, requiring patients to use multiple access points, portals, and +applications to track various practitioner and health plan interactions for which each practitioner and health plan maintains separate +records. Too many times, as a patient ages, the current systems make it almost impossible to have a central data set of a patients +health history, many times losing various time periods of health history. Novo Connect is intended to empower the patient by providing +a single platform that offers care services, tracking, and secure recordkeeping to better navigate care choices. + + + +Specific +to non-critical care, the patient-practitioner relationship is shifting away from on-site visits to primary medical centers with mass-services +and to the patient s home and micro-clinics. Novo Connect is intended to provide "ease-of-access" in the patient/practitioner +interaction for non-critical care diagnosis and subsequent treatment minimizing the degradation of non-critical health conditions to +critical conditions as well as allowing for more cost-effective healthcare distribution. The services and products available through +Novo Connect may be provided either directly by the Company or an affiliated network of service or product providers across a variety +of specialties. + + + +Novo +Connect is intended to provide a suite of secure, reliable engagement features including, but not limited to, + + + + + + + Connect + Now: a real-time scheduling solution to connect with our affiliate practitioners and physicians + + + + + Connect + Storage: Secure Document storage + + + + + Connect + Community: a community chat forum to share and discuss various conditions to include curated "channels" offering + health and wellness solutions and insight + + + + + Connect + CarePlan - a patient-specific care plan developed by providers, augmented with product and service solutions, to address various + conditions + + + + + Remote + bill pay + + + + + Remote + patient monitoring interface + + + + +As +of August 31, 2023, Novo Connect is in limited commercialization through certain of the Company s corporate owned clinics with +expanded commercialization intended to launch in the spring of 2024. + + + +Telemedicine/Telehealth + + + +The +pandemic has taught both patients and healthcare providers the viability, importance, and benefits of telemedicine technology for non-catastrophic +primary care. Telemedicine is transforming traditional approaches to healthcare by providing ease of access and reduced costs for patients, +particularly in areas with limited access to both clinicians and medically licensed providers. In a post-pandemic global environment, +telemedicine is more readily being adopted by patients, practitioners, clinicians, medical licensed providers, and health insurers for +limited diagnostic and treatment solutions. We believe to date, telehealth technology usage is one dimensional and limiting in comfort +for practitioners to provide in-depth diagnosis and treatment solutions. + + + +Through +both internal development and partnerships, the Company is working to provide the next generation of telehealth technology to offer the +patient and the practitioner a sophisticated and enhanced telehealth interaction using an interface of sophisticated periphery based +diagnostic tools, such as a blood pressure reading device, a derma scope, an ophthalmoscope, otoscope, and other add-ons operated by +skilled support workers in the patient s remote location. This enhanced telehealth experience allows for the practitioner and patient +to have a much higher level of ability and comfort to provide a uniquely comprehensive evaluation, diagnosis, and treatment solution +thus dramatically elevating the effectiveness of virtual visits that are more resource efficient and as effective as a physical visit. + + + + 7 + + + + + + + +Remote +Patient Monitoring ("RPM") + + + +Our +RPM program is intended to empower a patient to have direct control of collecting and monitoring real-time vital sign information while +maintaining a direct technology link from patient to clinician or medical practitioner. The transfer of vital information from home to +clinic or patient to clinician allows for the delivery of high quality, non-redundant diagnostic based proactive healthcare. The implementation +of in-clinic patient metrics equivalent to those derived via a remote application in the home environment is the first step in engaging +patient retention to remote review. The RPM program allows us to further expand on our patient-first care philosophy of maintaining an +on-going connection with our patient community, beyond the traditional confines of a clinic, extending oversight of patient care and +monitoring directly into the patient s home. + + + +Third +Pillar - Health and Wellness Products + + + +We +believe our science first approach to product offerings further emphasizes the Company s strategic vision to innovate, evolve, +and deliver over-the-counter preventative and maintenance care solutions as well as therapeutics and personalized diagnostics that enable +individualized health optimization. + + + +As +the Company s patient base grows through the expansion of its corporate owned clinics, its affiliate network, its micro-clinic +facility openings, its interconnected technology platforms, and other growth initiatives, the development and distribution of high-quality +wellness product solutions is integral to (i) offering effective product solutions allowing for the customization of patient preventative +care remedies and ultimately a healthier population, and (ii) maintaining an on-going relationship with our patients through the customization +of patient preventative and maintenance care solutions. + + + +The +Company s product offering ecosystem is being built through strategic acquisitions and engaging in licensing agreements with partners +that share our vision to provide a portfolio of products that offer an essential and differentiated solution to health and wellness globally. + + + +Acenzia +Inc. + + + +Acenzia +Inc. ("Acenzia"), was acquired by the Company s wholly-owned subsidiary, Novo Healthnet Limited in June 2021. Acenzia +is in the business of providing nutraceutical health solutions through advanced bio-science research and development, proprietary manufacturing, +and personalized diagnostics. In addition, Acenzia has developed a multiple international jurisdiction patented technology platform, +using zebra fish, which enables rapid analysis of cancer cells, offering cancer patients and their healthcare providers prediction of +early metastasis and drug sensitivity thereby providing important information for diagnosis and treatment ("Zgraft") + + + +Acenzia, +founded in 2015, is licensed by multiple international government agencies including Health Canada, the U.S. FDA and the European Union +for Good Manufacturing Practices (GMP) for over-the-counter and dietary supplement manufacturing. In addition, Acenzia maintains multiple +third-party licenses including from the National Sanitation Foundation International (NSF) for meeting the required public health standards +for manufacturing food, nutrition, and supplements. Acenzia is dedicated to the creation of innovative therapeutics and diagnostics that +enables individualized health optimization. + + + +Acenzia s +36,000 square foot facility is located in Windsor Ontario Canada and includes Class 100 pharmaceutical grade cleanrooms and certified +laboratories from which Acenzia creates and manufactures evidenced-based dietary, nutraceutical, and food products that can be validated +through personalized diagnostics. + + + +PRO-DIP, +LLC + + + +PRO-DIP, +LLC ("PRO-DIP"), founded in 2015 and based in San Jose, California, was acquired by the Company in May 2021. PRO-DIP has +developed and commercialized its proprietary, patent-pending ION Energy oral pouch that delivers flavorful bursts of vitamins and natural +energy supplements through small, semi-permeable sachets placed in the mouth, between the gum and cheek or lip. The initial burst of +supplements is followed by extended absorption of the nutrients, providing long-lasting energy, even at high-exertion levels. With its +hand-free ease of consumption, the ION energy-rich pouch is an alternative to traditional sports supplements. On March 15, 2022, PRO-DIP +was issued U.S. Patent No. 11,273,965 by the U.S. Patent and Trademark Office on March 15, 2022. The , ' ': 965 patent relates to PRO-DIP s +novel technology for manufacturing its oral supplement pouches. + + + + 8 + + + + + + + +In +addition to the ION Energy oral pouch, PRO-DIP is developing other pouch types for applications such as hydration, immunity, multi-vitamin, +antioxidants, creatine, and sleep. + + + +The +PRO-DIP oral pouch delivery system offers broad market applications related to (i) nutritionally focused products and, (ii) medicinal +based formulations. The dissolvable oral pouch as the delivery mechanism for certain medications, normally swallowed in pill or tablet +format, between the cheek and gum for buccal absorption into the mouth s small blood vessels. + + + +PRO-DIP s +current distribution chain includes ADS, Inc., a leading value-added logistics and supply chain solutions provider that serves all branches +of the U.S. Military, federal, state, and local government organizations, law enforcement agencies, first responders, partner nations +and the defense industry. In addition, PRO-DIP is working to expand its distribution network to include convenience store chains in North +America. + + + +Terragenx +Inc. and Iodine Micro-nutrient + + + +On +November 17, 2021, NHL acquired a 91% controlling interest in Terragenx Inc. and the Company acquired the intellectual property portfolio +for the unique formulation and manufacturing capability to produce a water-soluble, iodine micro-nutrient oral sprays that is 100% pure +and natural with no chemicals, no plastics, and no alcohol ("IoNovo"). The IoNovo oral spray line of products are (i) designed +to be delivered via oral spray which is proven to be significantly more effective in absorption than pill or gel capsules, and (ii) FDA +and Health Canada approved for over-the-counter and e-commerce distribution. + + + +Iodine +is a naturally occurring element and essential nutrient used by the thyroid gland to manufacture necessary hormones in the human body. +Iodine is recognized as a world class disinfectant and is one of nature s finest microbial killers of bacteria and virus deactivators. +For decades, the global medical community has recognized Iodine as an essential micronutrient that assists the thyroid to produce T3 +and T4 hormones needed for a healthy metabolism, immune system, increased energy levels, and cognitive development, Additionally, Iodine +is known to promote healthy skin, nails, and hair. + + + +While +iodine alone cannot be ingested as a stand-alone ingredient, through the acquisition of Terragenx and the Iodine IP, Novo has acquired +the intellectual property for iodine in an aqueous form that can be safely ingested and has been proven to kill viruses, bacteria and +protozoa when sprayed onto your mucous membranes, the entry points for various airborne viruses. + + + +The +Company has been granted Natural Product Numbers (NPN) by Health Canada for each of IoNovo GO Iodine, IoNovo Pure Iodine, IoNovo Iodide, +and IoNovo for Kids pure iodine oral spray. An NPN is a product license assessed and granted by Health Canada to commercialize a product +that is found to be safe, effective, and of high quality. In addition, Turkey s Ministry of Health has granted a registration number +and provided regulatory approval for both IoNovo for Kids and IoNovo Iodine as a dietary supplement determined to be safe, effective, +of high quality, and eligible for sale in Turkey. + + + +Intellectual +Property and Patents + + + +The +Company has acquired intellectual property, including patents, related to health sciences, personal diagnostics, and product applications +which include: + + + + + + 1. + U.S. + Patent No. 11,273,965 issued by the U.S. Patent and Trademark Office on March 15, 2022 for oral and/or buccal delivery pouch and + the method of making same. The , ' ': 965 patent relates to PRO-DIP s novel technology for manufacturing its oral supplement + pouches. PRO-DIP s innovative, patented oral supplement pouch delivery system technology provides for broad market applications + related to nutritionally focused products and medicinal based formulations. PRO-DIP s initial oral pouch commercial product + offering, the ION Energy pouch, is designed for the delivery of flavorful bursts of vitamins and natural energy supplements through + small, semi-permeable sachets placed in the mouth, between the gum and cheek or lip. The initial burst of supplements is followed + by extended absorption of the nutrients, providing long-lasting energy, even at high-exertion levels. With its hands-free ease of + consumption, the energy-rich pouches are an alternative to traditional sports supplements and deliver a daily serving of natural + vitamins and nutrients. The invention of the pouch delivery system for nutraceuticals continues to gain mainstream interest from + health product manufacturers, medical organizations, big pharma, the military, space organizations, CBD/hemp companies, humanitarian + aid groups and the list goes on. + + + + 9 + + + + + + + + + 2. + U.S. + Patent No. 10,760,060B2, issued by the U.S. Patent and Trademark Office on September 1, 2020 for injection and incubation of circulating + tumor cells from a cancer biopsy in zebrafish for accelerated prediction of cancer progression and response to treatment ("Zgraft"). + Zgraft is a multiple international jurisdiction patented personalized diagnostic technology platform which , using zebra fish, enables + rapid analysis of cancer cells, offering cancer patients and their healthcare providers prediction of early metastasis and drug sensitivity + thereby providing important information for diagnosis and treatment. The Zgraft platform models tumor progression and analyzes a + cancer cell s response to various treatment by transplanting human tumor tissue into a zebrafish allowing researchers to test + an individual s tumor cells under various conditions to see how they might respond to certain drug combinations and how the + cancer progresses - all without exposing patients to the adverse effects of trying drug combinations that, ultimately, aren t + effective for their cases. Essentially, by taking a sample of cancer cells from a patient s own tumors and studying them in + a variety of conditions, doctors can now provide a more accurate prognosis of that individual s case. More importantly, we + believe doctors can now test a variety of possible drug combinations to see how that articular patient s cancer will respond + to them. + + + + + + + + + 3. + Intellectual + property for generic primary and sub-primary drug formulations (known as bioequivalence) of name brand pharmaceutical reference products + related to usage as injectables, ophthalmic, and topical applications. + + + + + + + + + 4. + Intellectual + property for proprietary designs for a cannabis dosing device, TruDose, which provides real-time analysis for the amount of THC/CBD + in the smoke/vapor stream, after the heat point, allowing that once the device has detected the medically prescribed pre-set amount + of THC/CBD has been detected, the device shuts off the flow of smoke/vapor so that only the pre-determined dose can be inhaled. The + TruDose device is designed and intended to create assurance to delivered doses potentially allowing for broader medical application + adoption. + + + + + + + + + 5. + Iodine + and IoNovo related Intellectual Property and patent pending as follows: + + + + + + + a. + Canada + patent pending for spray devices for dispensing aqueous iodine, and methods of making and using spray devices that dispense aqueous + iodine + + + + b. + U.S. + patent pending for controlled gaseous iodine sublimation from solid iodine for atmospheric iodine nutrition, disinfection and therapeutic + uses + + + + c. + U.S. + patent pending for an apparatus to produce atmospheric nutritional & disinfectant iodine + + + + d. + U.S. + patent pending for automated high output aqueous iodine production and bottling system + + + + +Business +Growth Initiatives + + + +The +Company s mission is to provide excellence in multidisciplinary primary health care evaluation, assessment, diagnosis, treatment, +pain management and prevention through the integration of medical technology, advanced therapeutics, and rehabilitative science combined +with the development and distribution of high-quality health and wellness product solutions. Key elements of our business growth initiatives +include: + + + + + + + Increase + Market Share in Canada through Organic Growth, Asset Acquisition and Affiliate Network Expansion + for both our Clinic and Eldercare Operations. Specific to our clinic operations, the + Company has an ongoing initiative to expand our Canadian market share through organic growth, + increasing our affiliate network of clinics, as well as strategic acquisitions and Joint + Ventures of operating multidisciplinary primary health care clinics in markets in which we + currently operate as well as new geographic markets. Specific to our eldercare based operations, + we intend to increase our Canada market share of providing contracted-occupational therapy + and physiotherapy services to eldercare centric homes through network affiliation growth, + new contract awards, and increased usage of telemedicine. + + + + + + + Expand + Operations into the United States through: + + + + + + + + the + introduction and deployment of our various interconnected technology platforms to deliver the Company s array of primary care + services and products. + + + + + + + + + + Establish + micro clinics in existing facilities through partnerships with existing U.S. based operators of healthcare related services and products + such as pharmacies and big-box retail outlets. + + + + + + + + + + The + strategic acquisition of targeted U.S. operating clinics in key geographical areas. + + + + + + + + + + The + strategic acquisition of targeted U.S. operating pharmacies in key geographical areas. + + + + + + + + + + Establishment + of strategic affiliations, alliances and partnerships with existing U.S. health care provider facilities allowing us immediate access + to their client base. + + + + + 10 + + + + + + + + + + + Open + Micro-Clinic Facilities through our Canada and U.S.LA Fitness Master Facility License Agreements. Micro-clinic facilities are + reduced footprint clinics, primarily located within the footprint of box-store commercial enterprises, focused on providing both + (i) multidisciplinary primary care and medical technology related services, and (ii) health and wellness products. Under the terms + of our agreements with LA Fitness (U.S. and Canada), we are planning to operate micro-clinic facilities within the footprint of LA + Fitness facilities throughout both the U.S. and Canada. Each micro-clinic exists through either third-party sub-license agreements + or corporate sponsored arrangement. The Company s LA Fitness based micro-clinic facilities will primarily provide outpatient + physiotherapy and occupational therapy services. + + + + + + + + Further + Development and Usage of Novo Connect and Telemedicine/Telehealth Medical Technology Platform. + + + + +The +Company s focus on a holistic approach to patient-first health and wellness, through innovation and decentralization, includes +maintaining an on-going continuous connection with our current and future patient community, beyond the traditional confines of brick-and-mortar +facilities, by extending oversight of patient evaluation, diagnosis, treatment solutions, and monitoring, directly through various Medical +Technology Platforms and periphery tools either in-use or under development. Through the integration and deployment of sophisticated +and secure technology and periphery diagnostic tools, the Company is working to expand the reach of our non-critical primary care services +and product offerings, beyond the traditional clinic locations, to geographic areas not readily providing advanced primary care service +to date, including the patient s home. + + + +The +Company believes the healthcare industry is in the early stages of a fundamental transformation of the patient-practitioner-health insurer +relationship whereby the patient is demanding greater control and care collaboration for their health and wellness needs while the practitioner +desires dramatic improved efficiency in the delivery of their expertise to the patient. Through both internal development and partnerships, +the Company is working to provide the next generation of telehealth technology capability to offer the patient and the practitioner a +sophisticated and enhanced telehealth interaction through laptop, desktop or the Company s Novo Connect mobile application. + + + +Novo +Connect is the Company s proprietary mobile application designed and built to be a secure, cloud-based health and commerce web +application intended to assist patients as they explore, connect, manage, and have direct control of their personalized health and wellness +needs. Novo Connect is designed to integrate the Company s interconnected technology and provide the patient a single platform +with a robust healthcare ecosystem of services, products and digital health offerings. + + + +Through +the interface of sophisticated peripheral based diagnostic tools, such as a blood pressure reading device, a derma scope, an ophthalmoscope +otoscope, and other add-ons operated by skilled support workers in the patient s remote location, the practitioner s ability +and comfort to provide a uniquely comprehensive evaluation, diagnosis, and treatment solution is dramatically elevated creating virtual +visits that are intended to be as real and as effective as a physical visit. + + + +Specific +to our eldercare operations, prior to COVID-19 our Telemedicine Medical Technology Platform was primarily focused on providing physiotherapy +related "virtual-care" services to both smaller and remote eldercare focused facilities to ensure access to service providers, +when needed; and continuity of care to eldercare patients without service providers in their area. With the profound impact COVID-19 +has had on the delivery of healthcare services sector wide, we expanded our eldercare related Telemedicine Medical Technology Platform +to include non-critical resident reviews, exercise related activity and additional physiotherapy sessions, ensuring continuity of service +for our long-term care and retirement home clients. + + + +Specific +to our Clinic based operations, the success of telemedicine has always depended on the adoption of virtual technology by clinicians, +medically licensed providers and the patient. A basic checklist approach to results allows both multidisciplinary clinicians and medically +licensed providers to remotely determine if direct medical attention is required rather than remote or virtual guidance to care. The +patient friendly telemedicine platform removes the traditional barrier represented by intimidating peripherals along with necessary precision +use and application of the peripherals to obtain accurate data necessary for appropriate diagnosis. A patient can now feel certain of +their role in the assessment process without sophisticated and exhaustive training. + + + + + + + Develop + and Launch our Remote Patient Monitoring Medical Technology Platform. Beyond the traditional confines of in-clinic visits, our + Remote Patient Monitoring Medical Technology Platform ("RPM platform" or "RPM") provides clinicians and practitioners + the ability to maintain an on-going continuous connection with their patient community extending patient care directly into the patient s + home. Our RPM platform empowers a patient to have direct control of collecting and monitoring real-time vital sign information while + maintaining a direct technology link from patient to clinician or medical practitioner. The transfer of vital information from home + to clinic or patient to clinician allows for the delivery of high quality, non-redundant diagnostic based proactive healthcare. The + implementation of in-clinic patient metrics equivalent to those derived via a remote application in the home environment is the first + step in engaging patient retention to remote review. + + + + + 11 + + + + + + + + + + + Build + an Intellectual Property and Patent Portfolio. In addition to the Company s current + portfolio of Intellectual Property (IP), patent-pending and patent assets, we intend to acquire + or obtain licensing rights for IP and patents related to health sciences and health and wellness + products, and nano-formulation. + + + + + + + + + + When + considering nano-formulation patent and IP assets, one specific area we intend to pursue relates to medical cannabis related medicines, + beverages and foods infused with dry powder, liquid or oil with further formulation into creams and gels, allowing for oral, intravenous + and/or transdermal delivery. + + + + + + + + Expand + our Posture, Stride, and Kinetic Body Movement Scanning Technologies and Protocols. When combined with decades of data harvesting + and analysis, we believe these specialized technologies and protocols provide our clinics with the ability to deliver better healthcare, + through early diagnosis and preventative health care strategies, to both our patients and patients under the care of other providers. + + + + + + + + + + Launch + our Exclusive Medicinal Cannabidiol ("CBD") Product Platform based in Canada. As we continue to build our health + science platform of services and products through the integration of technology and rehabilitative science, one component of our + lateral business growth strategy includes developing business units centered on the direct control of the cultivation, processing, + and manufacturing of CBD products in Canada, and the sale and distribution of medicinal CBD products in Canada and authorized U.S. + states. We expect our prospective medicinal CBD products will be specifically focused on CBD for use (i) as a treatment aid; (ii) + to provide relief for a large array of neurological and musculoskeletal system disorders; and (iii) as an alternative option for + health care providers in place of prescribing opioids to patients. + + + + +Offering +our patients access to non-hallucinogenic and non-addictive natural remedies, under required clinical oversight policies and procedures +as they relate to medicinal CBD, combined with our existing clinic-based treatment protocols, allows us to enter this market segment +with a unique integration model not readily available in the marketplace. + + + +Competition + + + +In +both Canada and the U.S., the primary healthcare service sector in which we operate is highly competitive. Specific to both our clinic +and eldercare operations, with a finite number of patients and corporate clients, companies providing multidisciplinary primary health +care services operate within an overlapping patient and client landscape. + + + +Our +principal competitors include other multidisciplinary primary healthcare providers, clinics, pharmacies, other micro clinic-oriented +facilities, hospitals, and general primary care facilities. An important part of our business strategy is to continue making targeted +acquisitions of other multidisciplinary primary healthcare providers. However, reduced capacity, the passage of healthcare parity legislation, +and increased demand for multidisciplinary primary healthcare related services and products are likely to attract other potential buyers, +including diversified healthcare companies, other pure-play multidisciplinary primary healthcare providers, companies, and private equity +firms. + + + +In +addition to the competition we face for acquisitions, we must also compete for patients. Patients are referred to our multidisciplinary +primary healthcare facilities through a number of different sources, including healthcare practitioners, public programs, other treatment +facilities, insurance providers, legal practitioners, and word of mouth from previously treated patients and their families, among others. +These referral sources may instead refer patients to other providers of services similar to ours. + + + +There +is additional competition from non-traditional healthcare providers, such as holistic and Eastern medicine-based clinics. We believe +we can successfully compete based on providing high-quality specialized multidisciplinary primary health care services, products, meaningful +interconnected technology applications, competitive pricing, building and maintaining a solid reputation and our caregiver s devotion +to maintaining the highest quality patient satisfaction. + + + +The +health and wellness product industry is highly competitive. Our ability to remain competitive depends on many factors, including having +relevant products that meet consumer needs, enhanced education and tools, innovation in our products and services, competitive pricing, +a strong reputation, and a financially viable company. + + + +Health +Insurance Plans + + + +Additionally, +our ability to effectively compete for patients is impacted by commercial and managed care payor programs that influence patient choice +by offering health insurance plans that restrict patient choice of provider. + + + + 12 + + + + + + + +Canadian +Health Care System + + + +Our +competition will also be the Canadian health care system which is a government sponsored system that began in 1957, when Parliament approved +the Hospital Insurance and Diagnostics Services Act. The Act provided free acute hospital care, laboratory and radiological diagnostic +services to Canadians. By 1961, agreements were in place with all the provinces and 99% of Canadians had free access to the health care +services covered by the legislation. The Act was followed by the Medical Care Act of 1966 that provided free access to physician services. +By 1972, each province had established its own system of free access to physician services. The federal government shared in the funding. +In 1984, the Government of Canada passed the Canada Health Act (CHA). The Canada Health Act created a publicly administered health care +system that is comprehensive, universal and accessible. All medically necessary procedures are provided free of charge. The system provides +diagnostic, treatment and preventive services regardless of income level or station in life. Access to care is not based on health status +or ability to pay. Coverage is portable between provinces and territories. We can give no assurance that we will be able to effectively +compete in this market. + + + +Risk +Factors + + + +Our +business is subject to numerous risks and uncertainties, including those described in "Risk Factors" immediately following +this prospectus summary and those set forth in "Item 1A. Risk Factors" section of our most recent Annual Report on Form 10-K +filed with the SEC, as revised or supplemented by our Quarterly Reports on Form 10-Q filed with the SEC since the filing of our most +recent Annual Report on Form 10-K, all of which are incorporated by reference into this prospectus.. These risks represent challenges +to the successful implementation of our strategy and to the growth and future profitability of our business. These risks include, but +are not limited to, the following: + + + + + + + We + have a history of operating losses; + + + + + + + + + + We + may not be able to implement successfully our growing our multidisciplinary primary health care business by opening and acquiring + new clinics and expanding the staffing of multidisciplinary primary health care clinicians to affiliate clinics and eldercare centric + homes; + + + + + + + + + + Public + health epidemics or outbreaks (such as the novel strain of coronavirus (COVID-19)) could adversely impact our business + + + + + + + + + + We + may not be able to increase our market share in existing eldercare services, occupational therapy services, physiotherapy services + and speech language pathology services through network affiliation growth and new contracts; + + + + + + + + + + We + may be unable to attract sufficient demand for and obtain acceptance of our multidisciplinary primary health care services and our + medical cannabidiol products by both multidisciplinary primary health care clinicians and patients; + + + + + + + + + + The + clinics that we acquire or open may not meet our expectations; + + + + + + + + + + If + we open new clinics in existing markets, revenue at our existing clinics may be affected negatively; + + + + + + + + The + multidisciplinary primary health care market is highly competitive, including competition for patients, strategic relationships, + and commercial payor contracts, each of which could adversely affect our contract and revenue base; + + + + + + + + + + We + may be unable to obtain reimbursement for our multidisciplinary primary health care services from the government or third-party health + care insurers of our patients; + + + + + + + + + + We + may not be able to successfully make acceptable financial arrangements for patients who desire treatment but cannot afford to pay + in full or part, and for whom third-party insurance coverage is either limited or non-existent; + + + + + + + + + + Prospective + patients may be unwilling to pay out-of-pocket for certain of our multidisciplinary primary health care and primary care services, + in the absence of reimbursement from the government or third-party health care insurers for such multidisciplinary primary health + care and services; + + + + + + + + + + The + success of alternative treatments, therapies and medical products as opposed to the multidisciplinary primary health care services, + therapies and prospective medical CBD products that we might offer in the future could adversely affect us; + + + + 13 + + + + + + + + + + We + may not be able to recruit and retain qualified multidisciplinary primary health care clinicians for our multidisciplinary primary + health care clinics and staffing of affiliate clinics and eldercare centric homes; + + + + + + + + + + We + may not be able to prohibit or limit our multidisciplinary primary health care clinicians from competing with us in our local markets; + + + + + + + + + + We + may be unable to enter into or maintain contracts for our multidisciplinary primary health care services on favorable terms with + commercial payors in Canada and the United States; + + + + + + + + + + Government + health care programs may reduce reimbursement rates; + + + + + + + + + + The + health care industry is heavily regulated, and if we fail to comply with these laws and governmental regulations, we could incur + penalties or be required to make significant changes to our operations; + + + + + + + + + + Our + multidisciplinary primary health care clinics are and will be subject to numerous statutes and regulations in the Canadian provinces + in which we operate or intend to operate and states in the United States in which we intend to operate. Failure to comply with these + laws and regulations could result in civil or criminal sanctions; + + + + + + + + + + Past + and future health care reform legislation and other changes in the health care industry could adversely affect our business, financial + condition and results of operations; + + + + + + + + We + are subject to the Canada Health Act, Canada s National Health Insurance Program and Food and Drugs Act and analogous provisions + of applicable federal, provincial, state and local laws and could face substantial penalties if we fail to comply with such laws; + + + + + + + + + + If + the Company acquires one or more multidisciplinary primary health care clinics or primary care facilities in the United States, we + will be subject to the Anti-Kickback Statute, FCA, Civil Monetary Penalties statute and analogous provisions of applicable state + laws and could face substantial penalties if we fail to comply with such laws; + + + + + + + + + + We + will be subject to the data privacy, security and breach notification requirements of Canadian and United States federal statutes + and other data privacy and security laws, and the failure to comply with these rules, or allegations that we have failed to do so, + could result in civil or criminal sanctions; + + + + + + + + + + Our + Telemedicine Medical Technology Platform is currently in early-stage roll-out and we may be unsuccessful in the commercialization + of the Telemedicine Medical Technology Platform; + + + + + + + + Our + success with the Telemedicine Medical Technology Platform will highly be dependent upon our ability to develop relationships with + primary care physicians, specialists and clinicians; + + + + + + + + + + Our + Telemedicine Medical Technology Platform may not be accepted in the marketplace; + + + + + + + + + + Our + Remote Patient Monitoring Medical Technology Platform is currently in early-stage roll-out and development and we may be unsuccessful + in the commercialization of the RPM platform; + + + + + + + + + + Our + success with the Remote Patient Monitoring Medical Technology Platform will highly be dependent upon our ability to develop relationships + with primary care physicians and specialists; + + + + + + + + + + Our + Remote Patient Monitoring Medical Technology Platform may not be accepted in the marketplace; + + + + + + + + + + Our + Novo Connect Medical Technology Platform is currently in early-stage roll-out and development and we may be unsuccessful in the commercialization + of the Novo Connect Medical Technology Platform; + + + + + + + + + + Our + success with the Novo Connect Medical Technology Platform will highly be dependent upon our ability to develop relationships with + primary care physicians and specialists; + + + + + + + + + + Our + Novo Connect Medical Technology Platform may not be accepted in the marketplace; + + + + 14 + + + + + + + + + + + Government + regulation of the internet and e-commerce is evolving, and unfavorable changes could substantially harm our business and results + of operations; + + + + + + + + + + We + may be unable to attract sufficient demand for and obtain acceptance of our medical CBD products by both multidisciplinary primary + health care clinicians and patients; + + + + + + + + + + Possible + yet unanticipated changes in federal and state law could cause any products that we intend to launch, containing hemp-derived CBD + oil to be illegal, or could otherwise prohibit, limit or restrict any of our products containing CBD; + + + + + + + + + + Risks + associated with the CBD products industry; + + + + + + + + + + FDA + regulation could negatively affect the hemp industry, which would directly affect our financial condition; + + + + + + + + + + Sources + of hemp-derived CBD depend upon legality of cultivation, processing, marketing, and sales of products derived from those plants under + state law of the United States; + + + + + + + + Because + our distributors may only sell and ship our products containing hemp-derived CBD in states that have adopted laws and regulations + qualifying under the 2018 Farm Act, a reduction in the number of states having such qualifying laws and regulations could limit, + restrict or otherwise preclude the sale of intended products containing hemp-derived CBD; + + + + + + + + + + There + may be unanticipated delays in the development and introduction of our prospective medicinal CBD products and/or our inability to + control costs; + + + + + + + + + + If + needed, we may be unable to consistently retain or hire third-party manufacturers, suppliers, or other service providers to produce + our prospective medicinal CBD products; + + + + + + + + + + We + do not have control over all third parties involved in the manufacturing of our products and their compliance with government health + and safety standards. Even if our products meet these standards, they could otherwise become contaminated; + + + + + The + sale of our products involves product liability and related risks that could expose us to significant insurance and loss expenses; + + + + + + + + + + Confusion + between legal CBD and illegal cannabis; + + + + + + + + + + Seasonal + fluctuations in revenue; + + + + + + + + + + Our + failure to promote and maintain a strong brand; + + + + + + + + + + Failure + to achieve or sustain profitability; + + + + + + + + + + Our + failure to successfully or cost-effectively manage our marketing efforts and channels, and the failure of such efforts and channels + to be effective in generating leads and business for the Company or any of its affiliated providers; + + + + + + + + + + Significant + competition; + + + + + + + + + + Adequate + protection of confidential information; + + + + + + + + + + The + business risks of United States and international operations; + + + + + + + + + + Our + vulnerability to changes in consumer preferences and economic conditions; + + + + + + + + + + Potential + litigation from competitors and health related claims from patients and customers; + + + + + + + + A + limited market for our common stock; + + + + + + + + + + Our + ability to adequately protect the intellectual property used to produce our prospective medicinal CBD products; and + + + + + + + + + + Our + ability to stay abreast of modified or new laws and regulations applying to our business. + + + + + 15 + + + + + + + +The +Streeterville Financing + + + +On +April 5, 2024 (the "Effective Date"), we entered into a securities purchase agreement (the "Securities Purchase Agreement") +with Streeterville Capital, LLC (the "Holder" or "Selling Securityholder"), pursuant to which we issued a secured +convertible promissory note (the "Convertible Note") with a maturity date of April 8, 2025 (the "Maturity Date"), +in the principal sum of $6,210,000 (the "Principal Sum"). Pursuant to the terms of the Convertible Note, we agreed to pay +the Principal Sum to the Holder and to pay interest on the principal balance at the rate of 10.9% per annum. The Convertible Note carries +an original issue discount ("OID") of $660,000. In addition, $50,000 was withheld from the Principal Sum to cover the Holder s +transaction costs. Accordingly, on April 8, 2024, the Holder paid the purchase price of $5,500,000 in exchange for the Convertible Note. +Upon receipt of the Purchase Price, we repaid in full the remaining outstanding balances under that certain promissory note in the original +principal amount of $3,500,000 issued on September 12, 2023, as well as that certain promissory note in the original principal amount +of $277,777.77 issued on September 18, 2023. + + + +The +Holder may convert the Convertible Note into our Common Stock on any trading day (and the following trading day) that any intraday trade +price of the Common Stock is 10% greater than the closing trade price on the previous trading day (each a "Voluntary Conversion"). +With respect to any Voluntary Conversion, the conversion price is equal to 85% of the lowest daily volume weighted average price of the +Common Stock on any trading day during the five (5) trading day period prior to the respective conversion date (the "Conversion +Price"), subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events as well +as beneficial ownership limitations discussed below. + + + +Beginning +on October 8, 2024, the Selling Securityholder shall have the right to redeem up to $950,000 of the Convertible Note per calendar month. +We are required to pay such redemption amounts in cash, provided, however, that if certain equity conditions are satisfied, then we may +pay all or any portion of such applicable redemption amount by issuing shares of Common Stock at the applicable Conversion Price at such +time. + + + +The +Company may prepay the Convertible Note at any time prior to the date that an Event of Default (as defined in the Convertible Note) (each +an "Event of Default") occurs at an amount equal to 105% of the Outstanding Balance (as defined below). "Outstanding +Balance" means the Principal Sum then outstanding plus accrued and unpaid interest. The Convertible Note contains customary events +of default relating to, among other things, payment defaults, breach of representations and warranties, and breach of covenants in the +Convertible Note or the Securities Purchase Agreement. + + + +Upon +the occurrence of any Event of Default, the Convertible Note shall become immediately due and payable and we shall pay to the Selling +Securityholder, in full satisfaction of its obligations hereunder, an amount equal to the Outstanding Balance plus the Trigger Effect +(as defined herein). The "Trigger Effect" means 20% of the Outstanding Balance upon the occurrence of any Major Trigger Event +(as defined in the Convertible Note) and 5% of the Outstanding Balance upon the occurrence of any Minor Trigger Event (as defined in +the Convertible Note). The Trigger Effect for any Minor Trigger Event may occur up to three times. Upon the occurrence of an Event of +Default, additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 22% per annum or the +highest rate permitted by law. + + + +Under +the terms of the Convertible Note held by the Selling Securityholder, the Company many not make any conversions under the Convertible +Note to the extent such conversion would cause such Selling Securityholder, together with its affiliates and attribution parties, to +beneficially own a number of shares of Common Stock which would exceed 4.99% of our then outstanding common stock following such exercise, +excluding for purposes of such determination shares of Common Stock issuable upon conversion of the Convertible Note which have not been +converted (the "Maximum Percentage"). The Maximum Percentage is automatically increased to 9.99% at any time the market +capitalization of the Company is less than $10,000,000. By written notice to the Selling Securityholder, we may decrease the Maximum +Percentage as to itself, but any such decrease will not be effective until the 61st day after delivery thereof. The foregoing +61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of the Selling +Securityholder. + + + +In +addition to the beneficial ownership limitations provided in the Convertible Note, the sum of the number of shares of Common Stock that +may be issued under the Convertible Note may not exceed the requirements of Nasdaq Listing Rule 5635(d) (the "Issuance Cap") +unless shareholder approval is obtained as discussed below. If the number of shares of Common Stock issued to the Selling Securityholder +the Issuance Cap, so as not to violate the 20% limit established in Listing Rule 5635(d), we will, at our election, use reasonable commercial +efforts to obtain stockholder approval of the Convertible Note and the issuance of additional Conversion Shares, if necessary, in accordance +with the requirements of Nasdaq Listing Rule 5635(d) (the "Approval"). We agreed to seek the Approval within six (6) +months of the Effective Date. If we are unable to obtain such Approval within nine (9) months of the Effective Date and the Issuance +Cap is reached, any remaining Outstanding Balance of the Convertible Note must be repaid in cash. + + + +The +Securities Purchase Agreement contains customary representations, warranties, and covenants of the Company, including, among other things +and subject to certain exceptions, registration rights with respect to the Common Stock underlying the Convertible Note. The Securities +Purchase Agreement also requires us to file a registration statement covering the Selling Securityholder s resale of the Common +Stock underlying the Convertible Note within 75 days of the closing date. + + + + 16 + + + + + + + +In +connection with the Convertible Note and the Securities Purchase Agreement, the Company and the Selling Securityholder also entered into +a security agreement (the "Security Agreement"). Pursuant to the Security Agreement, we granted the Selling Securityholder +a security interest in all of our assets. + + + +Acenzia +Inc. ("Acenzia"), our wholly owned subsidiary, entered into a guaranty with the Selling Securityholder on April 5, 2024 (the +"Acenzia Guaranty"). Acenzia guaranteed the repayment of the Convertible Note and granted the Selling Securityholder a security +interest in the assets of Acenzia, including but not limited to the property located at 1580 Rossi Drive, Tecumseh, Ontario, Canada. +Further, Novo Healthnet Limited ("NHL"), our wholly owned subsidiary, entered into a guaranty with the Selling Securityholder +on April 5, 2024 (the "NHL Guaranty"). NHL guaranteed the repayment of the Convertible Note and granted the Selling Securityholder +a security interest in the assets of NHL. + + + +The +Convertible Note issued pursuant to the Securities Purchase Agreement was sold and issued without registration under the Securities Act +of 1933, in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as a transaction not involving a public offering +and Rule 506 promulgated under the Securities Act as sales to accredited investors. + + + +Implications +of Being a Smaller Reporting Company + + + +We +are a "smaller reporting company," as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange +Act"). As a smaller reporting company, we may take advantage of certain reduced reporting requirements and are relieved of certain +other significant requirements that are otherwise generally applicable to public companies. For instance, smaller reporting companies +are not required to obtain an auditor attestation and report regarding management s assessment of internal control over financial +reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph +or Chief Executive Officer pay ratio disclosure; and may present only two years of audited financial statements and related MD&A +disclosure. We will remain a "smaller reporting company" until the last day of the fiscal year in which we have at least +$250.0 million in outstanding voting and non-voting common equity held by our non-affiliates on the last day of the fiscal year in which +we have at least $100 million in revenue and at least $700 million in outstanding voting and non-voting common equity held by our non-affiliates +(in each case, with respect to common equity value, as measured as of the last business day of the second quarter of such fiscal year). + + + +Corporate +Information + + + +Novo +Integrated Sciences, Inc. ("Novo Integrated") was incorporated in Delaware on November 27, 2000, under the name Turbine Truck +Engines, Inc. On February 20, 2008, the Company was re-domiciled to the State of Nevada. Effective July 12, 2017, the Company s +name was changed to Novo Integrated Sciences, Inc. On February 23, 2021, our shares of Common Stock began trading on the Nasdaq Capital +Market under the symbol, "NVOS." Our principal office is located at 11120 NE 2nd Street, Suite 100, Bellevue, Washington +98004 and our phone number is (206) 617-9797. Our corporate website address is www.novointegrated.com. The information contained +on, or accessible through, our website is not incorporated in, and shall not be part of, this prospectus. + + + + 17 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001166272_genetic_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001166272_genetic_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001166272_genetic_prospectus_summary.txt @@ -0,0 +1 @@ +Prospectus Summary 1 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001304280_novelis_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001304280_novelis_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..c7b2185942e1ff3240a2fc44f7f948bd77160f27 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001304280_novelis_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before deciding to invest in our common shares, you should read this entire prospectus carefully, including the sections of this prospectus entitled Risk Factors, Special Note Regarding Forward-Looking Statements and Management s Discussion and Analysis of Financial Condition and Results of Operations, and our audited annual consolidated financial statements and the related notes contained elsewhere in this prospectus. Our Business Our Purpose and Vision. Novelis purpose of Shaping a Sustainable World Together is at the core of who we are. Our purpose guides our strategy and the way we work, the decisions we make and the partnerships we pursue. In line with our purpose, our vision is to advance aluminum as the material of choice with circular solutions. Our customers around the world rely on us for sustainable solutions and products, and we make positive contributions in the communities where we live and work. Our Company. We consider ourselves the leading producer of innovative, sustainable aluminum solutions and the world s largest recycler of aluminum. Specifically, we believe we are the leading provider of low-carbon aluminum solutions, helping to drive a circular economy by partnering with our suppliers and customers in beverage packaging, automotive, aerospace and specialties (a diverse market including building & construction, signage, foil & packaging, commercial transportation and commercial & consumer products, among others) markets globally. Throughout North America, Europe, Asia, and South America, we have an integrated network of 32 world-class, technologically advanced facilities, including 14 recycling centers, 11 innovation centers, and 13,190 employees. Aluminum is the sustainable material of choice for a wide range of growing end-markets that require strong, yet lightweight, sustainable solutions. The virtually infinite recyclability of aluminum is essential to our innovative circular business model. With operations on four continents in nine countries, we consider our global scale to be a distinct competitive advantage. In addition, our leading position in aluminum recycling combined with our cutting-edge operational processes provides us with an advantaged cost position, increasing our operating cash flow. For fiscal 2024, we had total flat-rolled product shipments of 3,673 kt, net sales of $16.2 billion, net income of $600 million, and Adjusted EBITDA of $1,873 million. Our Value Proposition. We are a critical partner for the delivery of innovative, high-quality aluminum solutions that help our customers achieve their long-term growth strategies and sustainability targets. We are strategically positioned to deliver our value proposition due to the following attributes of our business model: Global Footprint and Scale. We are the world s largest global aluminum rolled products producer with a broad portfolio of high-value aluminum products designed to meet our customers technical, quality and sustainability requirements. We believe our scale, recycling capabilities, research and development ( R&D ) competencies, and global footprint across four continents underpin our highly resilient business model, which is characterized by attractive growth opportunities, the ability to add new capacity, and the capability to support our customers with innovative and sustainable solutions. Table of Contents Table of Contents U.S. dollar, are translated to U.S. dollars at the period end exchange rates, and revenues and expenses are translated at average exchange rates for the period, in each case, using the exchange rates published by the relevant central banks. Differences arising from this translation are included in the currency translation adjustment component of accumulated other comprehensive loss and noncontrolling interests, both of which are on our consolidated balance sheets. For all operations, the monetary items denominated in currencies other than the functional currency are remeasured at period-end exchange rates, and transaction gains and losses are included in other (income) expenses, net in our consolidated statements of operations. Non-monetary items are remeasured at historical rates. NON-U.S. GAAP FINANCIAL MEASURES We refer to the terms EBITDA, Adjusted EBITDA, Adjusted EBIT, Adjusted NOPAT, Return on Invested Capital and Adjusted Free Cash Flow in various places in this prospectus. These are supplemental financial measures that are not prepared in accordance with U.S. GAAP. Although our management uses these non-U.S. GAAP financial measures when planning, monitoring and evaluating our performance, any analysis of non-U.S. GAAP financial measures should be used only in conjunction with results presented in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA Novelis defines EBITDA as earnings before interest, taxes, depreciation and amortization. Novelis defines Adjusted EBITDA as earnings before (a) depreciation and amortization ; (b) interest expense and amortization of debt issuance costs ; (c) interest income ; (d) unrealized gains (losses) on change in fair value of derivative instruments, net, except for foreign currency remeasurement hedging activities, which are included in Adjusted EBITDA; (e) impairment of goodwill; (f) gain or loss on extinguishment of debt ; (g) noncontrolling interest s share; (h) adjustments to reconcile our proportional share of Adjusted EBITDA from non-consolidated affiliates to income as determined on the equity method of accounting; (i) restructuring and impairment (reversal) expenses, net ; (j) gains or losses on disposals of property, plant and equipment and businesses, net; (k) other costs, net; (l) litigation settlement, net of insurance recoveries; (m) sale transaction fees; (n) income tax provision (benefit); (o) cumulative effect of accounting change, net of tax; (p) metal price lag; (q) business acquisition and other related costs; (r) purchase price accounting adjustments; (s) income (loss) from discontinued operations, net of tax ; and (t) (gain) loss on sale of discontinued operations, net of tax. EBITDA and Adjusted EBITDA are measures commonly used in our industry, and we present EBITDA and Adjusted EBITDA to enhance your understanding of our operating performance. We believe that EBITDA and Adjusted EBITDA are operating performance measures, and not liquidity measures, that provide you with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Our management believes investors understanding of our performance is enhanced by including these non-U.S. GAAP financial measures as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations from one period to the next and would ordinarily add back items that are not part of normal day-to-day operations of our business. By providing these non-U.S. GAAP financial measures, together with reconciliations, we believe we are enhancing investors understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives. However, EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP, and our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. EBITDA and Adjusted EBITDA have important limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. For example, EBITDA and Adjusted EBITDA: do not reflect our cash expenditures or requirements for capital expenditures or capital commitments; Table of Contents Sustainability. The virtually infinite recyclability of aluminum positions us at the focal point of the circular economy. We believe we recycle more aluminum than any other company in the world, having recycled approximately 2.3 mt in fiscal 2024. Since fiscal 2012, we have invested heavily to innovate and expand our aluminum recycling operations to increase the recycled content of our solutions to an industry leading level. We are an essential partner to our blue-chip customers to enable the achievement of their sustainability goals, which are being driven, in part, by end-consumers. Key components of our innovative circular business model include: High Recycled Content. We have steadily increased recycled content to approximately 63% on average across our diverse portfolio. This represents approximately a 2x increase since we established a baseline in 2009. Our target is to achieve an average of 75% recycled content across our product portfolio by the end of calendar year 2030. Recycling Capacity and Capabilities. We have invested approximately $700 million to expand our recycling capacity and capabilities between fiscal 2012 and fiscal 2022. We expect to commission a new recycling center in Guthrie, Kentucky in the first quarter of fiscal 2025, and are building new recycling facilities in Ulsan, South Korea and Bay Minette, Alabama. End-of-Life Packaging Recycling. Today, we recycle more than 82 billion used beverage cans ( UBCs ) annually. Through investments such as the new recycling capacity being added in Bay Minette, Alabama, we expect to increase this to more than 95 billion at full production. Closed Loop Recycling. We have established programs with our beverage packaging customers to recycle their production scrap. Additionally, we believe we are the world s largest closed loop aluminum recycling partner to the automotive industry, recycling production scrap of aluminum supplied to some of the world s largest automotive original equipment manufacturers ( OEMs ). We have two of the world s largest closed loop recycling programs in the U.S. and Europe. Sustainable Sourcing. We partner with suppliers that align with our values to drive sustainability throughout our value chain related to carbon reduction, limiting waste produced, and providing a positive community impact. Low CO2 Operations. We are actively developing and implementing new technologies to reduce our CO2 footprint, such as programs in Switzerland and North America with utility companies to explore Table of Contents Table of Contents do not reflect changes in, or cash requirements for, our working capital needs; and do not reflect any costs related to the current or future replacement of assets being depreciated and amortized. Additionally, our senior secured credit facilities, 3.25% senior notes due 2026, 3.375% senior notes due 2029, 4.75% senior notes due 2030, and 3.875% senior notes due 2031 provide for adjustments to EBITDA, which may decrease or increase Adjusted EBITDA for purposes of compliance with certain covenants under such facilities and notes. We also use EBITDA and Adjusted EBITDA: as measures of operating performance to assist us in comparing our operating performance on a consistent basis because it removes the impact of items not directly resulting from our core operations; for planning purposes, including the preparation of our internal annual operating budgets and financial projections; to evaluate the performance and effectiveness of our operational strategies; and to calculate incentive compensation payments for our key employees. We also present our financial leverage ratio in this prospectus, which represents the ratio of our total debt less cash and cash equivalents to our Adjusted EBITDA, to monitor compliance with covenants in agreements governing our outstanding indebtedness and to assess our liquidity position over time. Adjusted earnings before interest and taxes and Adjusted net operating profit after taxes Novelis defines Adjusted earnings before interest and taxes ( Adjusted EBIT ), which is a non-GAAP financial measure, as Adjusted EBITDA (which is discussed above) including the impact of depreciation and amortization. Novelis defines Adjusted net operating profit after tax ( Adjusted NOPAT ), which is a non-GAAP financial measure, as Adjusted EBIT after applying our effective tax rate for the period. The effective tax rate for the period presented is consistent with the effective tax rate disclosed in our consolidated financial statements and is calculated by dividing Income tax provision by Pre-tax income before equity in net income of non-consolidated affiliates. Pre-tax income before equity in non-consolidated affiliates is calculated as Income from continuing operations before income tax provision, less the impact of Equity in net income of non-consolidated affiliates during the period. We believe that Adjusted EBIT provides useful information to investors and management about the profitability of our core operations, including the cost of using our assets, while Adjusted NOPAT provides a tax-effected view of this metric. These measures may be different from similarly named non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. Return on Invested Capital Return on invested capital ( Return on Invested Capital or ROIC ) is a non-GAAP financial measure. Novelis defines ROIC as Adjusted NOPAT (which is discussed above) for the trailing twelve-month period, divided by average invested capital for such period. Novelis defines average invested capital for a given period as the average of the sums of the following as of prior period-end and current period-end: (a) Current portion of long-term debt, (b) Short-term borrowings, (c) Long-term debt, net of current portion, and (d) total equity, less (e) Cash and cash equivalents. We believe ROIC is a meaningful measure because it quantifies how well we generate returns relative to the capital we have invested in our business and illustrates the profitability of a business or project taking into account the capital invested. ROIC is used to assist us in capital resource allocation decisions and in evaluating business performance. Although ROIC is commonly used as a measure of capital efficiency, definitions of ROIC differ, and our computation of ROIC may not be comparable to other similarly titled measures of other companies. Table of Contents new technologies to decarbonize the aluminum manufacturing process. Beyond direct manufacturing emissions, we are continuously exploring options to reduce carbon emissions in logistics, such as closed loop rail systems in Europe created in collaboration with automotive customers. Innovation. Utilizing our industry-leading technology, we partner with customers to support market development for innovative and sustainable solutions across all end-markets. We focus our innovation efforts on pushing the limits on aluminum alloys, advancing customers product designs and improving our own process engineering and production techniques. Key components that support the needs of our customers include: Customer Solution Centers ( CSCs ). Through our robust global network of automotive and beverage packaging CSCs, we collaborate with customers and others across the value chain to accelerate the adoption of aluminum in next-generation products. In our CSCs, we have equipment which allows our customers to simulate a production environment, such as a stamping press and beverage packaging pilot lines. Research & Development. Leveraging our global network of R&D centers, we develop new alloys and techniques to keep aluminum at the forefront of materials and pioneer new technologies to expedite the materials innovation cycle, including artificial intelligence ( AI ) and machine learning. We also have a dedicated team of recycling, casting, rolling, and finishing experts who pioneer advancements in aluminum manufacturing. Customer Testimonial Ball Corporation Aluminum beverage packaging has always been a more sustainable alternative to plastic and glass that not only benefits our customers and end consumers, but also the planet. For us at Ball Corporation, our Vision for a Perfect Circle guides our efforts to advance the circular economy for aluminum beverage packaging. Novelis is critical to our ability to achieve our sustainability ambitions and working with us to develop innovative solutions that further reduce our carbon footprint. In addition, Novelis has been a longstanding strategic supplier supporting our growth globally through investments to expand their can sheet capacity. Dan Fisher, CEO, Ball Corporation Jaguar Land Rover Novelis expertise in high-volume aluminum production and willingness to invest to better serve the automotive industry drove our decision to collaborate with the company when transitioning many of our marque vehicles to aluminum-intensive designs. We have benefitted from Novelis proven ability to bring innovative, circular, and long-lasting quality products to market. Jaguar led the way as an Table of Contents Adjusted Free Cash Flow Novelis defines Adjusted Free Cash Flow as: (a) Net cash provided by (used in) operating activities continuing operations, (b) plus Net cash provided by (used in) investing activities continuing operations, (c) plus Net cash provided by (used in) operating activities discontinued operations, (d) plus Net cash provided by (used in) investing activities discontinued operations, (e) plus cash used in the Acquisition of assets under a finance lease, (f) plus cash used in the Acquisition of business and other investments, net of cash, (g) plus accrued merger consideration, (h) less Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging, and (i) less proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging discontinued operations. Our management believes Adjusted Free Cash Flow is relevant to investors as it provides a measure of the cash generated internally that is available for debt service and other value creation opportunities. In addition, management uses this measure as a key consideration in determining the amounts to be paid as returns of capital to our common shareholder. However, Adjusted Free Cash Flow is not a measurement of financial performance or liquidity under U.S. GAAP and does not necessarily represent cash available for discretionary activities, as certain debt service obligations must be funded out of Adjusted Free Cash Flow. In addition, our method of calculating Adjusted Free Cash Flow may not be consistent with that of other companies. For more information regarding these non-U.S. GAAP financial measures and a reconciliation of such measures to the most directly comparable U.S. GAAP financial measures, see Prospectus Summary Summary Historical Condensed Consolidated Financial Information. SEGMENT LEVEL PROFITABILITY ASC 280, Segment Reporting, establishes the standards for reporting information about segments in financial statements. In applying the criteria set forth in ASC 280, we have determined that we have four reportable segments for financial reporting purposes, based on geographical areas: North America, Europe, Asia, and South America. Under ASC 280, our measure of segment profitability and financial performance of our operating segments is Adjusted EBITDA. Adjusted EBITDA by segment provides a measure of our underlying segment results that is in line with our approach to risk management. For each segment, we define Adjusted EBITDA Income as earnings before (a) depreciation and amortization; (b) interest expense and amortization of debt issuance costs; (c) interest income; (d) unrealized gains (losses) on change in fair value of derivative instruments, net, except for foreign currency remeasurement hedging activities, which are included in Adjusted EBITDA; (e) impairment of goodwill; (f) gain or loss on extinguishment of debt, net; (g) noncontrolling interests share; (h) adjustments to reconcile our proportional share of Adjusted EBITDA from non-consolidated affiliates to income as determined on the equity method of accounting; (i) restructuring and impairment (reversal) expenses, net; (j) gains or losses on disposals of property, plant and equipment and businesses, net; (k) other costs, net; (l) litigation settlement, net of insurance recoveries; (m) sale transaction fees; (n) income tax provision (benefit); (o) cumulative effect of accounting change, net of tax; (p) metal price lag; (q) business acquisition and other related costs; (r) purchase price accounting adjustments; (s) income (loss) from discontinued operations, net of tax; and (t) loss on sale of discontinued operations, net of tax. Refer to Results of Operations Segment Review for more information on Adjusted EBITDA as a measure of our segment level profitability. PRESENTATION OF SHIPMENT INFORMATION We present product shipment information throughout this prospectus. As used herein, consolidated aluminum rolled product shipments, rolled products shipments or shipments refers to aluminum rolled product shipments to third parties. For our operating segments, regional aluminum rolled product shipments, rolled Table of Contents earlier adopter of aluminum in the automotive industry, so it was critical for us to select the right partner as our primary aluminum sheet supplier. That s why it was so important for our teams to collaborate and build infrastructure with the circular economy in mind from the start ensuring JLR s aluminum process scrap is recycled directly back into automotive sheet. Together, we created a truly closed-loop-recycling system utilizing low-carbon rail that embodies JLR s vision Engage for Good and Responsible Business programmes. Andrew Smith, Procurement Director Raw Materials, Jaguar Land Rover Trane Technologies As a global climate innovator, Trane Technologies brings efficient and sustainable climate solutions to buildings, homes, and transportation. Novelis has been a strategic supplier of ours for many years. Building on our shared commitment to sustainability and a solid foundation of quality and reliability, Trane Technologies and Novelis are jointly developing new alloys that incorporate a higher recycled content in support of a circular economy, which helps us reduce embodied carbon in the products we provide to our customers. Dave Regnery, Chair and CEO Trane Technologies Our Portfolio Optimization. Since becoming a subsidiary of Hindalco Industries in 2007, we have undergone a significant transformation. We have made numerous strategic investments that we believe position us well to achieve long-term growth and profitability: Breadth of Offering. We made calculated portfolio changes through M&A and organic investments to diversify and optimize our capacity across end-markets by (i) becoming, to our belief, the world leader in automotive aluminum solutions, (ii) expanding high recycled content in our specialties business and pruning the portfolio of lower margin products, and (iii) adding aerospace in key geographic regions. Operational Flexibility. We have been at the forefront of aluminum manufacturing advancements and adoption of new processes, which has enabled maximum flexibility in our operations. Our footprint and market segment positioning are continuously evaluated based on regional supply and demand dynamics with a focus on margin expansion. M&A. We acquired global aluminum producer Aleris Corporation ( Aleris ) in 2020, diversifying and strengthening our portfolio with entry into high-value aerospace and expansion of our high-recycled-content building and construction business. We currently have potential investments under evaluation for the integration of legacy Aleris rolling mill in China, which would enable automotive rolling and recycling in China for Novelis and allow us to offer closed-loop recycling to our customers in China. These investments would also further increase circularity in the Chinese automotive market and reduce our CO2 footprint. Additionally, increasing rolling capacity in China will free up existing rolling capacity in South Korea, enabling us to better serve the growing specialties market in the region. Our Track Record. We have experienced substantial growth over the last decade, driven by our own initiatives that have contributed to robust end-market growth and strong operational performance. As a result, we increased our net income from a loss of $38 million in fiscal 2016 to net income of $600 million in fiscal 2024 and increased net income per tonne from $(12) in fiscal 2016 to $163 in fiscal 2024. We also increased Adjusted EBITDA per tonne from $308 in fiscal 2016 to $510 in fiscal 2024. Key components of our historical growth and margin expansion include: Transformational Organic Investment. We invested approximately $2.8 billion from fiscal 2012 through fiscal 2022 in organic growth capex, expanding our rolling and recycling capacity, as well as automotive finishing capacity, to meet market demand. We are investing in a new phase of strategic organic investment between fiscal 2023 and fiscal 2027, with approximately $4.9 billion of investments under construction to Table of Contents products shipments or shipments refers to aluminum rolled product shipments to third parties and intersegment shipments to other regions. Shipment amounts also include tolling shipments. References to total shipments include aluminum rolled product shipments as well as certain other non-rolled product shipments, primarily scrap, used beverage can scrap, ingots, billets, and primary remelt. The term aluminum rolled products is synonymous with the terms flat-rolled products and FRP, which are commonly used by manufacturers and third-party analysts in our industry. All tonnages are stated in metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. One kilotonne ( kt ) is 1,000 metric tonnes. One megaton ( mt ) is 1000 kilotonnes. See the subsections titled Key Sales and Shipment Trends and Segment Review under the caption Management s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for more information. We also refer to Adjusted EBITDA per tonne (which is calculated by dividing Adjusted EBITDA by rolled product shipments (in tonnes) for the corresponding period), both on a consolidated basis and at the segment level. Adjusted EBITDA per tonne is calculated using aluminum rolled product shipments rather than total shipments because the incremental impact of non-rolled products shipments on our Adjusted EBITDA is marginal since the price of these products is generally set to cover the costs of raw materials not utilized in manufacturing products sold to beverage packaging customers, specialties and aerospace customers in our regions, and these non-rolled products are not part of our core operating business. Adjusted EBITDA reported for the Company on a consolidated basis is non-U.S. GAAP financial measure; for more information regarding this non-U.S. GAAP financial measure, see Non-U.S. GAAP Financial Measures above, and for a reconciliation of such measure to the most directly comparable U.S. GAAP financial measure, see Prospectus Summary Summary Historical Condensed Consolidated Financial Information. Adjusted EBITDA reported at the segment level is our segment level measure of profitability, and therefore a financial measure prepared in accordance with U.S. GAAP. Table of Contents further increase recycling and rolling capacity and profitability. Of this $4.9 billion, approximately $1.2 billion has already been spent through the end of fiscal 2024. The largest of these investments currently under construction is a greenfield recycling and rolling plant in Bay Minette, Alabama, to primarily serve the North American beverage packaging and automotive markets. We have materially contracted or committed our beverage packaging capacity that will be available in North America through the ramp-up of operations of our Bay Minette, Alabama plant. We expect to commission the Bay Minette, Alabama plant in fiscal 2027. Beyond the approximately $4.9 billion of announced investments, we continue to evaluate further opportunities based on financial returns and underlying market conditions. Proven Resilience Through Recent Macroeconomic Headwinds and Destocking. Our industry experienced an unprecedented period of short-term demand softness and increased cost pressure driven by inflation and energy volatility and supply disruptions in fiscal 2023. We also experienced end-market challenges with supply chain disruption and beverage packaging destocking actions, which negatively impacted shipment volumes and profitability, leading to a trough in net income per tonne and Adjusted EBITDA per tonne in the third quarter of fiscal 2023, as compared to highs in the first quarter of fiscal 2023. Due to the diversity of the end-markets in which we operate, our global scale, and operational excellence, we proved our resilience and sequentially improved profitability each quarter thereafter through the end of fiscal 2024. M&A. The acquisition of Aleris in 2020 has been highly accretive both in terms of market positioning and synergies, with cost synergies exceeding expectations. End-Market Growth. We believe our strategic initiatives have shaped the global aluminum flat-rolled products ( FRP ) industry and enabled robust growth as FRP consumption grew more than 70% over the past 15 years to approximately 30 million tonnes in 2023, per CRU.2 Aluminum FRP consumption is forecasted to grow at a 4% compound annual growth rate from 2023 to 2028, which Novelis is well positioned to capture. Advantaged Recycling Cost Position. We believe our efficiencies in recycling operations, industry-leading technology and buying power will position us well to the extent scrap prices fluctuate. Our vast footprint provides us the ability to benefit from economies of scale when procuring scrap, expertise to develop and implement best practices to reduce costs, and the ability to influence scrap generation. Production Efficiencies. We have implemented digital technologies and advanced analytics to improve recovery, throughput, and quality, driving operational efficiencies and improving profitability. We are implementing a Plant of the Future model that will further utilize digital technologies, AI, and robotics in new and existing plants. 2 Source: CRU Aluminium Rolled Products Market Outlook, November 2023. All CRU references to the broader aluminum rolled products market are derived from this report. Table of Contents Our Business Segments We report our results of operations in four segments: North America, Europe, Asia, and South America. Due in part to the regional nature of supply and demand for aluminum solutions and to best serve our customers, we manage our activities based on geographic areas. The following charts show net sales by geography and net sales and shipments by end-product market for fiscal 2024. Novelis Global Net Sales by Geographic Region Novelis Global Net Sales by End-Market Novelis Global Shipments by End-Market North America Segment Headquartered in Atlanta, Georgia, Novelis North America consists of 16 plants, including recycling operations, across two countries. We consider ourselves the leader in aluminum recycling and production in North America. In North America, we generated $6,717 million in net sales, $749 million in Adjusted EBITDA, and 1,513 kt in rolled product shipments, resulting in $495 in Adjusted EBITDA per tonne for fiscal 2024. Compared to fiscal 2016, our fiscal 2024 performance saw increases of $411 million in Adjusted EBITDA, 481 kt in rolled product shipments, and $168 in Adjusted EBITDA per tonne across our North American segment. We believe we hold the number one position in the beverage packaging and automotive markets in North America. Beverage packaging represents our largest market within North America, selling 715 kt in fiscal 2024. The specialties segment is the second largest end-market in the region, selling 403 kt in fiscal 2024. The balance of the portfolio is from our leading position in the automotive market, selling 396 kt in fiscal 2024. Across our 16 plants, our aluminum rolling capacity is approximately 1.5 mt. In addition, we have both R&D centers and CSCs strategically located across North America. Our global casting, engineering and technology Table of Contents center in Spokane, Washington, specializes in molten metal processing. This group seeks to ensure Novelis is always developing and adopting best practices related to recycling and molten aluminum processing, globally. Our global research and technology center in Kennesaw, Georgia, offers state of the art research and development capabilities to help us meet the global long-term demand for aluminum used across all our product markets and geographies. Kennesaw, Georgia is also home to our beverage packaging CSC and can-making pilot line, where we test our products on pre-production lines similar to those used by our beverage packaging customers. We also operate an automotive CSC in Detroit, Michigan. Due to strong consumer demand for sustainable aluminum products, particularly beverage packaging and automotive sheet, we currently have various debottlenecking, recycling, and new capacity capital investment projects under construction, including projects to expand rolling capacity in Oswego, New York, and Logan, Kentucky, and a highly advanced automotive recycling facility in Guthrie, Kentucky which we expect to commission in the first quarter of fiscal 2025. We are also building a $4.1 billion, fully integrated, greenfield rolling and recycling plant in Bay Minette, Alabama, with an annual rolled aluminum production capacity of 600 kt. Through the end of fiscal 2024, $700 million of capital expenditures have already been spent on the construction of the Bay Minette, Alabama plant. We have materially contracted or committed our beverage packaging capacity that will be available in North America through the ramp-up of operations of our Bay Minette, Alabama plant, including with decades-long customer partners such as Ball Corporation, Coca-Cola and Ardagh Metal Packaging, underscoring the strong demand for high-recycled-content beverage packaging sheet. Novelis North America End-Market Shipment Mix Europe Segment Headquartered near Zurich, Switzerland, Novelis Europe operates 10 plants across four countries, including recycling operations. We consider ourselves the leader in aluminum recycling and rolling in Europe. We generated $4,426 million in net sales (of which $67 million was related to intersegment sales), $321 million in Adjusted EBITDA, and 982 kt in rolled product shipments, resulting in $327 in Adjusted EBITDA per tonne in Europe for fiscal 2024. Compared to fiscal 2016, our fiscal 2024 performance saw increases of $118 million in Adjusted EBITDA, 3 kt in rolled product shipments, and $120 in Adjusted EBITDA per tonne across our European segment. We hold a leading position within the European beverage packaging and automotive end-markets. The beverage packaging end-market represents our largest market within Europe, selling 443 kt in fiscal 2024. The second largest end-market is the automotive market, selling 284 kt in fiscal 2024. The specialties market is the third largest end-market, selling 196 kt in fiscal 2024. The remainder of sales are from the aerospace industry, selling 60 kt in fiscal 2024. Across our European plants, our aluminum rolling capacity is approximately 1.2 mt. These manufacturing plants produce a broad range of sheet, plate, and foil products. We believe our Nachterstedt plant is one of the largest Table of Contents aluminum recycling plants in the world. Additionally, we have multiple centers dedicated to innovation in Europe. We have an automotive R&D center in Sierre, Switzerland and an R&D center in G ttingen, Germany, which specializes in the development of new products and processes for our beverage packaging and specialties customers. We also have an automotive CSC in Stuttgart, Germany. Due to strong consumer demand for sustainable aluminum products, we are evaluating additional rolling and recycling capacity expansion in Europe moving forward. Novelis Europe End-Market Shipment Mix Asia Segment Headquartered in Seoul, South Korea, Novelis Asia operates four plants, including recycling operations, in two countries. We are a leading aluminum producer and believe we are the largest recycler of aluminum in Asia. We generated $2,610 million in net sales (of which $265 million was related to intersegment sales), $334 million in Adjusted EBITDA, and 710 kt in rolled product shipments, resulting in $470 in Adjusted EBITDA per tonne in Asia for fiscal 2024. Compared to fiscal 2016, our fiscal 2024 performance saw an increase of $192 million in Adjusted EBITDA, a decrease of 50 kt in rolled product shipments, and an increase of $284 in Adjusted EBITDA per tonne across our Asian segment. We hold a leading position within the Asian beverage packaging and automotive end-markets. Beverage packaging represents our largest market in Asia, selling 481 kt in fiscal 2024. The automotive end-market represents the second largest end-market in the region, selling 127 kt in fiscal 2024. Specialties is the third largest end-market, selling 66 kt in fiscal 2024. The remainder of sales are from the aerospace industry, selling 36 kt in fiscal 2024. Across our plants, our rolling capacity is approximately 0.8 mt. These manufacturing plants produce a broad range of aluminum sheet, plate, and light gauge products. In fiscal 2022, we completed a 100 kt automotive finishing capacity expansion at our Changzhou, China facility. In South Korea, we are currently expanding our recycling capacity and capabilities with an approximately $65 million expansion as part of our Ulsan Aluminum joint venture. We also have plans under evaluation to invest in our plant in Zhenjiang, China, aimed at enabling domestic automotive rolling and recycling capabilities. We have an aerospace innovation center in Zhenjiang, an R&D center and an automotive CSC in Shanghai, China, and an R&D center as part of our joint venture in Ulsan, South Korea. Table of Contents Novelis Asia End-Market Shipment Mix South America Segment Headquartered in S o Paulo, Brazil, Novelis South America operates two plants, including recycling operations, in one country. We consider ourselves the leader in aluminum recycling and rolling production in South America. We hold a top position within the South American beverage packaging market. In South America, we generated $2,461 million in net sales (of which $110 million was related to intersegment sales), $472 million in Adjusted EBITDA, and 603 kt in rolled product shipments for fiscal 2024, resulting in $783 in Adjusted EBITDA per tonne. Compared to fiscal 2016, our fiscal 2024 performance saw increases of $192 million in Adjusted EBITDA, 113 kt in rolled product shipments, and $211 in Adjusted EBITDA per tonne across South America. Beverage packaging represents our largest market in the region, selling 568 kt in fiscal 2024. Additionally, we produce products to serve the specialties end-market, selling 34 kt in fiscal 2024. Across our plants, our rolling capacity is approximately 0.7 mt. In fiscal 2022, we completed a $150 million investment to expand both rolling and recycling capacity by 100 kt each at our Pindamonhangaba facility. In March 2023, we opened our newest CSC, which is focused on supporting the South American beverage packaging market and is located in S o Jos dos Campos, Brazil. Due to strong consumer demand for sustainable aluminum products, in fiscal 2022, we announced an approximately $50 million debottlenecking investment at our Pindamonhangaba plant to unlock approximately 70 kt of additional rolling capacity in a two-phase project, with full completion expected in fiscal 2026. We are evaluating additional rolling and recycling capacity expansions in the region. Novelis South America End-Market Shipment Mix Table of Contents Table of Contents Our Industry The aluminum market represents the global supply of, and demand for, aluminum sheet, plate and foil produced either from sheet ingot or continuously cast roll-stock in rolling mills operated by both independent aluminum rolled products producers and integrated aluminum companies. Specifically, aluminum rolled products are semi-finished aluminum products that constitute the raw material for the manufacturing of finished goods, ranging from beverage packaging, which includes cans, cups and bottles, to automotive structures and body panels. There are two major types of manufacturing processes for aluminum products, differing mainly in the process used to achieve the initial stage of processing: hot mills, which require sheet ingot, a rectangular slab of aluminum, as starter material; and continuous casting mills, which can convert molten metal directly into semi-finished sheet. Sources of Metal There are two sources of input material: (i) primary aluminum, produced from alumina (extracted from bauxite), processed in a smelter; and (ii) recycled aluminum, produced by remelting post-industrial and post-consumer scrap. Primary aluminum can generally be purchased at prices set on the London Metal Exchange ( LME ), plus a local market premium ( LMP ) that varies by geographic region of delivery, alloying material, form (ingot or molten metal) and purity. Recycled aluminum is generally produced internally from procured scrap or purchased at a discount compared to the price of primary aluminum depending on type and quality of the scrap, geographic region, and other market factors. A significant amount of our business is conducted under a conversion model, which allows us to pass through increases or decreases in the price of aluminum to our customers. We believe Novelis is a global leader in sustainable aluminum product manufacturing, recycling 2.3 mt of aluminum in fiscal 2024. We have invested approximately $700 million in recycling capacity and capabilities between fiscal year 2012 and 2022, increasing the recycled content of our products to be one of the highest levels in the industry. We have announced additional recycling investments to increase our leadership position. By utilizing recycled aluminum for much of our manufacturing, we limit the carbon intensity of our operations because using recycled aluminum is 95% less carbon intensive than making primary aluminum. Incorporating as much recycled aluminum as possible into products is one of the most impactful ways to reduce carbon emissions across the global aluminum value chain. To secure Novelis access to scrap, we design alloys with the flexibility to use multiple sources of scrap, partner with our customers and suppliers through long-term relationships including closed-loop-recycling partnerships, support the development of scrap sorting technologies, educate consumers on the value of recycling and support legislation aimed at increasing recycling rates. Industry End-Markets Due to aluminum s lightweight characteristics, recyclability, and formability properties, aluminum product companies serve a diverse set of end-markets including beverage packaging, automotive, aerospace, and a variety of other end-markets. Beverage Packaging. Aluminum is one of the most sustainable packaging materials for beverage brands. In addition to its recyclability, aluminum beverage cans and bottles offer advantages in fabricating efficiency and drink product shelf life. Beverage packaging manufacturers produce and fill beverage cans at very high speeds, and non-porous aluminum cans provide longer shelf life than glass or plastic containers. Aluminum beverage packaging is light and stackable and uses space efficiently, making it convenient and cost-efficient to ship. Table of Contents According to CRU, global demand (excluding China) for beverage packaging is forecasted to increase at a compound annual growth rate of approximately 4% from 2023 to 20313 mainly driven by: Sustainability trends. Consumers are increasingly demanding more sustainable packaging options, driving increased adoption of virtually infinitely recyclable aluminum. Growth in beverage markets. New beverage types, such as energy drinks, sparkling and flavored water, and ready-to-drink cocktails are increasingly released in aluminum packaging, with even further potential growth in aluminum-packaged water. Substitution against glass, steel and plastic. Package mix shift from other materials like glass, steel and plastic into aluminum is continuing. 2023 Global Beverage Packaging Consumption (kt) Source: CRU Aluminium Beverage Can Sheet Market Outlook October 2023 Note: Excludes China 2023 Global Beverage Packaging Market Share Source: CRU Aluminium Beverage Can Sheet Market Outlook October 2023 Note: Excludes China We are the global leader in beverage packaging sheet with 39% global market share (excluding China) in the 2023 calendar year according to CRU, while also being the leading buyer and recycler of UBCs globally recycling more than 82 billion cans annually and we expect this to increase to more than 95 billion cans upon completion of the Bay Minette, Alabama plant. We view our global footprint as an advantage as we believe geopolitical instability and supply chain risk have increased beverage packaging manufacturers desire for local supply. Aluminum beverage packages are the model of sustainable packaging as the average can-to-can lifecycle enables a beverage package that is recycled today and which could potentially be back on store shelves in as little as 60 days. Aluminum s properties enable a circular recycling process without meaningful downgrading, which contributes to a circular economy. With aluminum being one of the most sustainable packaging materials for beverages, demand for recyclable aluminum remains strong, despite potential substitutes for our products that customers may be willing to accept, such as glass or plastics. Novelis works with its customers to develop improved and more sustainably efficient aluminum solutions at dedicated beverage packaging innovation facilities, including our global research and technology center in Kennesaw, Georgia, as well as our R&D centers in G ttingen, Germany and as part of our joint venture in Ulsan, South Korea, and our new customer solution center in S o Jos dos Campos, Brazil. Enabled by our global manufacturing and recycling footprint, Novelis serves some of the world s most recognizable brands including Coca-Cola, AB InBev, PepsiCo and Heineken, as well as leading beverage packaging manufacturers Ball Corporation, Crown, Ardagh Metal Packaging and CanPack. Automotive. Aluminum utilization is positioned for continued growth through increased adoption of electric vehicles ( EVs ), which require higher amounts of aluminum. This is compounded by government regulations requiring improved emissions for internal combustion engine ( ICE ) vehicles, while also maintaining and 3 Source: CRU Aluminium Beverage Can Market Outlook, October 2023. All CRU references to the broader aluminum beverage can market are derived from this report. Table of Contents improving vehicle performance and safety through lightweighting. Aluminum products are used in vehicle structures (also known as body-in-white ) as well as automotive body panel applications, including hoods, doors, deck lids, fenders, and lift gates. Aluminum sheet is also used in battery enclosures for the growing EV market and aluminum foil is used in the batteries themselves. Global Light Vehicle Production North America, Europe, and Greater China (millions of vehicles) Source: S&P Global Mobility, Global Light Vehicle Production based Powertrain Forecast for Europe, Greater China and North America, March 2024 Based on management estimates, we believe that global automotive aluminum sheet demand is set to grow at a compound annual growth rate of 7% from calendar year 2023 to calendar year 2028. Further, based on our projections, we believe that during the same period, demand is set to grow at a compound annual growth rate of 5% in North America, 7% in Europe and 11% in Asia. Automotive demand is expected to be resilient across major markets regardless of elevated interest rates, with pent-up consumer demand driving growth in vehicle build rates. In addition, lightweighting of traditional ICE vehicles to increase fuel efficiency and performance, as well as the switch to EVs, will drive higher aluminum content in vehicles, as well as in new systems like battery enclosures. According to Ducker Carlisle, battery electric vehicle ( BEV ) growth and a shift to larger vehicles in North America will lead to an increase of aluminum sheet demand of approximately 40% between calendar year 2022 and calendar year 2030. EVs are projected to contain 28% more aluminum sheet per vehicle compared to ICE vehicles in North America in 2030. Calendar Year 2023 Global Automotive Demand (kt) Source: Novelis Management Estimates Calendar Year 2023 Global Automotive Aluminum Market Shares Source: Novelis Management Estimates Share based on approximate capacity Table of Contents We believe Novelis is the world s largest supplier of aluminum sheet to the automotive industry, with a global market share of 36% and finishing capacity of approximately 1mt. Novelis leverages aluminum s properties to deliver safer, more sustainable, and more cost-effective solutions for OEMs to lightweight their fleets, improving fuel efficiency and vehicle performance. Our automotive products, including our high-performing Advanz alloys, are featured across hundreds of models on the road today. Novelis provides high-strength aluminum sheet for EVs, enabling increased battery range while giving automakers the ability to add in-vehicle content that enhances the user experience. A lighter EV requires a smaller battery for the same range, which significantly reduces the vehicle cost and the demand for rare elements. Continuously innovating, Novelis has dedicated automotive R&D centers in Sierre, Switzerland and Shanghai, China, as well as CSCs in Detroit, Michigan, Stuttgart, Germany, and Shanghai, China. We enjoy long-standing partnerships with automotive customers globally, including Ford, Jaguar Land Rover, Hyundai, Volvo, Nissan, BMW, Daimler, GM, NIO and Toyota. Aerospace. The aerospace industry is building new aircraft to serve a growing number of air passengers and to replace older, less efficient planes with newer, more fuel-efficient models. Aluminum offers a high strength-to-weight ratio, energy efficiency, and high tolerance to extreme temperatures, making it an ideal material for the manufacturing of aircraft. According to Oliver Wyman s Global Fleet & MRO Forecast 2023-2032, aircraft production and delivery will remain strong through the end of the forecast in 2032. Based on management estimates, we believe aerospace aluminum demand will grow at a compound growth rate of 5% between 2023 and 2030. Aluminum demand is expected to be above pre-COVID levels in 2024 based on management estimates. In particular, we believe Novelis and aluminum are well positioned with a large share of supply on single-aisle aircraft, which is the fastest growing aerospace segment and today has a significant backlog. According to Boeing s Commercial Market Outlook, 76% of aircraft needed over the next 20 years will be single aisle. Source: Oliver Wyman s Global Fleet & MRO Forecast 2023-2032 Based on management estimates, we believe Novelis is a leading supplier of aluminum sheet to the aerospace industry. Novelis specializes in the production of aluminum plate and sheet materials for fuselage and wing structure components, and we are qualified at all major aerospace OEMs. Novelis can produce very wide and ultra-thick plates, either heat-treated or non-heat treated. We have also introduced new low-density alloys that translate into better fuel efficiency and lower operating costs for the airline industry. The Aleris acquisition has given us outstanding innovation centers geared specifically toward aerospace solutions in both Koblenz, Germany and Zhenjiang, China. Our Koblenz, Germany plant has been serving the aerospace industry for over 40 years and acted as a technical enabler for the Zhenjiang plant during its ramp-up. Our plant in Zhenjiang allows Novelis to hold the position of being, we believe, the only western aluminum supplier to the aerospace Table of Contents industry with domestic production capabilities in China. We continue to strengthen our relationships with global customers like Airbus, Boeing, Bombardier, and Embraer. Specialties. Aluminum s applications are present in many components of our everyday lives. Aluminum is relied on to create sustainable solutions across markets, including building and construction, commercial transportation, foil & packaging, signage and commercial & consumer products. These industries continue to increase aluminum material adoption due to its many desirable characteristics. We believe this diverse market is poised to grow roughly in line with global gross domestic product due to a fundamentally undersupplied U.S. housing market, growing medium-duty van production driven by e-commerce growth, and consumer demands in coffee capsule and container packaging. In this category, we provide a variety of products across various market segments: Building & Construction. Anodized and pre-painted aluminum designed to meet the exacting requirements of the construction industry, while enabling architects to bring their most innovative and ambitious designs to life in an eco-friendly and cost-effective way. We believe Novelis is a leading supplier of aluminum sheet to the North American building and construction aluminum market. Signage. Commercial signs, license plates and traffic and road signs. Foil & Packaging. Containers and lids, trays and complementary accessories, converter foil, bottles, caps & closures, and cartridges. Commercial Transportation. Mass transportation, such as rail and commercial truck and trailer. We believe Novelis is a leading supplier of aluminum sheet to the commercial transportation industry. Commercial & Consumer. Durable and attractive finishes on goods ranging from smartphones to appliances. Our Competitive Strengths A Leading, High-Value Added, Global Aluminum Solutions Provider and Aluminum Recycler Novelis is a leading global provider of aluminum solutions for the beverage packaging and automotive markets and holds leading positions in global aerospace and the diverse specialties markets (e.g., building & construction, commercial transportation, foil & packaging, signage and commercial & consumer products). Our integrated network of 32 production plants strategically located across North America, South America, Europe, and Asia, 14 of which are enabled with recycling capabilities, support approximately 4.2 mt of rolling capacity, which is approximately double the capacity of the next largest producer. We believe our global footprint positions us as the largest flat-rolled products producer and pre- and post-consumer aluminum recycler, driving our industry-leading recycled content levels. We believe our scale gives us the widest reach and penetration across our end-markets, allowing us to invest in developing unique solutions in collaboration with customers and others in the value chain. We do this through our leading R&D platform, sourcing economies of scale, a reliable and proven supply chain to secure recycled aluminum, attracting and retaining excellent talent and expertise, and being a valued partner to our customers. We protect our leadership position by striving to deliver best-in-class customer service with high-quality, sustainable, and innovative solutions. Additionally, our strong balance sheet supports strategic investments to accommodate rapidly increasing demand across our product portfolio. Essential, Long-Standing Partner to Premium Global Manufacturing Corporations Through strategic partnerships with our global blue-chip customer base, we have innovated and developed industry-leading solutions that are critical to our customers businesses. Importantly, we also help our customers Table of Contents achieve their announced sustainability goals, which are extremely important to end-consumers. Our expansive recycling network and comprehensive solutions make us the partner of choice for companies pursuing ambitious sustainability goals and developing products for the circular economy. Our sophisticated R&D capabilities and innovation featured in our customer partnerships require meaningful time and investment, resulting in increased customer retention. These collaborative efforts have led to industry-defining breakthroughs in beverage packaging, automotive, and recycling. We co-design and innovate with our customers through R&D centers on all our operating continents, which are differentiated through superior design capabilities, pilot lines, CSCs for beverage packaging and automotive, and a dedicated group focused on recycling and casting advancements. Premier Recycling Footprint Driving Lower CO2 Emissions and Reduced Waste to Landfills We are at the forefront of the sustainability shift, increasing the average recycled content in our products to approximately 63% across our entire portfolio. We continue to actively invest in and expand our recycling footprint to enhance our leadership position in the circular economy. Our largest end-markets have industry leading recycled content rates, including approximately 85% in beverage packaging and 35% in automotive. In addition, we have certified alloys of more than 90% recycled content serving the North America building and construction market. By investing approximately $700 million in recycling capacity and capabilities between fiscal 2012 and fiscal 2022, we increased our recycling capacity and capabilities and doubled the average amount of recycled aluminum in our products. We currently have three new recycling investments under construction in Guthrie, Kentucky and Bay Minette, Alabama in the U.S., and Ulsan, South Korea, with other expansion projects under evaluation. Utilizing recycled material ensures we have highly sustainable metal inputs for our products and reduces our CO2 footprint and the CO2 footprint of our customers and end-consumers. This is because using recycled aluminum reduces the CO2 footprint by 95% compared to using primary aluminum, due to the avoidance of carbon intensive smelting. We believe that the most sustainable product lifecycle is one based on a circular recycling process. Aluminum s circular recycling properties positions us, as compared to producers of other materials, to achieve a circular business model. We partner with customers, suppliers, governments, nonprofits, and communities to reduce the amount of aluminum going into landfills by improving end-of-life recycling rates, especially as it relates to UBCs. We recycled more than 82 billion UBCs in fiscal 2024, and, based on management estimates, anticipate that this number will increase to more than 95 billion once our Bay Minette, Alabama plant is fully operational. We have extensive closed-loop-recycling systems with beverage packaging customers and several automakers. In advance of aluminum-intensive vehicles starting to reach the end of their lifecycle, we are actively developing solutions to increase end-of-life automotive aluminum sheet recycling. We will continue to invest in solutions to meet the growing demand for low CO2 products from our customers, their consumers and the world. Table of Contents Examples of Our Circular Business Model: Diversified Portfolio Growth Driven by Under-Supplied Markets and Sustainability Trends We believe our product portfolio is the broadest in the industry and penetrates a wide range of end-markets particularly in the premium, high-value-added space. While current economic conditions, including inflationary cost pressures on consumers and high interest rates, may impact our growth, our broad end-market participation creates a diversified portfolio of sustainable aluminum solutions, which we believe makes our product offering resilient against periods of macroeconomic volatility. Beverage packaging sheet provides a historically stable revenue stream given the relatively inelastic demand for canned beverages due to customer consumption dynamics. Coupled with our beverage packaging business, we have strong positions in premium end-markets, such as automotive (both ICE and EVs) and aerospace, which both have near-and long-term secular growth trends. Novelis has a diverse customer mix and high share of luxury vehicles and classes of vehicles that are less impacted by market downturns and that are experiencing higher growth. Commercial aerospace companies have multi-year backorders fueled by increasing air-passenger traffic and a need for new aircraft to modernize their fleets. Our specialties end-markets are diverse and cover a wide range of industries from building and construction, signage, foil and packaging, commercial transportation and commercial and consumer products, among others. The U.S. building and construction market is structurally undersupplied and has a favorable long-term demand outlook. Since inception, we have invested to match the growth of our end-markets and needs of our customers. All our end-markets are forecasted to continue to grow, propelled mainly by the secular shift in consumer demand for sustainable materials like virtually infinitely recyclable, lightweight aluminum. According to CRU, the global FRP aluminum market has grown more than 70% in the past 15 years and is forecasted to grow at a healthy 4% compounded annual growth rate between 2023 and 2028, as well as by approximately 4% in each of those years. Our largest end-market, beverage packaging, is structurally under-supplied today in key geographies, including North America and Europe. North America has been a net importer of beverage packaging sheet since at least 2015, leading to a supply shortfall of approximately 440 kt in 2023, per CRU. At the same time, our customers have announced and begun implementing significant capacity expansions. Ball, Crown, and Ardagh Metal Packaging have announced new beverage packaging manufacturing expansion investments in North America in light of consumption trends. Considering geo-political instability, supply chain disruptions, long lead times, quality concerns, and the higher carbon footprint of imports, beverage packaging makers prefer domestic supply, Table of Contents which supports our investment in Bay Minette, Alabama. We have materially contracted or committed our beverage packaging capacity that will be available in North America through the ramp-up of operations of our Bay Minette, Alabama plant, including with decades-long customer partners such as Ball Corporation and Coca-Cola, underscoring the strong demand for high-recycled-content beverage packaging sheet. Proven Track Record of Portfolio Reinvention, Recycling Investments, and Operational Excellence We continue to drive operational efficiencies in our inorganic and organic capacity expansions, enabled by broad operational excellence, and digital and advanced analytics initiatives. We believe these efficiencies, along with shifting our portfolio to premium applications and making investments in recycling, contribute to industry-leading shipments, financial performance, and margins as our net income expanded to $600 million, or $163 per tonne, and our Adjusted EBITDA per tonne expanded to $510 in fiscal 2024, from a net loss of $38 million, or $(12) per tonne, and Adjusted EBITDA per tonne of $308 in fiscal 2016, enabled by broad operational excellence and our digital/advanced analytics teams. Our acquisition of Aleris in 2020 further underscores our ability to identify and successfully integrate inorganic capacity, enhance our sustainability efforts, expand our product portfolio with additional high-value solutions, and achieve above expected cost synergies. Net Income per Tonne(1) (1) Net income per tonne is calculated by dividing net income by rolled product shipments (in tonnes) for the corresponding period. Net income for certain years presented in the chart above includes charges and expenses that management believes are not part of normal day-to-day operations of our business. (2) Not meaningful because we had a net loss of $38 million for fiscal 2016, or $(12) per tonne. Adjusted EBITDA per Tonne(1) Table of Contents (1) Adjusted EBITDA per tonne reported for the Company on a consolidated basis is a non-U.S. GAAP financial measure. Adjusted EBITDA per tonne is calculated by dividing Adjusted EBITDA by rolled product shipments (in tonnes) for the corresponding period. For a reconciliation of net income to Adjusted EBITDA, see Summary Historical Condensed Consolidated Financial Information. See also Non-U.S. GAAP Financial Measures and Presentation of Shipment Information for more information. Attractive Financial Profile with Sustainable Margins and Cash Flow Generation We have a proven history of attractive and highly profitable growth due to disciplined capital deployment, strategic vision, and a steady, experienced leadership team. Between fiscal 2012 and fiscal 2022, we invested approximately $2.8 billion in strategic growth capex and an additional $2.8 billion on the Aleris acquisition, which was completed in 2020, in order to expand rolling and recycling capacity, and significantly expand automotive finishing sheet production. We are investing in a new phase of strategic organic investments between fiscal 2023 and fiscal 2027, with approximately $4.9 billion of investments under construction to further increase recycling and rolling capacity and profitability. Of this $4.9 billion, approximately $1.2 billion has already been spent through the end of fiscal 2024. Overall, we believe our first mover advantage in responsible capacity expansion, operational expertise, R&D investment, and the successful acquisition and integration of Aleris have allowed us to diversify and optimize our portfolio and has led to: Net income growth, demonstrated by net income of $600 million in fiscal 2024, or $163 per tonne, compared to a net loss of $38 million in fiscal 2016, or $(12) per tonne. Flat-rolled products shipments growth from 3,123 kt in fiscal 2016 to 3,673 kt in fiscal 2024. Adjusted EBITDA growth from $963 million in fiscal 2016, to $1,873 million in fiscal 2024. Consistent Adjusted EBITDA per tonne expansion from $308 per tonne in fiscal 2016 to $510 per tonne in fiscal 2024. Robust net cash provided by operating activities and Adjusted Free Cash Flow generation of $8.2 billion and $3.3 billion, respectively, on a cumulative basis since fiscal 2016. Our robust operating cash flow generation enables us to allocate capital to the highest return uses, which could include internally funding capital projects and R&D, retaining a strong and flexible balance sheet, and distributing capital to shareholders. While funding growth through organic and inorganic initiatives, we reduced financial leverage (which represents the ratio of our total debt less cash and cash equivalents to our Adjusted EBITDA for the trailing twelve-month period) from 4.7x as of March 31, 2016, to 2.3x as of March 31, 2024. Experienced, Stable Management Team with Proven Track Record, Backed by Best-In-Class Global Corporation Our strong, stable management team has significant experience across the aluminum industry and all relevant end-markets. Our executive officers have served in meaningful leadership positions in diverse industries, as well as in the aluminum industry, with many of them serving for 15 years or more at Novelis. The average tenure at Novelis across our executive officer team is 18 years. The leadership at Novelis has a proven track record of executing through a significant period of transformation. Combined with the strategic, financial, and leadership support of the Aditya Birla Group, we have increased profitability, capacity, and recycled content, propelling Novelis to be the global market leader in aluminum solutions. Our historical track record and experience in successfully executing growth projects provides us with the expertise to identify, build, and execute on our future growth initiatives. Table of Contents Our Strategy Drive Growth by Capitalizing on Customer Partnerships to Advance the Adoption of Aluminum. As a virtually infinitely recyclable material, the demand for aluminum is growing rapidly in response to consumer preference for more sustainable products. Support secular shift toward aluminum as the sustainable material of choice. All our end-markets benefit from megatrends that offer tailwinds for growth. Consumer preference for sustainable products is driving a secular shift toward virtually infinitely recyclable and lightweight aluminum, particularly in the beverage packaging and automotive industries. We expect the material substitution trends from plastic, steel and glass to recycled aluminum to persist across our key geographies. Grow beverage packaging and automotive capacity alongside customer demand. Building on decades-long customer partnerships and innovation capabilities, we are strategically positioned to foster and invest in advance of customer needs. With a strong balance sheet, we believe Novelis is well-positioned to be the first mover in our industry, investing to meet demand when the time is right. We employ advanced modeling to optimize timing, sequencing, and sizing of expansion projects so that we align our rolling and recycling capacity additions with validated commercial demand outlooks driven by market supply-demand balance scenarios. We have identified significant capacity expansion opportunities that support our customer growth plans, of which the largest is an approximately 600 kt, $4.1 billion expansion in Bay Minette, Alabama, which is under construction to create a state-of-the-art, fully integrated rolling and recycling plant that will primarily serve the growing beverage packaging and automotive markets. Projects like this will enable us to scale our capacity in our effort to match increased customer demand. Capture above market growth in automotive based on OEM desire to lightweight. Aluminum is an attractive material for OEMs to increase performance through lightweighting of both ICE and EVs. In addition, the adoption of EVs correlates with higher aluminum content because, according to Ducker Carlisle, EVs average more aluminum content per vehicle compared to ICE vehicles. We believe we are in the leading position to meet this demand due to our extensive geographic footprint and innovation capabilities, including engagement with OEMs on future battery designs. Strong demand for premium aerospace aluminum. A growing middle class in developing markets and a need to modernize fleets and build more sustainable aircraft in developed markets is driving OEM build rates in single-aisle aircraft, which favor aluminum. In addition, Airbus and Boeing s multi-year production backlogs provide confidence in the market outlook. We believe our track record of well-timed first mover investments and culture of operational excellence enable rolling and recycling efficiencies to promote the adoption of aluminum across all of our end-markets. Build on Existing Sustainability Leadership to Grow Recycling in Beverage Packaging and Automotive. We have set an ambition to be the world s leading provider of low-carbon, sustainable aluminum solutions that advance our business, industry, and society toward the benefits of a circular economy. To enable the below activities, we actively invest in facilities and technologies to increase our use of recycled material, which has a significantly lower carbon footprint than primary aluminum. According to the Aluminum Association, recycled aluminum s carbon footprint is 95% less intensive than that of primary aluminum. While we are already an industry leader in aluminum recycling, with a recycled content rate of 63% in fiscal 2024, we are actively developing new alloys that accept higher amounts of recycled material. Our strategic actions today are essential for the achievement of our target of an average of 75% recycled content across our product portfolio, which we aim to reach by the end of calendar year 2030. Table of Contents Expand our recycling footprint for carbon reduction. We have announced projects to further grow our recycling capacity and capability. We expect to commission a new recycling center in Guthrie, Kentucky in the first quarter of fiscal 2025, and are building new recycling facilities at our joint venture in Ulsan, South Korea, and in Bay Minette, Alabama. The new standalone recycling centers in Guthrie and Ulsan are expected to reduce our carbon emissions by nearly 1.5 million tonnes annually. Because increasing our use of recycled material is our biggest lever for reducing our carbon footprint, we will continue to pursue further investments to add recycling capacity. We believe we hold a competitive advantage in recycling through a robust and diverse supplier network, leading recycling efficiencies, and best in-class technology. Beyond recycling, we constantly seek ways to reduce carbon across our supply chain, such as utilizing rail transportation and clean energy sources. Implement closed-loop-recycling partnerships with customers in beverage packaging and automotive. Closed-loop-recycling partnerships are contractual relationships with customers where the customer returns their production scrap to Novelis. These partnerships enable us to keep aluminum in the loop and maximize the metal s contribution in the circular economy by preserving the integrity of the alloy and ensuring it is not downgraded into a less valuable form. Currently, we have programs in place with all our leading beverage packaging customers, as well as our largest automotive customers, and we are actively working to implement closed-loop-recycling programs with others. Capture aluminum from vehicles at the end-of-life. We are actively working to develop advanced sorting and separation technologies to capture more aluminum from vehicles at the end of their useful life. We have recently completed an investment in a technology company that uses advanced AI and optical technology to sort aluminum alloys, enabling more pre-consumer closed-loop and end-of-life aluminum recycling. End-of-life automotive is an untapped market, as today the different forms of aluminum in a vehicle are not separated and our products end up being downgraded into lower value uses, such as castings for engine blocks. Increase consumer recycling rates across key geographies. To increase recycling rates, we are collaborating with customers, industry associations, nonprofits, governments, and communities to improve recycling rates. We see significant opportunity for UBCs in particular, given the low recycling rates across select geographies, such as the U.S. s 45% recycling rate. Lead Through Innovative Customer Collaborations & Operational Excellence. Our R&D assets and activities not only distinguish us, but also keep us at the forefront of innovation, making Novelis the partner of choice for our customers. Continued innovation across product markets. We invest in R&D to continue to develop aluminum alloy solutions to continue to increase our use of recycled content, raise the adoption rates of aluminum, and solve customer challenges. We take a diverse approach to innovation through partnering with customers, suppliers, universities, non-governmental organizations, start-ups, and industry associations to complement our in-house innovation capabilities. This is evident through an innovation-focused, non-profit consortium called Alumobility that Novelis co-founded. Partner with customers to accelerate innovation. Through our robust global network of automotive CSCs located in Detroit, Michigan, Stuttgart, Germany and Shanghai, China, we have collaborated with customers and other players in the automotive value chain to accelerate the adoption of sustainable, lightweight, high-strength aluminum for the next generation of vehicles. We have recently established a CSC for beverage packaging in Brazil, which complements our can-making pilot line at our beverage packaging CSC in Kennesaw, Georgia. Table of Contents Our Innovation Centers Push the boundaries on operational excellence. Innovation also plays a key role in how we operate our facilities and maintain a lower cost structure. Our internal team of data analytics and machine learning experts execute projects in conjunction with our plants to improve productivity, throughput, efficiency and product quality, reduce the time to market for innovations, and drive cost savings. We also apply our expertise in this area to our customers operations, as we aim to make it easier and more cost-effective for them to use our aluminum. Finally, through our Plant of the Future model, we will further utilize digital technologies, AI, and robotics in new and existing plants. Corporate Information; Reorganization; Share Split We are a Canadian corporation, formed on September 21, 2004. On May 15, 2007, we were acquired by Hindalco Industries Limited, and became a direct and wholly owned subsidiary of AV Metals, Inc., a wholly owned subsidiary of Hindalco. Prior to giving effect to this offering, all of the outstanding shares of Novelis are owned by AV Minerals (Netherlands) N.V., a wholly owned subsidiary of Hindalco. On September 1, 2022, Novelis Inc. and AV Metals, Inc. (which, prior to such date, was our sole shareholder and a wholly owned subsidiary of AV Minerals (Netherlands) N.V.) completed a plan of arrangement, pursuant to which AV Metals Inc. merged with and into Novelis Inc., with Novelis Inc. surviving the merger. Following the effectiveness of the plan of arrangement, we are a direct, wholly owned subsidiary of AV Minerals (Netherlands) N.V. We filed articles of amendment, effective May 24, 2024, to subdivide our 1,100 issued and outstanding common shares into 600,000,000 issued and outstanding common shares. There was no change to the number of authorized shares and the par value of each common share as a result of the articles of amendment. All share and per share information included in this prospectus has been retroactively adjusted to reflect the share split. Table of Contents The following chart is a summary of our organizational structure as of the date of this prospectus, prior to giving effect to the sale of any shares offered hereby. * NSE-listed (India) ** Issuer Our principal executive offices are located at 3550 Peachtree Road NE, Suite 1100, Atlanta, GA 30326 and our telephone number at that address is (404) 760-4000. Our internet address is www.novelis.com. Please note that any references to www.novelis.com in this prospectus are inactive references only and that our website, and the information contained on, or accessible through, our website is not part of nor incorporated into this prospectus. Our Shareholder We are indirectly owned by Hindalco, through its wholly owned subsidiary AV Minerals (Netherlands) N.V. Hindalco is an industry leader in aluminum and copper and is the metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India. Immediately prior to this offering, Hindalco beneficially owned 100% of our outstanding common shares, and will beneficially own approximately 92.5% of our common shares immediately following consummation of this offering, assuming no exercise of the underwriters option to purchase additional common shares. We currently expect that, following this offering, four of the eight members of our board of directors will be employees or affiliates of Hindalco. Accordingly, Hindalco will be able to influence fundamental and significant corporate matters and transactions, and the interests of Hindalco may supersede ours, causing it or its affiliates to compete against us or to pursue opportunities which would otherwise be available to us, for which we will have no recourse. We also expect to be a controlled company under NYSE corporate governance standards and to take advantage of certain corporate governance exceptions related thereto. See Risk Factors Risks Related to this Offering and Ownership of our Common Shares. Table of Contents \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001416265_prosper_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001416265_prosper_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..bfc5bb1248100e7420aedc5e0e11ed933b33fffa --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001416265_prosper_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information appearing in this prospectus, including the financial statements and related notes, and the risk factors, before deciding whether to purchase the Notes. PFL operates a peer-to-peer online credit marketplace, which this prospectus refers to as the marketplace, that enables PFL s borrowers to borrow money and its investors to purchase Borrower Payment Dependent Notes, or Notes, issued by PFL, the proceeds of which facilitate the funding of the Borrower Loans made to borrowers. The peer-to-peer lending industry is a unique industry, and the application of federal and state laws in areas such as securities and consumer finance to PFL s business is still evolving. PFL is a wholly-owned subsidiary of PMI. About the Marketplace PMI developed the marketplace and owned the proprietary technology that makes operation of the marketplace possible. Effective February 1, 2013, PMI transferred ownership of the marketplace, including all of the rights related to the operation of the marketplace, to PFL. PMI and WebBank entered into a Marketing Agreement, pursuant to which PMI, as agent of WebBank, manages the operation of the marketplace in connection with the submission of loan applications by potential borrowers, the making of related loans by WebBank and the funding of such loans by WebBank. In the future, PMI and or PFL may enter into agreements with other banks that would act in addition to, or in lieu of, WebBank, in connection with making Borrower Loans through the marketplace. PFL and PMI entered into an Administration Agreement, pursuant to which PMI has agreed to manage all other aspects of the marketplace on behalf of PFL. Prior to February 1, 2013, in addition to operating the marketplace, PMI also facilitated the origination of loans by WebBank through the marketplace and issued and sold notes corresponding to those loans. Notes issued and sold through the marketplace prior to the commencement of this offering are referred to as PMI Notes. Loan Listings. A loan listing, or a listing, is a request by a PFL borrower for a Borrower Loan in a specified amount that is posted on the marketplace by the borrower. A borrower who posts a loan listing on the marketplace is referred to as an applicant and an applicant who obtains a loan through the marketplace as a borrower. PMI adds to each listing additional information, including the desired loan amount, interest rate and corresponding yield percentage, the minimum amount of total bids required for the loan to fund, the Prosper Rating and Prosper Score for the listing, the applicant s debt-to-income ratio, certain credit information from the applicant s credit report, the applicant s numerical credit score range, and the applicant s self-reported annual income range, occupation and employment status. Neither PFL nor PMI guarantees payment of the Notes or the corresponding Borrower Loans. The Prosper Rating is a proprietary credit rating that we assign to each listing. The Prosper Rating is a letter that indicates the level of risk associated with a listing and corresponds to an estimated average annualized loss rate range for the listing. There are currently seven Prosper Ratings, represented by seven letter scores, but this, as well as the loss ranges associated with each, may change over time as the marketplace dictates. The estimated average annualized loss rate for each listing is based on the following scores a consumer reporting agency score and one or more custom Prosper scores calculated using the historical performance of previous Borrower Loans with similar characteristics (a Prosper Score ), as may be supplemented by additional proprietary scoring models. We use these scores to determine an estimated average annualized loss rate for each listing, which correlates to a Prosper Rating. This rating system allows for consistency when assigning ratings to listings. See About the Marketplace Risk Management for more information. Currently, the borrower s Prosper Rating and Prosper Score are determined based on information obtained from the borrower s TransUnion credit report, including one or more of his or her TransUnion FICO 08 score and VantageScore (a credit-scoring model created through a joint venture of Equifax, Experian, and TransUnion). Bidding on Listings. A bid on a listing is an investor s commitment to purchase a Note in the principal amount of the investor s bid that will be dependent for payment on the payments PFL receives on the Borrower Loan described in the listing. After a listing is posted, investors can place bids on that listing until the listing has received bids totaling the requested loan amount. The minimum amount an investor may bid is $25. All bids may be up to 100% of the requested loan amount. An investor who wishes to bid on a listing must have funds in the amount of the bid in his investor account at the time the bid is made. Once a bid is placed, it is irrevocable, and the amount of the bid may not be withdrawn from the investor s account, unless the bidding period expires without the listing having received enough bids to be funded. Once the listing has received bids totaling the requested loan amount, no further bids can be placed. The maximum length of the bidding period is 14 days. If the listing does not receive bids equal to or exceeding the minimum amount required for the listing to fund by the close of the fourteenth day after the listing is posted, the listing will terminate and the requested loan will not be funded. Borrower Loans. If at the end of the bidding period the listing has received bids equal to or exceeding the minimum amount required to fund, a loan will generally be made to the applicant in an amount equal to the total amount of all winning bids. All Borrower Loans are unsecured obligations of individual borrowers with a fixed interest rate set by us and a loan term currently set at two, three, four or five years, although we may expand the range of available loan terms in the future to between three months and seven years. The minimum and maximum principal amounts for Borrower Loans are currently $2,000 and $50,000, respectively. We may expand the range of the minimum and or maximum principal amounts for Borrower Loans in the future to $1,000 and or $60,000, respectively. All Borrower Loans are originated by WebBank, a Federal Deposit Insurance Corporation ( FDIC ) insured, Utah-chartered industrial bank. After originating a Borrower Loan, WebBank sells and assigns such Borrower Loans to PFL, without recourse to WebBank, in exchange for the principal amount of the Borrower Loan. WebBank has no obligation to Note holders. For all Borrower Loans, we verify the applicant s identity against data from consumer reporting agencies and other identity and anti-fraud verification databases. Loan listings can be posted without us obtaining any documentation of the applicant s ability to afford the loan. In some instances, we verify the income or employment information provided by applicants in listings. This verification is normally done after the listing has been created but before the loan is funded, and therefore the results of the verification process are not reflected in the loan listings. If we are unable to verify material information with respect to an applicant or listing, we will cancel or refuse to post the listing or cancel any or all commitments against the listing. We may also delay funding of a Borrower Loan in order to verify the accuracy of information provided by an applicant in connection with the listing, or to determine whether there are any irregularities with respect to the listing. If we identify material misstatements or inaccuracies in the listing or in other information provided by the applicant, we will cancel the listing or related loan. For more information, see About the Marketplace Borrower Identity and Financial Information Verification. The Notes. PFL generally issues and sells a series of Notes for each Borrower Loan that is funded through the marketplace. The Notes are sold to the investors who successfully bid on the corresponding Borrower Loan listing in the principal amounts of their respective bids. Each series of Notes is dependent for payment on payments PFL receives on the corresponding Borrower Loan. PFL uses the proceeds of each series of Notes to purchase the corresponding Borrower Loan from WebBank. PFL will pay each Note holder principal and interest on the Note in an amount equal to each such Note s pro rata portion of the principal and interest payments, if any, that PFL receives on the corresponding Borrower Loan, net of PFL s servicing fee, which is currently set at 1% per annum of the outstanding principal balance of the corresponding Borrower Loan prior to applying the current payment. PFL may in the future increase the servicing fee to a percentage that is greater than 1% but less than or equal to 3% per annum. Any change to PFL s servicing fee will only apply to Notes offered and sold after the date of the change. PFL will pay Note holders any other amounts it receives on the corresponding Borrower Loans, including late fees and prepayments, subject to its servicing fee, except that it will not pay Note holders any non-sufficient funds fees for failed borrower payments or any check processing fees. In addition, the funds available for payment on the Notes will be reduced by the amount of any attorneys fees or collection fees PFL, a third-party servicer or a collection agency imposes in connection with collection efforts related to the corresponding Borrower Loan. Notwithstanding the foregoing, PFL is not obligated to make any payments on any Note after its final maturity date. See The Offering Final maturity date Extension of maturity date. Under the Indenture, if a Repurchase Event occurs with respect to a Note, PFL will, at its sole option, either repurchase the Note from the holder or indemnify the holder of the Note for any losses resulting from nonpayment of the Note or from any claim, demand or defense arising as a result of such Repurchase Event. A Repurchase Event occurs with respect to a Note if (i) a Prosper Rating different from the Prosper Rating actually calculated by PFL was included in the listing for the corresponding Borrower Loan and the interest of the holder in the Note is materially and adversely affected, (ii) a Prosper Rating different from the Prosper Rating that should have appeared was included in the listing for the corresponding Borrower Loan because either PFL inaccurately input data into, or inaccurately applied, the formula for determining the Prosper Rating and, as a result, the interest of the holder in the Note is materially and adversely affected, or (iii) the corresponding Borrower Loan was obtained as a result of verifiable identify theft on the part of the purported borrower and a material payment default under the corresponding Borrower Loan has occurred. Under PFL s Investor Registration Agreement, PFL represents and warrants that (i) if an investor uses an automated bidding tool or order execution service offered by PFL, such as Auto Invest or Recurring Order (formerly known as Recurring Investment), to identify Notes for purchase, each Note purchased will conform to the investment criteria provided by the investor through such tool or service, and (b) each Note that an investor purchases from PFL will be in the principal amount of the bid such investor placed and will correspond to the Borrower Loan on which such investor bid. If PFL breaches either of these representations and warranties and, as a result, the Note sold to an investor is materially different from the Note that would have been sold had the breach not occurred or if the investor would not have purchased the Note at all absent such breach, PFL will, at its sole option, either indemnify the investor from any losses resulting from such breach, repurchase the Note or cure the breach, if the breach is susceptible to cure. If PFL breaches any of its other representations and warranties in the Investor Registration Agreement and such breach materially and adversely affects an investor's interest in a Note, PFL will, at its sole option, either indemnify the investor, repurchase the affected Note from such investor or cure the breach. If PFL repurchases any Notes, PMI will concurrently repurchase the related PMI Management Right for zero consideration. For more information about PFL s repurchase and indemnification obligations under the Indenture and the Investor Registration Agreements, see About the Marketplace Note Repurchase and Indemnification Obligations. PMI Management Rights. The PMI Management Rights are investment contracts issued by PMI directly to Note holders. The phrase investment contract is a concept under federal securities law that refers to an arrangement where investors invest money in a common enterprise with the expectation of profits, primarily from the efforts of others. Here, the investment contracts that PMI is registering as PMI Management Rights arise from the services that PMI has provided and will provide, as described in the Administration Agreement, the Indenture, the Investor Registration Agreement, and in this prospectus, which services include, but are not limited to the existence and operation of the marketplace verification of borrower information evaluation and validation of the Prosper Score and Prosper Rating remitting borrower payments and collecting on delinquent accounts. Investors who purchase PMI Management Rights will have rights under the federal securities laws as purchasers of a registered security. Investors will have limited contractual rights, collectively through the Indenture trustee, to enforce PMI's contractual obligations under the Administration Agreement. Such contractual rights exist under state law and will not, in any way, affect the rights of investors under the federal securities laws. The PMI Management Rights arise from the services that PMI will provide to PFL under the Administration Agreement as described in this prospectus. Pursuant to the Administration Agreement, PMI will provide three kinds of services to PFL (i) PMI will manage the operation of the marketplace itself, such as credit policy revisions and systems maintenance (the Loan Marketplace Administration Services ) (ii) PMI will provide back-office services to PFL, such as maintaining books and records, making periodic regulatory filings, and performing limited cash management functions (the Corporate Administration Services ) and (iii) PMI will service the Borrower Loans and Notes originated through the marketplace (the Loan and Note Servicing Services ). Holders of PMI Management Rights will have a limited contractual ability, collectively through the Indenture trustee, to enforce PMI s obligations under the Administration Agreement. However, holders of PMI Management Rights also have rights under the federal securities laws that are not limited, contractually or otherwise. PMI s obligations to provide services under the Administration Agreement may be terminated by PMI or by PFL under certain circumstances described in this prospectus. For more information, see Summary of Indenture, Form of Notes, PMI Management Rights and Administration Agreement PMI Management Rights. Termination of the Administration Agreement would not affect the rights of holders of previously issued PMI Management Rights under the federal securities laws. If PFL or PMI were to terminate PMI s obligations to provide services under the Administration Agreement, PMI would cease to issue new PMI Management Rights. PFL has entered into a back-up servicing agreement with a loan servicing company who is willing and able to transition loan and Note servicing responsibilities from PMI, but it is unlikely that the back-up servicer would be able to perform functions other than servicing the outstanding Borrower Loans and Notes. Therefore, PFL might have to suspend the facilitation of new Borrower Loans and the issuance of new Notes until it could find another party or parties that could perform the services PMI had been performing under the Administration Agreement. PFL believes it could find another party or parties to perform such services, but the search could take time. For more information, see Risk Factors Risks Related to PFL and PMI, Our Marketplace and Our Ability to Service the Notes. The PMI Management Rights will be attached to the Notes, will not be separable from the Notes and will not be assigned a value separate from the Notes. Servicing and Loan Marketplace Administration. PFL is responsible for servicing the Borrower Loans and Notes. Following its purchase of Borrower Loans and sale of Notes corresponding to the Borrower Loans, PFL begins servicing the Borrower Loans and Notes. If a Borrower Loan becomes one or more days past due, PFL may collect on it directly or refer it to a third party servicer or collection agency for collection. See About the Marketplace Loan Servicing and Collection for more information. PFL has entered into an Administration Agreement with PMI, pursuant to which PFL has engaged PMI to assist it in servicing the Borrower Loans, managing the marketplace, and in performing other duties. Pursuant to the Administration Agreement, PMI will provide a variety of administrative and management services, including, but not limited to, supervision of the management, maintenance and operation of the marketplace the issuance, sale and payment of the Notes PFL s purchase of Borrower Loans the operation of www.prosper.com PFL s compliance with applicable federal and state laws (including consumer protection laws, state lender licensing requirements and securities registration requirements) the applicant verification and eligibility processes the posting of listings on the marketplace and the assignment of a Prosper Rating and an interest rate to each listing. See About the Marketplace, Summary of Indenture, Form of Notes, PMI Management Rights and Administration Agreement Administration Agreement and Information About Prosper Marketplace, Inc. for more information. Recurring Order. Our automated loan search tool, Recurring Order (formerly known as Recurring Investment), allows investors to easily invest in Notes that meet their specific investment criteria by automatically bidding any available funds in their account on Notes that match their selected parameters, in accordance with their specified instructions. An investor using Recurring Order is asked to indicate (i) the Prosper Rating or Ratings and term of the Notes they wish to use as search criteria, and (ii) the amount they wish to invest per Note. If they wish, the investor can further customize their investment criteria by applying one or more of several dozen additional search criteria, such as loan amount, debt-to-income ratio and credit score. The investor can also set aside a specific amount of his or her funds as a cash reserve that will not be invested by the Recurring Order tool. After the investor has entered and saved the parameters of his or her search, Recurring Order automatically (i) runs searches on the designated criteria as new listings are posted on the marketplace, and (ii) places bids on any Notes identified by each such search. For more information about the Recurring Order tool and how it works, see About the Marketplace How to Bid to Purchase Notes Recurring Order. Auto Invest. Our automated loan search tool, Auto Invest, makes it easier for investors to build their desired portfolio of Notes by automatically investing any available funds in an investor s account in Notes that match the investor s specified investment criteria and allocation targets. An investor using Auto Invest is asked to select (i) a loan allocation target, or a target mix of loans based on Prosper Ratings, and (ii) the amount they wish to invest per Note. The investor has the option of selecting his or her target from Prosper s series of preset loan allocations based on the recent historical loan inventory on the marketplace, any of which may be customized by changing the individual allocation targets for each Prosper Rating, or they can create a custom loan allocation target across Prosper Ratings based on his or her specific risk tolerance. If they wish, the investor can further customize his or her investment criteria by applying additional filters, such as loan term and employment status. The investor can also set aside a percentage of his or her portfolio as a cash reserve that will not be invested by Auto Invest. Investors may update their target allocations, cash reserve and other criteria, and pause and restart Auto Invest, at any time. Once the investor turns on Auto Invest, the tool may immediately begin placing orders for Notes in accordance with the investor s current and target allocations and other investment criteria. The mix of Notes in any particular order may not match the investor s individual loan allocation targets, but over time Auto Invest will place orders so that the aggregate holdings in the investor s portfolio will approximate, to the extent possible, the allocation specified in his or her investment criteria. The frequency with which Auto Invest will place orders on the investor s behalf is based on the cash balance of his or her account, the availability of listings matching his or her investment criteria, and the demand from other investors. The investor s account and investment criteria will be reviewed by Auto Invest automatically each time new listings are posted on the marketplace. Auto Invest prioritizes accounts with a higher percentage of cash and places orders for those accounts first. Auto Invest does not prioritize accounts based on overall account size or investment criteria. For more information about the Auto Invest tool and how it works, see About the Marketplace How to Bid to Purchase Notes Auto Invest. Summary of Risk Factors An investment in our securities is subject to various risks, the most significant of which are summarized below. For more information about these and other risks involved with investing in Prosper s Notes, you should carefully read the factors described in the Risk Factors section of this Prospectus. Risks related to borrower default The Notes are risky and speculative investments suitable only for investors of adequate financial means. Payments on the Notes depend entirely on payments PFL receives on corresponding Borrower Loans. If a borrower fails to make any payments on the corresponding Borrower Loan related to a Note, payments on such Note will be correspondingly reduced. If payments on the Borrower Loan corresponding to an investor s Note become overdue, such investor may not receive the full principal and interest payments that were expected on the Note. Borrowers may not view or treat their obligations to PFL as having the same significance as loans from traditional lending sources. Information supplied by applicants may be inaccurate or intentionally false. Information regarding income and employment is not always verified. The credit information of an applicant may be inaccurate or may not accurately reflect the applicant s creditworthiness, which may cause an investor to lose all or part of the price paid for a Note. The fact that we have the exclusive right and ability to investigate claims of identity theft in the origination of Borrower Loans creates a significant conflict of interest between us and our investors. The Borrower Loans are not secured by any collateral or guaranteed or insured by any third party, and investors must rely on us or a third-party collection agency to pursue collection against any borrower. The Prosper Rating may not accurately set forth the risks of investing in the Notes, no assurances can be provided that actual loss rates for the Notes will come within the estimated average annualized loss rates indicated by the Prosper Rating, and investors have limited rights to cause Prosper to repurchase the Notes. We may not set appropriate interest rates for Borrower Loans. Investors who use the Recurring Order or Auto Invest tools may face additional risk of funding Borrower Loans that have been erroneously selected by the tool. The Recurring Order and Auto Invest tools may invest all available funds in an investor s account in accordance with the investor s investment criteria. The Borrower Loans do not restrict borrowers from incurring additional unsecured or secured debt, nor do they impose any financial restrictions on borrowers during the term of the Borrower Loan, which may reduce the likelihood that an investor will receive the full principal and interest payments that such investor expects to receive on a Note. In general, the Borrower Loans do not contain any cross-default or similar provisions. If a borrower defaults on any of his or her other debt obligations, our ability to collect on the Borrower Loan on which an investor s Note is dependent for payment may be substantially impaired. Risks Inherent in investing in the Notes The Notes are special, limited obligations of PFL only and are not directly secured by any collateral or guaranteed or insured by PMI or any third party. PFL is not obligated to indemnify Note holders or repurchase Notes except in limited circumstances. Our marketplace allows a borrower to prepay a Borrower Loan at any time without penalty. Borrower Loan prepayments will extinguish or limit an investor s ability to receive additional interest payments on a Note. Holders of the PMI Management Rights, collectively through the Indenture trustee, have a limited contractual ability to enforce PMI's obligations under the Administration Agreement. As a result, investors will have a limited contractual ability to require that PMI perform its obligations under the Administration Agreement. The Investor Registration Agreement contains provisions that limit certain legal rights of investors in relation to PFL and PMI. The Notes will not be listed on any securities exchange and can be held only by registered Prosper investors. Further, no trading platform for the transfer of Notes exists. Therefore, investors should be prepared to hold the Notes they purchase until maturity. Our participation in the funding of Borrower Loans could be viewed as creating a conflict of interest. Risks related to PFL and PMI, our marketplace and our ability to service the notes Human error in the operation of our platform has resulted in the allocation of Borrower Loans to our Note Channel which did not conform to the eligibility criteria applicable to Borrower Loans at the time of allocation. If we are unable to prevent the reoccurrence of similar errors, our business and investors could be adversely impacted. We have experienced errors on our platform that have resulted in incorrect reporting of performance returns to Note investors. If we are unable to prevent the reoccurrence of similar errors, investors could be adversely impacted. Arrangements for back-up servicing are limited. If PMI fails to maintain operations or the Administration Agreement is rejected or terminated (in bankruptcy or otherwise), investors may experience a delay and increased cost in respect of their expected principal and interest payments on Notes, and PFL may be unable to collect and process repayments from borrowers. PMI, in its capacity as servicer, has the authority to waive or modify the terms of a Borrower Loan without the consent of the Note holders. We have incurred operating losses in prior years and may continue to incur net losses in the future. PFL relies on a third-party commercial bank to process transactions. If PFL is unable to continue utilizing these services, its business and ability to service the Notes may be adversely affected. Any significant disruption in service in our marketplace or in PMI s computer systems could adversely affect PMI s ability to perform its obligations under the Administration Agreement. If the security of PFL s investors and borrowers confidential information stored in our systems is breached, users secure information may be stolen, our reputations may be harmed, and we may be exposed to liability. Increasing interest rates have adversely impacted and could materially and adversely impact our marketplace. Risks related to compliance and regulation Our marketplace represents a novel approach to borrowing and investing that may fail to comply with federal and state securities laws, borrower protection laws and the state counterparts to such consumer protection laws. Borrowers may dispute the enforceability of their obligations under borrower or consumer protection laws after collection actions have commenced, or otherwise seek damages under these laws. Investors may attempt to rescind their Note purchases under securities laws. Regulatory agencies and their state counterparts may investigate our compliance with these regulatory obligations, and may take enforcement action with respect to alleged law violations. There continues to be uncertainty as to how the actions of the Consumer Financial Protection Bureau or any other new agency could impact our business or that of our issuing bank. If our marketplace were found to violate a state s usury laws, we may have to alter our business model and our business could be harmed. If one or both of PMI and PFL is required to register under the Investment Company Act or the Investment Advisers Act, either of our ability to conduct business could be materially adversely affected. Several lawsuits have sought to recharacterize certain loan marketers and other originators as lenders. If litigation or a regulatory enforcement action on similar theories were successful against one or both of PMI and PFL, Borrower Loans originated through our marketplace could be subject to state consumer protection laws and licensing requirements in a greater number of states. We rely on agreements with WebBank, pursuant to which WebBank originates loans to qualified borrowers on a uniform basis throughout the United States and sells and assigns those loans to PFL. If our relationship with WebBank were to end, we may need to rely on individual state lending licenses to originate Borrower Loans. PMI's administration of Quick Invest under its previous offering and PFL s administration of Recurring Order (formerly known as Recurring Investment) and Auto Invest under its current offering, could create additional liability for PFL and such liability could be material. Corporate Information Prosper Marketplace, Inc. PMI was incorporated in the State of Delaware on March 22, 2005. Its principal executive offices are located at 221 Main Street, 3rd Floor, San Francisco, California 94105. Its telephone number at this location is (415) 593-5400. Prosper Funding LLC. PMI formed Prosper Funding LLC in the State of Delaware on February 17, 2012. PFL s principal executive offices are located at 221 Main Street, 3rd Floor, San Francisco, California 94105. Its telephone number at this location is (415) 543-5400. Its website address is www.prosper.com. The information contained on its website is not incorporated by reference into this prospectus. PFL has been organized and is operated in a manner that is intended (i) to minimize the likelihood that it will become subject to bankruptcy proceedings, and (ii) to minimize the likelihood that it would be substantively consolidated with PMI, and thus have its assets subject to claims by PMI s creditors, if PMI files for bankruptcy. This is achieved by placing certain restrictions on PFL s activities, including its transactions with PMI, and implementing certain formalities designed to expressly reinforce PFL s status as a distinct corporate entity from PMI. See Information About Prosper Funding LLC. \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001506928_avinger_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001506928_avinger_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..340bdcf24fb342f5f0396c937847433a160a07b7 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001506928_avinger_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus or in filings we make with the SEC that are incorporated herein by reference. This summary does not contain all of the information that you should consider before deciding to invest in our securities. You should read the entire prospectus, including the documents and information incorporated by reference herein, carefully, including the section titled Risk Factors, included elsewhere in this prospectus, and in the sections entitled Risk Factors and Management s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, which are incorporated herein by reference. Some of the statements in this prospectus constitute forward-looking statements. See Special Note Regarding Forward-Looking Statements. Overview We are a commercial-stage medical device company that designs, manufactures, and sells real-time high-definition image-guided, minimally invasive catheter-based systems that are used by physicians to treat patients with peripheral artery disease ( PAD ). Patients with PAD have a build-up of plaque in the arteries that supply blood to areas away from the heart, particularly the pelvis and legs. Our mission is to significantly improve the treatment of vascular disease through the introduction of products based on our Lumivascular platform, the only intravascular real-time high-definition image-guided system available in this market. We design, manufacture, and sell a suite of products in the United States and select international markets. We are located in Redwood City, California. Our current Lumivascular platform consists of products including our Lightbox imaging console, the Ocelot and Tigereye family of devices, which are image-guided devices designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion ( CTO ), and the Pantheris family of catheters, our image-guided atherectomy catheters which are designed to allow physicians to precisely remove arterial plaque in PAD patients. We are in the process of developing CTO crossing devices to target the coronary CTO market. However, the market for medical devices in the coronary artery disease ( CAD ) space is highly competitive, dynamic, and marked by rapid and substantial technological development and product innovation and there is no guarantee that we will be successful in developing and commercializing any new CAD product. At this stage, we are working on understanding market requirements, and initiated the development process for the new CAD product, which we anticipate will require additional expenses. We obtained CE Marking for our original Ocelot product in September 2011 and received from the U.S. Food and Drug Administration ( FDA ), 510(k) clearance in November 2012. We also received 510(k) clearance from the FDA for commercialization of Pantheris in October 2015. We received an additional 510(k) clearance for an enhanced version of Pantheris in March 2016 and commenced sales of Pantheris in the United States and select European countries promptly thereafter. In May 2018, we received 510(k) clearance from the FDA for our current next-generation version of Pantheris. In April 2019, we received 510(k) clearance from the FDA for our Pantheris Small Vessel ( SV ), a version of Pantheris targeting smaller vessels, and commenced sales in July 2019. In September 2020, we received 510(k) clearance for Tigereye, a next-generation CTO crossing system utilizing Avinger s proprietary image-guided technology platform. Tigereye is a product line extension of Avinger s Ocelot family of image-guided CTO crossing catheters. In January 2022, we received 510(k) clearance from the FDA for our Lightbox 3 imaging console, an advanced version of our Lightbox that allows for easy portability and offers significant reductions in size, weight, and production cost in comparison to the incumbent version. In April 2023, we received 510(k) clearance from the FDA for Tigereye Spinning Tip ( ST ), a next-generation image-guided CTO crossing system. Tigereye ST is a line extension of our Ocelot and Tigereye family of CTO crossing catheters. This new image-guided catheter incorporates design upgrades to the tip configuration and catheter shaft to increase crossing power and procedural success in challenging lesions, as well as design enhancements for ease of image interpretation during the procedure. The low-profile Tigereye ST has a working length of 140 cm and 5 French sheath. We initiated a limited launch of Tigereye ST in the second quarter of 2023 and subsequently expanded to full commercial availability within the United States during the third quarter of 2023. Table of Contents The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. PRELIMINARY PROSPECTUS (Subject to Completion) Dated June 11, 2024 Up to 3,053,435 Shares of Common Stock Up to 3,053,435 Pre-Funded Warrants to purchase up to 3,053,435 Shares of Common Stock Up to 3,053,435 Series A-1 Warrants to purchase up to 3,053,435 Shares of Common Stock Up to 3,053,435 Series A-2 Warrants to purchase up to 3,053,435 Shares of Common Stock Up to 3,053,435 Series A-3 Warrants to purchase up to 3,053,435 Shares of Common Stock Placement Agent Warrants to purchase up to 183,207 Shares of Common Stock Up to 12,396,947 Shares of Common Stock Underlying the Series A-1 Warrants, Series A-2 Warrants, Series A-3 Warrants, Pre-Funded Warrants and Placement Agent Warrants Avinger, Inc. We are offering up to 3,053,435 shares of common stock, par value $0.001 ( Common Stock ), together with Series A-1 warrants to purchase up to 3,053,435 shares of our Common Stock ( Series A-1 Warrants ), Series A-2 warrants to purchase up to 3,053,435 shares of our Common Stock ( Series A-2 Warrants ) and Series A-3 warrants to purchase up to 3,053,435 shares of our Common Stock ( Series A-3 Warrants and, collectively with the Series A-1 Warrants and Series A-2 Warrants, the Common Warrants ). The assumed combined public offering price for each share of Common Stock and accompanying Common Warrants is $1.965, which was the last sale price of our Common Stock on the Nasdaq Capital Market ( Nasdaq ) on, June 10, 2024. The shares of Common Stock and Common Warrants will be separately issued. The Common Warrants will have an exercise price of $ per share and will be exercisable beginning on the effective date of stockholder approval of the issuance of the shares of Common Stock upon exercise of the Common Warrants ( Warrant Stockholder Approval ), provided however, if the Pricing Conditions (as defined below) are met, the Warrant Stockholder Approval will not be required and the Common Warrants will be exercisable upon issuance (the Initial Exercise Date ). The Series A-1 Warrant will expire on the earlier of the five-year anniversary of the initial issuance date or within 60 days following the public announcement of the occurrence of Milestone 1 (as defined herein). The Series A-2 Warrant will expire on the earlier of the twenty-four month anniversary of the initial issuance date or within 60 days following the public announcement of the occurrence of Milestone 2 (as defined herein). The Series A-3 Warrant will expire on the earlier of the nine-month anniversary of the initial issuance date or within 60 days following the public announcement of the occurrence of Milestone 3 (as defined herein). As used herein Pricing Conditions means that the public combined offering price per share of Common Stock and accompanying Common Warrants is such that the Warrant Stockholder Approval is not required under the rules of the Nasdaq Stock Market LLC ( Nasdaq Stock Market ) because either (i) the offering is an at-the-market offering under Nasdaq Stock Market rules and such price equals or exceeds the sum of (a) the applicable Minimum Price per share under Nasdaq Rule 5635(d) plus (b) $0.125 per share of Common Stock underlying the Common Warrants or (ii) the offering is a discounted offering where the pricing and discount (including attributing a value of $0.125 per share of Common Stock underlying the Common Warrants) meet the pricing requirements under Nasdaq s rules. We are also offering to each purchaser whose purchase of shares of our Common Stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of our outstanding shares of Common Stock immediately following consummation of this offering, the opportunity to purchase, if the purchaser so chooses, pre-funded warrants (the Pre-Funded Warrants ) to purchase shares of Common Stock, in lieu of shares of Common Stock. Each Pre-Funded Warrant will be exercisable for one share of Common Stock. The purchase price of each Pre-Funded Warrant and accompanying Common Warrants will equal the price per share of Common Stock and accompanying Common Warrants being sold to the public in this offering, minus $0.001, and the exercise price of each Pre-Funded Warrant will be $0.001 per share. For each Pre-Funded Warrant that we sell, the number of shares of our Common Stock that we are offering will be decreased on a one-for-one basis. This offering also relates to the shares of Common Stock issuable upon exercise of the Pre-Funded Warrants, Placement Agent Warrants (as defined below) and Common Warrants. We refer to the shares of Common Stock, the Pre-Funded Warrants, Placement Agent Warrants and Common Warrants to be issued in this offering collectively as the Securities. This offering will terminate on June , 2024, unless we decide to terminate the offering (which we may do at any time in our discretion) prior to that date. We will have a single closing for all Securities purchased in this offering and the combined public offering price per share of Common Stock (or Pre-Funded Warrant in lieu thereof) and accompanying Common Warrants will be fixed for the duration of this offering. We will deliver the Securities to be issued in connection with this offering delivery versus payment or receipt versus payment, as the case may be, upon receipt of investor funds received by us. Table of Contents In June 2023, we received 510(k) clearance from the FDA for Pantheris Large Vessel ( LV ), a next generation image guided atherectomy system for the treatment of larger vessels, such as the superficial femoral artery and popliteal arteries. Pantheris LV is a line extension of our Pantheris and Pantheris SV family of atherectomy products. This catheter offers higher speed plaque excision for efficient removal of challenging occlusive tissue and multiple features to streamline and simplify user-operation, including enhanced tissue packing and removal, a radiopaque gauge to measure volume of plaque excised during the procedure, and enhanced guidewire management. We initiated a limited launch of the Pantheris LV during the third quarter of 2023 and expect to expand to full commercial availability within the United States around mid-year 2024. Current treatments for PAD, including bypass surgery, can be costly and may result in complications, high levels of post-surgery pain, and lengthy hospital stays and recovery times. Minimally invasive, or endovascular, treatments for PAD include stenting, angioplasty, and atherectomy, which is the use of a catheter-based device for the removal of plaque. These treatments all have limitations in their safety or efficacy profiles and frequently result in recurrence of the disease, also known as restenosis. We believe one of the main contributing factors to high restenosis rates for PAD patients treated with endovascular technologies is the amount of vascular injury that occurs during an intervention. Specifically, these treatments often disrupt the membrane between the outermost layers of the artery, which is referred to as the external elastic lamina. We believe our Lumivascular platform is the only technology that offers radiation-free, high-definition real-time visualization of the inside of the artery during PAD treatment through the use of optical coherence tomography ( OCT ), a high resolution, light-based, radiation-free imaging technology. Our Lumivascular platform provides physicians with high-definition real-time OCT images from the inside of an artery, and we believe Ocelot and Pantheris are the first products to offer intravascular visualization during CTO crossing and atherectomy, respectively. We believe this approach will significantly improve patient outcomes by providing physicians with a clearer picture of the artery using radiation-free image guidance during treatment, enabling them to better differentiate between plaque and healthy arterial structures. Our Lumivascular platform is designed to improve patient safety by enabling physicians to direct treatment towards the plaque, while avoiding damage to healthy portions of the artery. During the first quarter of 2015, we completed enrollment of patients in VISION, a clinical trial designed to support our August 2015 510(k) submission to the FDA for our Pantheris atherectomy device. VISION was designed to evaluate the safety and efficacy of Pantheris to perform atherectomy using intravascular imaging and successfully achieved all primary and secondary safety and efficacy endpoints. We believe the data from VISION allows us to demonstrate that avoiding damage to healthy arterial structures, and in particular disruption of the external elastic lamina, which is the membrane between the outermost layers of the artery, reduces the likelihood of restenosis, or re-narrowing, of the diseased artery. Although the original VISION study protocol was not designed to follow patients beyond six months, we worked with 18 of the VISION sites to re-solicit consent from previous clinical trial patients in order for them to evaluate patient outcomes through 12 and 24 months following initial treatment. Data collection for the remaining patients from participating sites was completed in May 2017, and we released the final 12- and 24-month results for a total of 89 patients in July 2017. During the fourth quarter of 2017, we began enrolling patients in INSIGHT, a clinical trial designed to support a submission to the FDA to expand the indication for our Pantheris atherectomy device to include the treatment of in-stent restenosis. Patient enrollment began in October 2017 and was completed in July 2021. Patient outcomes were evaluated at thirty days, six months and one year following treatment. In November 2021, we received 510(k) clearance from the FDA for this new clinical indication for treating in-stent restenosis with Pantheris using the data collected and analyzed from INSIGHT. We expect this will expand our addressable market for Pantheris to include a high-incidence disease state for which there are few available indicated or effective treatment options. We are pursuing additional clinical data programs including a post-market study, IMAGE-BTK, that is designed to evaluate the safety and efficacy of Pantheris SV in the treatment of PAD lesions below-the-knee. We completed enrollment in 2023. Patient outcomes are being evaluated at thirty days, six months and one year following treatment. We expect this will bolster the application of Pantheris SV as a primary interventional tool to address below-the-knee lesions for which there are few available effective treatment options. Table of Contents Our Common Stock is listed on Nasdaq under the symbol AVGR. We have assumed a combined public offering price of $1.965 per share of Common Stock and accompanying Common Warrants, which was the last reported sale price on Nasdaq of our shares of Common Stock on June 10, 2024. The actual combined public offering price per share of Common Stock (or Pre-Funded Warrant in lieu thereof) and accompanying Common Warrants will be negotiated between us and the investors, in consultation with the placement agent based on, among other things, the trading price of our Common Stock prior to the offering, our history and our prospects, the industry in which we operate, our past and present operating results, the previous experience of our executive officers and the general condition of the securities markets at the time of this offering, and may be at a discount to the current market price. Therefore, the assumed combined public offering price used throughout this prospectus may not be indicative of the final offering price. In addition, there is no established public trading market for the Pre-Funded Warrants or Common Warrants, and we do not expect a market for the Pre-Funded Warrants or Common Warrants to develop. We do not intend to apply for a listing of the Pre-Funded Warrants or Common Warrants on any national securities exchange. Without an active trading market, the liquidity of the Pre-Funded Warrants and Common Warrants will be limited. We have engaged H.C. Wainwright & Co., LLC (the Placement Agent or Wainwright ), to act as our exclusive placement agent in connection with this offering. The Placement Agent has agreed to use its reasonable best efforts to arrange for the sale of the securities offered by this prospectus. The Placement Agent is not purchasing or selling any of the securities we are offering and the Placement Agent is not required to arrange the purchase or sale of any specific number of securities or dollar amount. We have agreed to pay to the Placement Agent the Placement Agent fees set forth in the table below, which assumes that we sell all of the securities offered by this prospectus. We have also agreed to issue to the Placement Agent or its designees as compensation in connection with this offering, warrants to purchase up to shares of Common Stock as compensation in connection with this offering. There is no minimum number of securities or amount of proceeds required as a condition to closing in this offering. Because there is no minimum offering amount required as a condition to closing this offering, we may sell fewer than all of the securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to pursue our business goals described in this prospectus. In addition, because there is no escrow trust or similar arrangement and no minimum offering amount, investors could be in a position where they have invested in our company, but we are unable to fulfill all of our contemplated objectives due to a lack of interest in this offering. Further, any proceeds from the sale of securities offered by us will be available for our immediate use, despite uncertainty about whether we would be able to use such funds to effectively implement our business plan. We will bear all costs associated with the offering. See Plan of Distribution on page 53 of this prospectus for more information regarding these arrangements. Investing in our securities involves a high degree of risk. You should review carefully the risks and uncertainties referenced under the heading Risk Factors contained in this prospectus beginning on page 12 and under similar headings in the other documents that are incorporated by reference into this prospectus. Per Share and Accompanying Common Warrants Per Pre- Funded Warrant and Accompanying Common Warrants Total Combined public offering price $ $ $ Placement Agent s fees (1) $ $ $ Proceeds to us, before expenses (2) $ $ $ (1) \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001537561_arch_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001537561_arch_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..bd756b3a01e7724d51d0d86eeaade9b528459cdf --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001537561_arch_prospectus_summary.txt @@ -0,0 +1,21013 @@ +PROSPECTUS +SUMMARY + + + +This +summary highlights selected information from this prospectus and does not contain all of the information that is important to you in +making an investment decision. This summary is qualified in its entirety by the more detailed information included elsewhere in this +prospectus. Before making your investment decision with respect to our securities, you should carefully read this entire prospectus, +including the information under Risk Factors, beginning on page 22 of this prospectus, Management s +Discussion and Analysis of Financial Condition and Results of Operations, beginning on page 62, and the +financial statements and the accompanying notes beginning on page F-1 of this prospectus. + + + +Our +Company + + + +We +are a biotechnology company marketing and 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 managing wounds created +during surgery, trauma or interventional care, or from disease; stopping bleeding (hemostasis); and controlling leaking (sealant). We +have recently devoted a substantial part of our operational effort to the market adoption and commercial sales of AC5 Advanced Wound +System, our first product. Our goal is to make care faster and safer for patients by providing products for use on external wounds, which +we refer to as Dermal Sciences applications, and products for use inside the body, which we refer to as BioSurgery applications. + + + +Core +Technology + + + +Our +flagship product 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 (US) and the European Union (EU), respectively, and which are intended +for skin applications, such as management of complicated chronic wounds and acute surgical wounds. Marketing for AC5 Topical Hemostat +in the EU has not initiated. Other products are in development for use in minimally invasive or open surgical procedures and include, +for example, AC5-G 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 proprietary biocompatible peptide that is synthesized from proteinogenic, 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 tissue and self-assemble (i.e., self-build) 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 semi-solid physical-mechanical barrier that interacts with the extracellular matrix, + is responsible for sealant, hemostatic and/or other properties that may be observed even in the presence of antithrombotic agents + (i.e., blood thinners), and which subsequently becomes the scaffold that supports the repair and regeneration of damaged tissue. + + + + + -3- + + Table of Contents + + + + + +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. Furthermore, we believe that AC5 SAP technology permits cell +and tissue growth and is self-healing, in that it can dynamically self-repair around migrating cells. 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, +self-assembles into a wound care matrix that can provide clinicians with multi-modal support, 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 for wounds inside or on the body, including those for which +a hemostatic agent or sealant is needed. 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. AC5 Topical +Hemostat has not yet been marketed in Europe but has received marketing authorization. + + + +Sales +and marketing efforts for our AC5 Advanced Wound System, which has received 510(k) marketing clearance from the United States Food and +Drug Administration ( FDA ), address the demand for improved solutions to treat challenging chronic and acute surgical wounds, +with a particular early focus on diabetic foot ulcers, venous leg ulcers and pressure ulcers. Chronic wounds are typically defined as +wounds that have not healed after four weeks of standard care. Approximately 4 million to 6.5 million new onset chronic wounds are estimated +to occur in the US annually, including approximately 700,000 to 2 million diabetic foot ulcers, 2.5 million pressure ulcers, and 1.2 +million venous leg ulcers. If untreated, improperly treated or unresponsive to treatment, these wounds can ultimately lead to amputation. +The 5-year mortality rate among patients with chronic wounds, especially after an amputation, is significant. + + + +Published +data on AC5 Advanced Wound System shows encouraging outcomes, including limb salvage (avoided limb loss), among patients with multiple +co-morbidities and challenging chronic wounds that failed to heal despite treatment with either traditional or other advanced wound care +modalities over prolonged periods of time. + + + + -4- + + Table of Contents + + + + + +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; supporting surgeons performing clinical case studies; obtaining post-marketing +clinical data; 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: + + + + + + growing + revenues and building upon recent commercial momentum by driving product awareness, continued adoption and favorable payment policies + for AC5 Advanced Wound System with the now-effective CMS Level II HCPCS code dedicated to AC5; + + + + + + + + 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 third party 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. + + + + + -5- + + Table of Contents + + + + + +To +support our long-term business goals, we expect to focus on the following activities during the next twelve months: + + + + + + further + develop our product clinical profile; + + + + + + + + enhance + product packaging features; + + + + + + + + identify + and address opportunities for supply chain efficiencies; + + + + + + + + assess + our technology platform in order to identify and select product candidates for potential advancement into development; + + + + + + + + seek + additional funding as required to support the previously described milestones necessary to support our operations; + + + + + + + + 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, maintaining granted patents in desired jurisdictions, and/or adding to our trade secrets in self-assembly, + manufacturing, analytical methods and formulation, as appropriate. + + + + +Commercialization + + + +Our +Dermal Sciences products are AC5 Advanced Wound System in the United States and AC5 Topical Hemostat in Europe, and the indication for +use, or purpose, for each product follows, respectively: + + + + + + Under + the supervision of a health care professional, AC5 Advanced Wound System is a topical dressing used for the management of partial + and full-thickness wounds, such as pressure sores, leg ulcers, diabetic ulcers, and surgical wounds. + + + + + + + + AC5 + Topical Hemostat is intended for use locally 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. + + + + +Our +commercialization efforts are currently focused on Dermal Sciences. Our BioSurgery products for internal use will require additional +preclinical and clinical testing before we seek marketing authorization to commercialize them. + + + +For +at least the near term future, in order to maximize operational efficiencies and to account for changing landscapes since the COVID-19 +pandemic during which both marketing authorizations were received, we have prioritized the launch of AC5 Advanced Wound System in the +United States over that of AC5 Topical Hemostat in Europe, where we have not launched. + + + +We +expect the commercialization ramp to be gradual through 2024 and into 2025, while we encourage product use among key opinion leaders +and early adopters in developing market channels, and then moderately accelerate. + + + +We +recently started to commercialize AC5 Advanced Wound System. We rely on both an internal commercial team and independent sales distributors +to drive awareness and adoption of AC5 Advanced Wound System in several targeted channels with a particular focus on physician offices +and government channels, such as Veterans Health Administration (VA) hospitals and military treatment facilities. These settings tend +to have many patients whose needs we believe can be addressed by AC5 Advanced Wound System because it is a synthetic self-assembling +wound care product that provides clinicians with multi-modal support and utility across all phases of wound healing. Numerous published +case studies and accolades highlight the efficacy and safety of AC5 in the treatment of challenging chronic and acute surgical wounds, +including limb salvage and healing after other modalities have failed. + + + +We +anticipate that material growth in the physician office setting will require product reimbursement. To that end, we applied to the Centers +for Medicare and Medicaid Services (CMS) for a dedicated Healthcare Common Procedure Coding System (HCPCS) Level II reimbursement code +specific to AC5 Advanced Wound System to better enable providers to bill third party payors for AC5 that is used in doctors offices. +The unique HCPCS code, A2020, was granted and made effective on April 1, 2023. A dedicated HCPCS code is an important step toward, although +not a guarantee of, coverage and reimbursement, and we intend it to enhance our ability to work directly with payors as we expand access +in outpatient settings and continue to advocate for clinically appropriate usage of our technology for patients. + + + +In +support of the government market, we partnered with Lovell Government Services (LGS), a service-disabled veteran-owned small business, +to be our government channel distributor. As a direct result of our relationship with LGS, AC5 Advanced Wound System has been added to +the four major government contracting vehicles: Federal Supply Schedule (FSS), General Services Administration (GSA) schedule, Defense +Logistics Agency s Medical Electronic Catalog Program (ECAT), and Distribution and Pricing Agreement (DAPA). This listing enables +purchase by federal government agencies, including the Department of Veterans Affairs (VA), Indian Health Services (IHS), and Department +of Defense (DOD) Medical Treatment Facilities, and it allows doctors in government channels to order AC5 Advanced Wound System. + + + +Our +internal core team oversees AC5 Advanced Wound System sales, marketing, and inventory distribution from the warehouse to the customer. +We envision hiring additional internal sales representatives to support commercialization. + + + +We +have partnerships with reputable, value-added independent sales representatives and distributors, and we expect to add more collaborative +agreements on a case-by-case basis to expand the overall reach and footprint of the sales organization. Such collaborations may include +strategic partners. We anticipate that we will also periodically terminate certain agreements based on performance or other business +criteria. + + + +We +are committed to continuous improvement processes. We collect feedback and data when feasible and appropriate to both develop and commercialize +products that serve patients and doctors; to develop marketing messages; to learn about product use; to evaluate product performance +in different settings; to improve our products; to address reimbursement needs; and to support collaborations that we may have or may +establish. Data has been and will continue to be collected by informal feedback, observational case reports and/or clinical trials. + + + +We +do not believe that our current cash on hand as of June 19, 2024 is sufficient to meet our anticipated cash requirements +through the end of June 2024, and we must obtain additional financing in order to continue to operate our business. +Even if this offering is successful, we could spend our financial resources much faster than we expect, in which case we would +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 in this prospectus under the heading Risk Factors +beginning on page 22, in which case our current funds may not be sufficient to operate our business for the period +we expect. + + + +Additionally, +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 Bridge SPA (as defined below), PIPE SPA (as defined below) and securities +purchase agreement dated July 6, 2022, as amended (the 2022 Notes SPA ), associated with the sale of the 2022 Notes +(as defined below) (the 2022 Notes Financing ), in each case as described in greater detail in the risk factor entitled + The terms of the Bridge Offering, Uplist PIPE and 2022 Notes Financing could impose additional challenges on our ability +to raise funding in the future under the heading Risk Factors in this prospectus. + + + +We +have an aggregate of $6,898,221 in principal outstanding as of June 19, 2024 under the 2022 Notes (comprised of an aggregate of $4,211,720 in principal amount of senior +secured 2022 Notes and $2,686,501 in principal amount of unsecured 2022 Notes) and an +aggregate of $2,400,000 in principal outstanding as of June 19, 2024 under the 2024 Notes (as defined below). The holders +of the First Notes (as defined below) have been granted a security interest in substantially all of our assets pursuant to the terms +of the security agreement dated July 6, 2022 (the Security Agreement ), pursuant to which we provided a security +interest in, and a lien on, substantially all of our assets as collateral for the repayment of the First Notes. The holders of the +2024 Notes have been granted a security interest in substantially all of our assets pursuant to the terms of the security agreement dated +May 15, 2024 (the 2024 Notes Security Agreement ), pursuant to which we provided a security interest in, and a lien +on, substantially all of our assets as collateral for the repayment of the 2024 Notes, pari passu with the repayment of the First Notes. +If we fail to make payments on the First Notes or 2024 Notes when due or otherwise comply with the covenants contained in +the First Notes or the 2024 Notes, the First Note and 2024 Note holders could declare us in default, in which event such +holders would have the right to exercise their rights as a secured creditor with respect to our assets that secure the indebtedness, +which would force us to suspend operations. + + + + -6- + + Table of Contents + + + + + +Proposed +Listing on Cboe or an Alternate Exchange + + + +Our +Common Stock is presently quoted on the OTCQB under the trading symbol ARTH. In connection with this offering, we have +applied to list our Common Stock and Investor Warrants on Cboe under the symbols ARTH and ARTHW, respectively. +Although we have applied to list the Investor Warrants, there is no established public trading market for the Investor Warrants and without +an active trading market, the liquidity of the Investor Warrants will be limited. No assurance can be given that our listing application +for our Common Stock and Investor Warrants will be approved by Cboe or an Alternate Exchange. If our listing application is approved, +our Common Stock will cease to be traded on the OTCQB. This offering will occur only if Cboe or an Alternate Exchange approves +the listing of our Common Stock by June 30, 2024. The Cboe and Alternate Exchange listing requirements include, among other +things, a stock price threshold. As a result, prior to effectiveness, we will need to take the necessary steps to meet Cboe listing +requirements or the listing requirements of an Alternate Exchange, including but not limited to a reverse split of our outstanding shares +of Common Stock. + + + +Implications +of Being a Smaller Reporting Company + + + +We +are a smaller reporting company, meaning that the market value of our Common Stock held by non-affiliates is less than +$700 million and our annual revenue is less than $100 million during the most recently completed fiscal year. We may continue to be a +smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliates is less than $250 million +as of the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently +completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. Specifically, as a smaller +reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report +on Form 10-K and smaller reporting companies have reduced disclosure obligations regarding executive compensation. + + + +Corporate +Information + + + +Arch +Therapeutics, Inc. (together with its subsidiary, the Company or Arch ) is a biotechnology +company developing and marketing products based on our innovative AC5 self-assembling technology platform. Arch arose from +the June 26, 2013 merger (the Merger ) of three entities previously known as Arch Biosurgery, Inc., Almah, Inc., +and Arch Acquisition Corporation, respectively. + + + +Arch +Biosurgery, Inc. ( ABS ), a biotechnology company, was incorporated under the laws of the Commonwealth of Massachusetts +on March 6, 2006 as Clear Nano Solutions, Inc., changed its name from Clear Nano Solutions, Inc. to Arch Therapeutics, Inc. on April +7, 2008, and, as part of the Merger transaction, changed its name from Arch Therapeutics, Inc. to Arch Biosurgery. + + + +Almah, +Inc., was incorporated under the laws of the State of Nevada on September 16, 2009 and, as part of the Merger transaction, changed its +name to Arch Therapeutics, Inc. and abandoned both its prior business plan and operations in order to adopt those of ABS. + + + +Arch +Acquisition Corporation (the Merger Sub ), was a wholly owned subsidiary of Almah, Inc., formed for the purpose of +the Merger transaction, pursuant to which the Merger Sub merged with and into ABS, and ABS thereafter became the wholly owned +subsidiary of the Company. + + + +Prior +to the completion of the Merger, we were a shell company under applicable rules of the SEC, and had no or nominal assets +or operations. + + + +Our +principal executive offices are located at 235 Walnut St., Suite 6, Framingham, Massachusetts 01702. The telephone number of our principal +executive offices is (617) 431-2313. Our website address is http://www.archtherapeutics.com. We have not incorporated by reference +into this prospectus the information on, or that can be accessed through, our website, and you should not consider it to be a part of +this document. You should not rely on any information on that website in making your decision to purchase shares of our Common Stock. + + + + -7- + + Table of Contents + + + + + +Recent +Developments + + + +Commercial +Update + + + +During +its fourth fiscal quarter ended September 30, 2023, the Company experienced a significant increase in AC5 orders, posting record monthly +order volumes during both August and September. Taken together, orders from August and September represented more than half of total +fiscal year volume, and September orders more than doubled August orders. The Company also observed favorable coverage and reimbursement +decisions from multiple payors in different regions of the country with a commensurate increase in paid claims. Early in the fourth fiscal +quarter, the Company received its first payment from a provider as a result of a paid claim for reimbursement of AC5 using A2020, and +the number of paid claims across different payor networks increased throughout the quarter. Throughout the first fiscal quarter ended +December 31, 2023 and second fiscal quarter ending March 31, 2024, the number of providers using AC5 and the number of related coverage +and reimbursement decisions continued to expand. While numbers remain expectedly modest, the Company is optimistic that its ongoing efforts +will result in contracted pricing opportunities with several regional Medicare Administrator Contractors, which management believes is +the next important milestone in the Company s comprehensive strategic commercialization plan. + + + +Charter +Amendments + + + +On +July 18, 2023, the board of directors of the Company (the Board ) adopted resolutions by unanimous written consent, +pursuant to which the Board determined that it is advisable and in the best interests of the Company to amend the Articles +of Incorporation of the Company (the Amendment ) to (i) increase the total number of authorized shares of Common +Stock from 12,000,000 to 350,000,000 (the Authorized Share Increase ), (ii) authorize 5,000,000 shares of blank +check preferred stock of the Company, thereby giving the Board the authority to designate from time to time one or more series +of preferred stock (the Blank Check Preferred ), and (iii) provide for a reverse stock split of the outstanding Common +Stock, at a ratio within a range of 1-for-1.5 to 1-for-20, with the exact ratio to be determined by the Board subsequent to the applicable +approval by the Company s stockholders, within 1 year following the date of such approval, and without correspondingly decreasing +the number of authorized shares of Common Stock (the Reverse Split and, together with the Authorized Share Increase +and the Blank Check Preferred, the Charter Amendments ). On August 22, 2023, stockholders representing a majority +of the voting power of the then outstanding shares of voting stock of the Company (the Majority Stockholders ) executed +a written consent approving the Charter Amendments and the Company filed a preliminary Information Statement with the U.S. Securities +and Exchange Commission ( SEC ) with respect to the transactions contemplated hereby. The Company filed a definitive +Information Statement with the SEC and mailed the definitive Information Statement to the Company s stockholders notifying them +of the action taken by written consent on September 1, 2023. Accordingly, the Company filed the Amendment with respect to the Authorized +Share Increase and the Blank Check Preferred with the Secretary of State of Nevada on September 21, 2023. The Company intends to effect +the Reverse Split at a ratio of 1-for-8 prior to the pricing of this offering. All share and per share information in this prospectus, +other than the historical financial statements included herein, has been adjusted to give effect to the Reverse Split. + + + +PIPE, +Bridge and Note Financings + + + +Uplist +PIPE + + + +On +November 8, 2023, the Company and certain institutional and accredited individual investors (collectively, the PIPE Investors ) +entered into a Securities Purchase Agreement, as subsequently amended on June 19, 2024 (as amended, the PIPE +SPA ), pursuant to which the Company has agreed to issue and sell to the PIPE Investors, and the PIPE Investors have agreed +to purchase from the Company, an aggregate of (i) warrants (the PIPE Pre-Funded Warrants ) to purchase an aggregate +of 1,430,650 shares of Common Stock (the PIPE Pre-Funded Warrant Shares ) and (ii) warrants (the PIPE +Investor Warrants and together with the PIPE Pre-Funded Warrants, the PIPE Warrants ) to purchase an aggregate +1,430,650 shares of Common Stock (the PIPE Investor Warrant Shares and together with the PIPE Pre-Funded +Warrant Share, the PIPE Warrant Shares ), at a purchase price of $4.124 per PIPE Pre-Funded Warrant to purchase one +share of Common Stock and accompanying PIPE Investor Warrant to purchase one share of Common Stock, for aggregate gross proceeds of $5.9 +million, before deducting the placement agent s fees and estimated offering expenses, and expected net proceeds of $5.4 +million after deducting the placement agent s fees and estimated offering expenses payable by the Company. The PIPE Pre-Funded +Warrants and PIPE Investor Warrants will be issued as part of a private placement offering authorized by the Company s board of +directors (the Uplist PIPE ). The Company currently intends to use the net proceeds it receives from the Uplist PIPE +for product marketing and for general working capital purposes. The purpose of the Uplist PIPE is mainly to assist the Company in meeting +the initial listing requirements of Cboe, including for purposes of the minimum stockholders equity requirement and the +requirement of the Company to achieve its listing in connection with a firm commitment underwritten public offering. + + + + -8- + + Table of Contents + + + + + +Between +December 13, 2023 and March 28, 2024, certain of the PIPE Investors advanced the Company an aggregate of $1.25 million as partial prepayment +of their respective purchase price under the PIPE SPA, which funds were advanced outside of the escrow provided for in the PIPE SPA, +and which funds have been available to the Company in support of its operations (the PIPE Advances ). On May 15, +2024, the 2024 Notes Investors (as defined below) purchased an aggregate of $2,220,000 in principal amount of 2024 Notes (as defined below) +for an aggregate purchase price of $1,850,000, which amount was paid through the surrender and cancellation of the PIPE Advances by the +2024 Notes Investors and an incremental amount of $600,000 in cash. Under the PIPE SPA, a PIPE Investor s obligation to purchase +PIPE Pre-Funded Warrants and PIPE Investor Warrants is reduced by the purchase price paid by such PIPE Investor for 2024 Notes under +the 2024 Notes SPA (as defined below). Accordingly, it is currently anticipated that PIPE Pre-Funded Warrants to purchase an aggregate +of 982,056 shares of Common Stock and PIPE Investor Warrants to purchase an aggregate of 982,056 shares of Common Stock will be issued +in the Uplist PIPE, for gross proceeds of $4,050,000, and expected net proceeds of $3,528,000, while the $2,220,000 in principal amount +of 2024 Notes will automatically convert at the closing of this offering into (i) 2024 Note Conversion Pre-Funded Warrants to purchase +an aggregate of 538,182 shares of Common Stock and (ii) 2024 Note Uplist Conversion Warrants to purchase an aggregate of 538,182 shares +of Common Stock, reflecting a net addition for the benefit of the PIPE Investors that are 2024 Notes Investors of an aggregate of 89,700 +shares underlying the 2024 Note Conversion Pre-Funded Warrants and 2024 Note Uplist Conversion Warrants, respectively, that is the result +of the premium of the principal amount of $2,220,000 of the 2024 Notes over their purchase price of $1,850,000 (which purchase price, +as stated above, has reduced the aggregate purchase price of the securities sold in the PIPE SPA). + + + +The +closing of the Uplist PIPE is contingent upon, among other conditions, the registration statement of which this prospectus forms a part +being declared effective by the SEC and the approval of the listing of the Common Stock on any securities exchange registered with +the SEC as a national securities exchange under Section 6 of the Exchange Act (a National Exchange ), +and the closing is expected to occur immediately prior to the pricing of this offering. + + + +The +Company retained Dawson James Securities, Inc. ( DJ ), pursuant to a placement agency agreement, dated November 8, +2023, as placement agent in connection with the Uplist PIPE. The Company will pay DJ a cash fee equal to 8.0% of the aggregate gross +proceeds of the Uplist PIPE (expected to be $472,000), will reimburse DJ for legal and other expenses of up to $150,000 and will +issue to DJ, or its designees, warrants (the PIPE Placement Agent Warrants ) to purchase an aggregate of 71,533 +shares of Common Stock. The PIPE Placement Agent Warrants will be exercisable at any time and from time to time, in whole or in part, +during the five-year period commencing upon issuance, at a price per share equal to $5.15625 (which is 125% of the price per Unit sold +in this offering). + + + + -9- + + Table of Contents + + + + + +PIPE +Pre-Funded Warrants + + + +The +PIPE Pre-Funded Warrants (i) will have a nominal exercise price of $0.001 per share; (ii) will be exercisable immediately upon issuance; +(iii) will be exercisable until all of the PIPE Pre-Funded Warrants are exercised in full; and (iv) will have a provision preventing +the exercisability of such PIPE Pre-Funded Warrants if, as a result of the exercise of the PIPE Pre-Funded Warrants, the holder, 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 either 4.99% or 9.99% of the Common Stock (the Ownership Limitation ) immediately +after giving effect to the exercise of the PIPE Pre-Funded Warrants. + + + +PIPE +Investor Warrants + + + +The +PIPE Investor Warrants (i) will have an exercise price of $4.00 per share; (ii) will have a term of exercise equal to 5 years after their +issuance date; (iii) will be exercisable immediately upon issuance; and (iv) will have a provision preventing the exercisability of such +PIPE Investor Warrants if, as a result of the exercise of the PIPE Investor Warrants, the holder, 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 the Ownership Limitation immediately after giving effect to the exercise of the PIPE Investor Warrants. + + + +Pursuant +to the PIPE SPA, the Company has agreed to file no later than sixty (60) days after the closing date of an offering conducted in conjunction +with an uplist of the Common Stock to, and in compliance with the rules of, any National Exchange (the Uplist Transaction ), +which this offering is intended to be, a registration statement on Form S-4, or other appropriate form, registering the offer by the +Company to exchange, on a one-for-one basis, all outstanding PIPE Investor Warrants, 2022 Warrants (as defined below), Uplist Conversion +Warrants (as defined below) and Exchange Investor Warrants (as defined below) for newly issued warrants identical to the Investor Warrants +being sold in this offering, which warrants are expected to be listed on Cboe under the symbol ARTHW. + + + +Registration +Rights Agreement + + + +The +Company also entered into a registration rights agreement with the PIPE Investors dated November 8, 2023 (the PIPE Registration +Rights Agreement ), pursuant to which the Company is obligated, subject to certain conditions, to file with the SEC +within the earlier of (i) the closing date of the Uplist Transaction and (ii) the 60th calendar day following the date of the PIPE Registration +Rights Agreement one or more registration statements to register the PIPE Warrant Shares, the Uplist Conversion Warrant Shares (as defined +below) and the 2022 Note Conversion Pre-Funded Warrant Shares (as defined below) for resale under the Securities Act of 1933, as amended +(the Securities Act ). The Company s failure to satisfy certain filing and effectiveness deadlines and certain +other requirements set forth in the PIPE Registration Rights Agreement may subject the Company to payment of monetary penalties. The +Resale Prospectus currently covers the resale of the PIPE Warrant Shares, the Uplist Conversion Warrant Shares and the 2022 Note Conversion +Pre-Funded Warrant Shares. + + + +PIPE +Advances + + + +Under +the terms of the PIPE Advances, since the Common Stock has not been approved for listing on the Nasdaq Capital Market by March 31, +2024, with respect to a portion of the PIPE Advances, or April 30, 2024, with respect to the remainder of the PIPE Advances, the Company has issued to the advancing parties (A) additional pre-funded warrants (the PIPE Advance Penalty Pre-Funded +Warrants ) to purchase up to an aggregate of 75,776 shares of Common Stock (which represents a 25% addition) and (B) +additional investor warrants (the PIPE Advance Penalty Common Warrants ) to purchase up to an aggregate of +75,776 shares of Common Stock. The Resale Prospectus currently covers the resale of the shares of Common Stock underlying the PIPE +Advance Penalty Pre-Funded Warrants (the PIPE Advance Penalty Pre-Funded Warrant Shares ) and the PIPE Advance +Penalty Common Warrants (the PIPE Advance Penalty Common Warrant Shares ). + + + + -10- + + Table of Contents + + + + + +Backstop +Agreement + + + +On +June 19, 2024, certain of the PIPE Investors (the Backstop Buyers ) agreed that in the event that as of the +close of business on the date that is 10 calendar days prior to the date that the Company reasonably expects the closing of the +Uplist PIPE to occur (the Escrow Date ) there is not an amount of funds in escrow for the PIPE equal to +$5,900,000 less the aggregate purchase price paid for the 2024 Notes (the Escrow Minimum Amount ) (such +circumstance, an Escrow Deficiency ), then each of the Backstop Buyers will deposit in escrow the +purchase price for a pro rata share of an amount, no greater than $1,500,000, equal to (A) $320,000 plus (B) (i) $5,900,000, minus +(ii) the amount of funds in escrow on the Escrow Date, minus (iii) the aggregate purchase price paid by PIPE Investors for the 2024 +Notes ( the Backstop Amount ) of additional PIPE Pre-Funded Warrants and PIPE Investor Warrants under the PIPE +SPA (such agreement, the Backstop Agreement ), and shall purchase such additional PIPE Pre-Funded +Warrants and PIPE Investor Warrants at the Uplist PIPE closing. In consideration for the execution by the Backstop Buyers of the +Backstop Agreement, the Company agreed to issue to the Backstop Buyers, as soon as practicable, pre-funded warrants (the + Execution Backstop Pre-Funded Warrants ), in form and substance substantially similar to the PIPE Pre-Funded +Warrants, to purchase an aggregate of 225,000 shares of Common Stock. The Company also agreed to issue to the Backstop Buyers (i) +additional pre-funded warrants (the Funding Backstop Pre-Funded Warrants and, together with the Execution +Backstop Pre-Funded Warrants, the Backstop Pre-Funded Warrants ) to purchase an amount of shares of Common Stock +equal to 0.5 shares per dollar of funding deposited under the Backstop Agreement, or up to an aggregate of 750,000 shares, and (ii) +investor warrants (the Backstop Common Warrants ), in form and substance substantially similar to the PIPE +Investor Warrants, to purchase an amount of shares of Common Stock equal to 0.65 shares per dollar of funding deposited under the +Backstop Agreement, or up to an aggregate of 975,000 shares. The Resale Prospectus currently covers the resale of the shares of +Common Stock underlying the Backstop Pre-Funded Warrants (the Backstop Pre-Funded Warrant Shares ) and the +Backstop Common Warrants (the Backstop Common Warrant Shares ). This prospectus assumes that no Escrow +Deficiency will occur and thus no funding will be deposited under the Backstop Agreement and no Funding Backstop Pre-Funded Warrants +or Backstop Common Warrants will be issued. + + + +2024 +Notes + + + +On +May 15, 2024, the Company entered into a Securities Purchase Agreement (the 2024 Notes SPA ) with certain +institutional and accredited individual investors who are also PIPE Investors (collectively, the 2024 Notes +Investors ) providing for the issuance and sale by the Company to the 2024 Notes Investors certain Secured Promissory +Notes (each a 2024 Note and collectively, the 2024 Notes ) convertible into shares of +Common Stock. On June 12, 2024, an additional investor, which is not a PIPE Investor (the Additional 2024 Notes +Investor ) purchased 2024 Notes in the principal amount of $180,000, including an original issue discount of $$30,000. The +2024 Notes were issued as part of a convertible notes offering authorized by the Company s board of directors (the + 2024 Notes Financing ). + + + +In +connection with the 2024 Notes Financing, the Company issued and sold to the 2024 Notes Investors and Additional 2024 Notes Investor +the 2024 Notes in the aggregate principal amount of $2,400,000, which includes an aggregate $400,000 original issue discount in +respect of the 2024 Notes. The aggregate net proceeds for the sale of the 2024 Notes was approximately $2,000,000, after deducting +issuance discounts. The closing of the sales of the 2024 Notes to the 2024 Notes Investors under the 2024 Notes SPA occurred on May +15, 2024 (the 2024 Notes Closing Date ). The Company is using the net proceeds from the 2024 Notes Financing +primarily for working capital and general corporate purposes, and has not allocated specific amounts for any specific +purposes. + + + +The +2024 Notes become due and payable on June 30, 2024 (the 2024 Notes Maturity Date ) and may be prepaid provided that +an Event of Default (as defined therein) has not occurred. The 2024 Notes bear interest on the unpaid principal balance at a rate equal +to ten percent (10%) (computed on the basis of the actual number of days elapsed in a 360-day year) per annum accruing from their issuance date until the 2024 Notes become due and payable at maturity or upon their conversion, acceleration or by prepayment, and +may become due and payable upon the occurrence of an Event of Default under the 2024 Notes. Any amount of principal or interest on the +2024 Notes which is not paid when due shall bear interest at the rate of the lesser of (i) eighteen percent (18%) per annum or (ii) the +maximum amount allowed by law from the due date thereof until payment in full (the Default Interest ). + + + + -11- + + Table of Contents + + + + + +The +2024 Notes are convertible into an aggregate of 600,000 shares of Common Stock (such shares of Common Stock, the 2024 Conversion +Shares ) at the option of each holder of the 2024 Notes from their issuance date at the 2024 Conversion Price (as defined below) +through the later of (i) the 2024 Notes Maturity Date and (ii) the date of payment of the Default Amount (as defined in the 2024 Note) +provided, however, the 2024 Notes include a provision preventing such conversion if, as a result, the holder, together with its +affiliates and any other persons whose beneficial ownership of Common Stock would be aggregated with the holder s, would be deemed +to beneficially own more than 4.99% of the outstanding shares of the Common Stock (the 2024 Notes Ownership Limitation ) +immediately after giving effect to the conversion and provided further, the holder, upon notice to the Company, may increase +or decrease the 2024 Notes Ownership Limitation provided that (i) the 2024 Notes Ownership Limitation may only be increased +to a maximum of 9.99% of the outstanding shares of the Common Stock and (ii) any increase in the 2024 Notes Ownership Limitation +will not become effective until the 61st day after delivery of such waiver notice. + + + +The +initial conversion price of the 2024 Notes (the 2024 Conversion Price ) shall be equal to $4.00 per share and may +be reduced or increased proportionately as a result of any stock dividends, recapitalizations, reorganizations, and similar transactions. +If the Company fails to deliver the shares of Common Stock issuable upon a conversion by the Deadline (as defined in the 2024 Notes), +then the Company is obligated to pay such 2024 Note holder $5,000 per day in cash for each day beyond the Deadline. + + + +The +2024 Notes contain customary events of default, which include, among other things, (i) the Company s failure to pay when due any +principal or interest payment under the 2024 Notes; (ii) the insolvency of the Company; (iii) delisting of the Common Stock; (iv) the +Company s breach of any material covenant or other material term or condition under the 2024 Notes; and (v) the Company s +breach of any representations or warranties under the 2024 Notes which cannot be cured within five days. Further, Events of Default under +the 2024 Notes also include (i) the unavailability of Rule 144 on or after six months from the Issue Date (as defined therein); (ii) +the Company s failure to deliver the shares of Common Stock to the 2024 Note holder upon exercise by such holder of its conversion +rights under the 2024 Note; (iii) the Company s loss of the bid price for its Common Stock and/or a market and such +loss is not cured during the specified cure periods; and (iv) the Company s failure to complete an uplist to a National Exchange +by June 30, 2024. + + + +Upon +an Event of Default, the 2024 Notes shall become immediately due and payable and the Company shall pay to each 2024 Note holder an amount +equal to 125% (the Default Premium ) multiplied by the sum of the outstanding principal amount of the 2024 Notes +plus any accrued and unpaid interest on the unpaid principal amount of the 2024 Notes to the date of payment, plus any Default Interest +and any other amounts owed to the holder under the 2024 Notes SPA (the Default Amount ) provided that, +upon any subsequent Event of Default not in connection with the first Event of Default, such holder shall be entitled to an additional +five percent (5%) to the Default Premium for each subsequent Event of Default. At the election of each 2024 Note holder, the Default +Amount may be paid in cash or shares of Common Stock equal to the Default Amount divided by the 2024 Conversion Price at the time of +payment. + + + +Upon +the closing of this offering, 100% of the then outstanding principal amount of the 2024 Notes shall automatically convert (the 2024 +Notes Automatic Conversion ) into shares of Common Stock (the 2024 Notes Automatic Conversion Shares ), +with the conversion price for purposes of such 2024 Notes Automatic Conversion being $4.125. Upon the 2024 Notes Automatic Conversion +and to the extent that the beneficial ownership of a holder of 2024 Notes (a 2024 Notes Holder and, all holders +of 2024 Notes together, the 2024 Notes Holders ) would increase over the applicable 2024 Notes Ownership Limitation, +the 2024 Notes Holder will receive pre-funded warrants (the 2024 Note Conversion Pre-Funded Warrants , and the shares +issuable upon exercise thereof, the 2024 Note Conversion Pre-Funded Warrant Shares ) in lieu of shares of Common +Stock otherwise issuable to the 2024 Notes Holder in connection with the 2024 Notes Automatic Conversion, which 2024 Note Conversion +Pre-Funded Warrants shall have an exercise price of $0.001 per share, may be exercised on a cashless basis, shall be exercisable immediately +upon issuance and shall contain a customary beneficial ownership limitation provision. + + + + -12- + + Table of Contents + + + + + +In +addition, upon the 2024 Notes Automatic Conversion, the 2024 Notes Holder shall receive a warrant (the 2024 Notes Uplist Conversion +Warrant , and the shares issuable upon exercise thereof, the 2024 Notes Uplist Conversion Warrant Shares ) +to purchase a number of shares of Common Stock equal to the number of shares of Common Stock (or shares of Common Stock underlying 2024 +Note Conversion Pre-Funded Warrants, if any) issued upon the 2024 Notes Automatic Conversion. The 2024 Notes Uplist Conversion Warrant +shall have an exercise price per share of $4.00 and shall otherwise be identical to the PIPE Investor Warrants. The Company also agreed +in the 2024 Notes to file no later than sixty (60) days after the closing of this offering a registration statement on Form S-4, or other +appropriate form, registering the offer by the Company to exchange, on a one-for-one basis, all outstanding PIPE Investor Warrants, 2024 +Notes Uplist Conversion Warrants and Exchange Investor Warrants for newly issued warrants identical to the Investor Warrants being sold +in this offering, which warrants are expected to be listed on Cboe under the symbol ARTHW. + + + +Registration +Rights Agreement + + + +On +the 2024 Notes Closing Date, the Company entered into a Registration Rights Agreement with the 2024 Notes Investors (the + 2024 Notes Registration Rights Agreement ), pursuant to which the Company is obligated, subject to certain +conditions, to file with the Securities and Exchange Commission within 60 days after the 2024 Notes Closing Date one or more +registration statements (any such registration statement, a 2024 Notes Resale Registration Statement ) to +register the 2024 Conversion Shares for resale under the Securities Act. The Company s failure to satisfy certain filing and +effectiveness deadlines with respect to a 2024 Notes Resale Registration Statement and certain other requirements set forth in the +2024 Notes Registration Rights Agreement may subject the Company to payment of monetary penalties. + + + +Security +Agreement + + + +In +connection with the issuance of the 2024 Notes, the Company entered into a Security Agreement with the Collateral Agent (as defined therein) +on behalf of the 2024 Notes Investors on the 2024 Notes Closing Date (the 2024 Notes Security Agreement ), pursuant +to which the Company and each of its subsidiaries (together with any persons who execute a joinder to the 2024 Notes Security Agreement, +the 2024 Notes Debtors ) provided as collateral to the 2024 Notes holders a security interest in, and a lien on, +substantially all of the 2024 Notes Debtors. Upon an Event of Default under the 2024 Notes, each 2024 Notes holder may exercise its +rights to the collateral pursuant to the terms of the 2024 Notes Security Agreement. + + + +Accordingly, +it is currently anticipated that at the closing of this offering: (i) (A) 2024 Note Conversion Pre-Funded Warrants with an exercise +price of $0.001 to purchase an aggregate of 538,182 shares of Common Stock and (B) 43,637 2024 Notes Automatic Conversion Shares +will be issued upon the 2024 Note Automatic Conversion of the $2,400,000 of principal amount outstanding under the 2024 Notes; and +(ii) the 2024 Note Holders will be issued 2024 Note Uplist Conversion Warrants to purchase an aggregate of 581,819 shares of Common +Stock. The expected allocation between shares of Common Stock and 2024 Note Conversion Pre-Funded Warrants in the previous +sentence is only an initial estimate based on indications of interest and is subject to change based on the ultimate ownership of +the 2024 Note Holders after the Uplist PIPE and this offering. The maximum number of shares of Common Stock and 2024 Note Conversion +Pre-Funded Warrants that may be issued, individually and in the aggregate is 581,819. + + + +Bridge +Offering + + + +Between +July 7, 2023 and September 11, 2023, pursuant to a Securities Purchase Agreement dated July 7, 2023, as subsequently amended (the Bridge +SPA ), among the Company and certain institutional and accredited individual investors (collectively, the Bridge +Investors ) the Company issued and sold to the Bridge Investors an aggregate of (i) 418,051 shares (the Bridge Shares ) +of Common Stock; (ii) warrants (the Bridge Pre-Funded Warrants ) to purchase an aggregate of 756,871 shares of Common +Stock (the Bridge Pre-Funded Warrant Shares ); and (iii) warrants (the Common Warrants and together +with the Bridge Pre-Funded Warrants, the Bridge Warrants ) to purchase an aggregate 2,349,826 shares of Common Stock +(the Common Warrant Shares and together with the Bridge Pre-Funded Warrant Share, the Bridge Warrant Shares ), +at a purchase price of $2.20 per Bridge Share and accompanying Common Warrant to purchase two shares of Common Stock, and $2.192 per +Bridge Pre-Funded Warrant to purchase one share of Common Stock and accompanying Common Warrant to purchase two shares of Common Stock. +The Bridge Shares, Bridge Pre-Funded Warrants, and Common Warrants were issued as part of a private placement offering authorized by +the Company s board of directors (the Bridge Offering ). + + + +Pursuant +to the Bridge SPA, the Bridge Investors agreed not to sell or otherwise transfer any of the Bridge Shares or Bridge Warrant Shares prior +to the one-year anniversary of the Bridge Closing Date. In the event that a Bridge Investor purchases securities in connection with an +Uplist Transaction, which this offering is intended to be, and/or in the Uplist PIPE, with an aggregate purchase price equal to at least +4.3 multiplied by the aggregate purchase price paid by the Bridge Investor for the Bridge Shares and Bridge Warrants under the Bridge +SPA, the one-year lock-up period will no longer apply to the Bridge Shares and Bridge Warrants. The aggregate gross proceeds for the +sale of the Bridge Shares, Bridge Pre-Funded Warrants, and Common Warrants was approximately $2.6 million, before deducting the placement +agent s fees and other estimated fees and offering expenses payable by the Company. The first closing of the sales of these securities +under the Bridge SPA occurred on July 7, 2023 (the Bridge Closing Date ). + + + + -13- + + Table of Contents + + + + + +Under +the Bridge SPA, the Company also agreed that upon the closing of the next underwritten public offering of Common Stock (a Qualifying +Offering ), which the Company agreed is this offering, if the effective offering price to the public per share of Common Stock +(the Qualifying Offering Price ) is lower than $32.00 per share, then the Company shall issue additional Bridge Pre-Funded +Warrants (the True-Up Pre-Funded Warrants , and the shares issuable upon exercise thereof, the True-Up +Pre-Funded Warrant Shares ), or shares of Common Stock (the True-Up Shares ) in lieu thereof to the extent +necessary to cause the Company to meet the listing requirements of the Company s proposed trading market in the Uplist Transaction, +in an amount reflecting a reduction in the purchase price paid for the Bridge Shares and Bridge Pre-Funded Warrants that equals the proportion +by which the Qualifying Offering Price is less than $32.00. The Company also agreed that the Qualifying Offering Price as a result of +this offering is $4.00. Accordingly, at the closing of this offering, based on the sale of the Units and Pre-Funded Units at an assumed +public offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit, which represents the minimum bid price of $4.00 per share under +the initial listing requirements of Cboe in Cboe Listing Rule 14.9(b) plus a value of $0.125 attributed to the accompanying Investor +Warrant, the Company expects to issue (i) True-Up Pre-Funded Warrants with an exercise price of $0.001 to purchase an aggregate of 6,330,422 +shares of Common Stock and (ii) an aggregate of 1,893,919 True-Up Shares to the Bridge Investors. The expected allocation +between True-Up Shares and True-Up Pre-Funded Warrants in the previous sentence is only an initial estimate based on indications of interest +and is subject to change based on the ultimate ownership of the Bridge Investors after the Uplist PIPE and this offering. The maximum +amount of True-Up Pre-Funded Warrants and True-Up Shares that may be issued, individually and in the aggregate is 8,224,341. The Resale +Prospectus currently covers the resale of the True-Up Pre-Funded Warrant Shares and True-Up Shares. + + + +The +Company retained DJ as placement agent in connection with the Bridge Offering. The Company paid DJ a cash fee equal to 8.0% of the aggregate +gross proceeds of the Bridge Offering and reimbursement of expenses of $50,000. Additionally, on September 7, 2023 the Company issued +to DJ, or its designees, warrants, as subsequently amended (the Placement Agent Warrants ) to purchase an aggregate +of 55,242 shares of Common Stock. The Placement Agent Warrants are exercisable at any time and from time to time, in whole or in part, +until September 7, 2028, at a price per share equal to $2.20 (which will increase to $5.15625 at the closing of the Uplist Transaction, +representing 125% of the assumed price per share of Common Stock in the Uplist Transaction, as required by FINRA). + + + +Bridge +Pre-Funded Warrants + + + +The +Bridge Pre-Funded Warrants (i) have a nominal exercise price of $0.008 per share; (ii) are exercisable after the earlier of (A) the six-month +anniversary after the date of issuance, (B) 120 days after the closing date of an Uplist Transaction, and (C) the date that a registration +statement registering the Bridge Pre-Funded Warrant Shares is declared effective; (iii) are exercisable until all of the Bridge Pre-Funded +Warrants are exercised in full; and (iv) have a provision preventing the exercisability of such Bridge Pre-Funded Warrants if, as a result +of the exercise of the Bridge Pre-Funded Warrants, the holder, 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 the Ownership Limitation immediately +after giving effect to the exercise of the Bridge Pre-Funded Warrants. + + + +Common +Warrants + + + +The +Common Warrants (i) have an exercise price of $8.00 per share; (ii) have a term of exercise equal to 5 years after their issuance date; +(iii) are exercisable after the earlier of (A) the six-month anniversary after the date of issuance and (B) the date that a registration +statement registering the Common Warrant Shares is declared effective; (iv) have a provision permitting voluntary adjustments to the +exercise price by the Company, subject to the prior written consent of the Common Warrant holder; (v) are automatically exchanged upon +the closing of an Uplist Transaction for a new warrant that is identical to the warrants (other than any pre-funded warrants), if any, +being issued to investors in such Uplist Transaction, with the number of shares underlying such new warrant being equal to the number +of Common Warrant Shares then underlying the Common Warrant multiplied by three and (vi) have a provision preventing the exercisability +of such Common Warrants if, as a result of the exercise of the Common Warrants, 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 the Ownership Limitation immediately after giving effect to the exercise of the Common Warrants. Accordingly, at the +closing of this offering, the Common Warrants will be cancelled and exchanged for newly issued warrants identical to the Investor Warrants +to purchase an aggregate of 7,049,478 shares of Common Stock at an exercise price per share equal to the exercise price per share +of the Investor Warrants (the Exchange Investor Warrants ). + + + +In +addition, as noted above, pursuant to the PIPE SPA, the Company has agreed to file no later than sixty (60) days after the closing date +of the Uplist Transaction, a registration statement on Form S-4, or other appropriate form, registering the offer by the Company to exchange, +on a one-for-one basis, all outstanding Exchange Investor Warrants for newly issued warrants identical to the Investor Warrants being +sold in this offering, which warrants are expected to be listed on Cboe under the symbol ARTHW. + + + +Registration +Rights Agreement + + + +The +Company also entered into a registration rights agreement with the Bridge Investors dated July 7, 2023, as subsequently amended (the + Registration Rights Agreement ), pursuant to which the Company is obligated, subject to certain conditions, to file +with the SEC within the earlier of (i) 30 days following the closing date of the Uplist Transaction and (ii) January 31, 2024 +one or more registration statements (any such registration statement, a Resale Registration Statement ) to register +the Bridge Shares, the Bridge Warrant Shares and the shares of Common Stock issuable upon exercise in full of the Exchange Investor Warrants +(the Exchange Investor 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. The Resale Prospectus currently covers the resale of the Bridge Shares and the Bridge Warrant Shares. + + + + -14- + + Table of Contents + + + + + +Note +Modification Agreements + + + +On +April 30, 2024, the Company entered into an amendment ( Amendment No. 16 to the First Notes ) with the +holders of the Company s outstanding Senior Secured Convertible Promissory Notes, as separately amended on February 14, 2023, March +10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023, July 7, 2023, July 31, 2023, August 30, 2023, +September 30, 2023, November 8, 2023, November 15, 2023, January 5, 2024 and March 15, 2024 (as amended, the First +Notes ), issued in connection with a private placement financing the Company completed on July 6, 2022 (the First +Closing ). On April 30, 2024, the Company also entered into an amendment ( Amendment No. 16 to the Second +Notes ) with the holders of the Company s outstanding Unsecured Convertible Promissory Notes, as separately amended on +February 14, 2023, March 10, 2023, March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023, July 7, 2023, July 31, +2023, August 30, 2023, September 30, 2023, November 8, 2023, November 15, 2023, January 5, 2024 and March 15, 2024 (as amended, +the Second Notes ), issued in connection with a private placement financing the Company completed on January 18, +2023 (the Second Closing ). On April 30, 2024, the Company also entered into an amendment ( Amendment +No. 11 to the Third Notes ) with the holders of the Company s outstanding Unsecured Convertible Promissory Notes, +as separately amended on June 15, 2023, July 1, 2023, July 7, 2023, July 31, 2023, August 30, 2023, September 30, 2023, November 8, +2023, November 15, 2023, January 5, 2024 and March 15, 2024 (as amended, the Third Notes ), issued in connection +with a private placement financing the Company completed on May 15, 2023 (the Third Closing ). On April 30, 2024, +the Company also entered into an amendment ( Amendment No. 2 to the Fourth Notes and, together with Amendment No. +16 to the First Notes, Amendment No. 16 to the Second Notes and Amendment No. 11 to the Third Notes, the Amendments to the +2022 Notes ) with the holders of the Company s outstanding Unsecured Convertible Promissory Notes, as separately amended +on March 15, 2024 (the Fourth Notes and, together with the First Notes, the Second Notes and the Third Notes, the + 2022 Notes ), issued in connection with a private placement financing the Company completed on March 12, 2024 (the + Fourth Closing ). + + + +Under +the Amendments to the 2022 Notes, the following amendments to the 2022 Notes will be simultaneously effective upon the closing of the +Uplist Transaction. 95% of the then outstanding principal amount of the 2022 Notes shall automatically convert (the Automatic +Conversion ) into shares of Common Stock (the Automatic Conversion Shares ), with the conversion +price for purposes of such Automatic Conversion being $4.00. Upon the Automatic Conversion and to the extent that the beneficial ownership +of a holder of 2022 Notes (a Holder and, all holders of 2022 Notes together, the Holders ) would +increase over the applicable Ownership Limitation, the Holder will receive pre-funded warrants (the 2022 Note Conversion Pre-Funded +Warrants , and the shares issuable upon exercise thereof, the 2022 Note Conversion Pre-Funded Warrant Shares ) +in lieu of shares of Common Stock otherwise issuable to the Holder in connection with the Automatic Conversion, which 2022 Note Conversion +Pre-Funded Warrants shall have an exercise price of $0.001 per share, may be exercised on a cashless basis, shall be exercisable immediately +upon issuance and shall contain a customary beneficial ownership limitation provision. + + + +In +addition, upon the Automatic Conversion, the Holder shall receive a warrant (the Uplist Conversion Warrant , and +the shares issuable upon exercise thereof, the Uplist Conversion Warrant Shares ) to purchase a number of shares +of Common Stock equal to 10 times the dollar amount under the 2022 Notes that was converted in the Automatic Conversion. The Uplist +Conversion Warrant shall have an exercise price per share of $4.00 and shall otherwise be identical to the PIPE Investor Warrants. The +Company also agreed in the Amendments to the 2022 Notes to file no later than sixty (60) days after the closing of this offering a registration +statement on Form S-4, or other appropriate form, registering the offer by the Company to exchange, on a one-for-one basis, all outstanding +PIPE Investor Warrants, 2022 Warrants, Uplist Conversion Warrants and Exchange Investor Warrants for newly issued warrants identical +to the Investor Warrants being sold in this offering, which warrants are expected to be listed on Cboe under the symbol ARTHW +(the Uplist Conversion Warrants Exchange Offer Obligation ). + + + +The +Amendments to the 2022 Notes also prohibit the Company from engaging in any capital raising transactions, subject to certain exceptions, +until the earlier of (A) July 7, 2027, and (B) the first date on which all Holders hold less than 20% of the original amount of the Uplist +Conversion Warrants received by each Holder, respectively, in connection with the Automatic Conversion. + + + + -15- + + Table of Contents + + + + + +Accordingly, +it is currently anticipated that at the closing of this offering: (i) an aggregate of (A) 1,454,034 shares of Common Stock and +(B) 2022 Note Conversion Pre-Funded Warrants with an exercise price of $0.001 to purchase an aggregate of 184,296 shares of Common Stock +will be issued upon the Automatic Conversion of an aggregate of $6,553,310 of principal amount under the 2022 Notes, representing +95% of the $6,898,221 in principal amount currently outstanding under the 2022 Notes, based on the assumed exercise price +of the Investor Warrants being offered as part of the Units and Pre-Funded Units in this offering of $4.00 per share; and (ii) the Holders +will be issued Uplist Conversion Warrants to purchase an aggregate of 65,533,100 shares of Common Stock, representing 10 +multiplied by the $6,553,310 of principal amount converted in the Automatic Conversion. The expected allocation between +shares of Common Stock and 2022 Note Conversion Pre-Funded Warrants in the previous sentence is only an initial estimate based on indications +of interest and is subject to change based on the ultimate ownership of the Holders after the Uplist PIPE and this offering. The maximum +number of shares of Common Stock and 2022 Note Conversion Pre-Funded Warrants that may be issued, individually and in the aggregate is +1,638,330. + + + +Additionally, +on July 7, 2023, the Company entered into an amendment (the Omnibus Amendment to Notes and Warrants ) with the Holders +of the 2022 Notes, amending the 2022 Notes and related warrants issued at each of the First Closing, Second Closing, and Third Closing +(the First Warrants , Second Warrants and Third Warrants , respectively, +and collectively with the related warrants issued at the Fourth Closing, the 2022 Warrants ). Under the Omnibus +Amendment to Notes and Warrants, the 2022 Notes and 2022 Warrants were amended to modify the Most Favored Nation provisions therein to +exclude the Bridge Offering. + + + +2022 +Notes + + + +The +2022 Notes bear interest on the unpaid principal balance at a rate equal to ten percent (10%) (computed on the basis of the actual number +of days elapsed in a 360-day year) per annum accruing from the issuance date until the 2022 Notes become due and payable at maturity +or upon their conversion, acceleration or by prepayment, and may become due and payable upon the occurrence of an event of default under +the 2022 Notes. The 2022 Notes mature June 30, 2024. Any amount of principal or interest on the 2022 Notes which is not paid when +due shall bear interest at the rate of the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum amount allowed by law from +the due date thereof until payment in full. As of June 19, 2024, the outstanding unpaid principal balance including +all accrued interest under the 2022 Notes totaled $8,015,282. + + + +The +2022 Notes are convertible into shares of Common Stock at the option of each Holder from the date of issuance at $73.12 (which will automatically +change to $4.00 as of the closing of the Uplist PIPE through the operation of the Most Favored Nation Provision (as defined below)), +subject to adjustment, through the later of (i) June 30, 2024 (the Maturity Date ) or (ii) the date of payment +of the Default Amount (as defined in the 2022 Notes). + + + +The +2022 Notes contain events of default, which include, among other things, (i) the Company s failure to pay when due any principal +or interest payment under the 2022 Notes; (ii) our failure to complete an Uplist Transaction by June 30, 2024 and (iii) our default +on the Uplist Conversion Warrant Exchange Offer Obligation. + + + +The +2022 Warrants (i) have an exercise price of $79.52 (which will automatically change to $4.00 as of the closing of the Uplist PIPE through +the operation of the Most Favored Nation Provision) per share; (ii) have a term of exercise equal to 5 years after their issuance date; +(iii) became exercisable immediately after their issuance; and (iv) have a provision preventing the exercisability of such 2022 Warrants +if, as a result of the exercise of the 2022 Warrants, the holder, together with its affiliates and any other persons whose beneficial +ownership of our Common Stock would be aggregated with the holder s, would be deemed to beneficially own more than the Ownership +Limitation. Pursuant to the Most Favored Nation Provision contained in the 2022 Notes and the 2022 Warrants, as +long as the 2022 Notes and 2022 Warrants remaining outstanding, upon the issuance of any security in connection with any potential future +financing activity on terms more favorable than the existing terms, the Company has an obligation to notify the holders of the 2022 Notes +and 2022 Warrants of such more favorable terms, and to use best efforts to effect such terms in the 2022 Notes and 2022 Warrants. + + + +As +discussed above, it is currently anticipated that 95% of the $6,898,221 unpaid principal balance currently outstanding +under the 2022 Notes will convert into (A) 1,454,034 shares of Common Stock and (B) 2022 Note Conversion Pre-Funded Warrants with +an exercise price of $0.001 to purchase an aggregate of 184,296 shares of Common Stock in connection with the Automatic Conversion, +such allocation between shares and 2022 Note Conversion Pre-Funded Warrants being subject to change, as described above. + + + + -16- + + Table of Contents + + + + + +Under +the Third Amended and Restated Registration Rights Agreement, dated as of March 12, 2024, as amended, the Company is required +to file a registration statement registering the securities issued in the Second Closing, Third Closing and Fourth Closing, +including the applicable 2022 Notes and 2022 Warrants, no later than 45 days following the closing of the Uplist Transaction. The +Resale Prospectus currently covers the resale of the shares of Common Stock issuable upon the Automatic Conversion, the shares of Common +Stock issuable upon conversion of the 2022 Notes at their regular conversion price and the shares of Common Stock issuable upon exercise +of the 2022 Warrants. + + + +Series +1 and 2 Convertible Notes + + + +On +June 4, 2020 and November 6, 2020, the Company issued unsecured 10% Series 1 Convertible Notes ( Series 1 Notes ) +and Series 2 Convertible Notes, as amended ( Series 2 Notes , and collectively with the Series 1 Notes, the Series +Convertible Notes ). The maturity dates of the Series 1 Notes and Series 2 Notes are June 30, 2023 and November 30, 2023, respectively. +On July 12, 2023, the Company secured countersigned notices of conversion from all remaining holders of the Series 1 Convertible Notes +and provided instructions to its transfer agent to issue a total of 7,489 shares of Common Stock in full satisfaction of all previously +outstanding Series 1 Convertible Notes, which had an aggregate of $718,918 of principal and interest outstanding at the time of conversion. + + + +On +November 30, 2023, the Series 2 Notes of $450,000 principal and outstanding accrued interest of $137,946 were converted into 6,615 shares +of Common Stock. + + + +Bylaw +Amendments + + + +On +July 18, 2023, the Board approved an amendment to the Amended and Restated Bylaws of the Company (the Bylaw Amendment ), +effective immediately. The Bylaw Amendment amended the Amended and Restated Bylaws (i) to allow stockholders of the Company to take action +by written consent without a meeting with not less than the minimum number of votes that would be necessary to take such action if the +matter was presented at a meeting of stockholders at which all shares entitled to vote thereon were present and voted, subject to certain +limitations and (ii) to provide that in in the absence of a quorum, the chairman of a stockholder meeting can adjourn the meeting, respectively. + + + +Equity +Incentive Plan + + + +Effective +August 13, 2023, the Board adopted and approved the Amended and Restated 2023 Equity Incentive Plan (the 2023 Plan ) +and reserved 56,896 shares of Common Stock for issuance thereunder to employees, officers, directors and consultants of the Company. +The stockholders of the Company approved the plan on August 22, 2023. The Plan has a term of 6 years and is intended to replace the Company s +2013 Stock Incentive Plan, which expired on June 18, 2023. + + + +The +general purpose of the 2023 Plan is to provide a means whereby eligible employees, officers, non-employee directors, consultants, advisors, +and other individual service providers may develop a sense of proprietorship and personal involvement in the Company s development +and financial success, and to encourage them to devote their best efforts to the Company, thereby advancing the Company s interests +and the interests of stockholders of the Company. The 2023 Plan permits the Company to grant a variety of forms of awards, including +stock options, stock appreciation rights, restricted stock, restricted stock units, and dividend equivalent rights, to allow the Company +to adapt its incentive compensation program to meet its needs. + + + +In +addition, the number of shares of Common Stock available for issuance under the 2023 Plan will automatically increase on October 1st +of each fiscal year of the Company commencing with October 1, 2023, and on each October 1 thereafter until the 6th anniversary +of the date of the 2023 Plan s initial adoption by the Board, in an amount equal to five percent (5%) of the total number of shares +of Common Stock outstanding on September 30th of the preceding fiscal year. Furthermore, effective at the close of business +on the date of the closing (the Uplist Date ) of the public offering in connection with which the Common Stock becomes +tradeable on a national exchange and on the first day of each fiscal quarter of the Company thereafter until the earlier of (i) the five-year +anniversary of the Uplist Date and (ii) October 31, 2028, the number of shares of Common Stock available for issuance under the 2023 +Plan shall automatically increase by an amount equal to fifteen percent (15%) of the incremental number of shares of Common Stock, if +any, issued by the Company (x) with respect to the Bridge Offering, including without limitation Pre-Funded Warrant +Shares and Common Warrant Shares, the Uplist Transaction and/or a Qualifying Offering +(as such terms are defined in the 2023 Plan), (y) with respect to the Uplist Date, since the date on which the stockholders ratified +the 2023 Plan, and (z) with respect to each fiscal quarter thereafter, during the previous fiscal quarter (excluding in each case shares +of Common Stock issued pursuant to awards under the 2023 Plan); provided, however, that shares of Common Stock issued in connection with +any such Qualifying Offering shall not be taken into account except to the extent, if any, that such shares are issued with respect to +shares of Common Stock issued in connection with the Bridge Offering and/or the Uplist Transaction. + + + + -17- + + Table of Contents + + + + + +The +Offering + + + + + Units + being offered + + 969,697 + Units, based on the sale of the Units and Pre-Funded + Units at an assumed public offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit, which represents the minimum bid price + of $4.00 per share under the initial listing requirements of Cboe in Cboe Listing Rule 14.9(b) plus a value of $0.125 attributed + to the accompanying Investor Warrant. Each Unit will consist of one share of Common Stock and one Investor Warrant to purchase one + share of Common Stock. The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The + shares of Common Stock can be purchased in this offering only with the accompanying Investor Warrants as part of Units (other than + pursuant to the underwriters option to purchase additional shares of Common Stock and/or Investor Warrants), but the components + of the Units will be immediately separable and will be issued separately in this offering. + + + + + + + + Pre-Funded + Units being offered + + We + are also offering to each purchaser whose purchases of Units in this offering would otherwise result in the purchaser, together with + its affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding Common Stock immediately following + the consummation of this offering, the opportunity to purchase, if the purchaser so chooses, Pre-Funded Units (each Pre-Funded Unit + consisting of one Pre-Funded Warrant to purchase one share of Common Stock and one Investor Warrant to purchase one share of Common + Stock) in lieu of Units that would otherwise result in the purchaser s beneficial ownership exceeding 4.99% of our outstanding + Common Stock (or at the election of the purchaser, 9.99%). Each Pre-Funded Warrant contained in a Pre-Funded Unit will be exercisable + into one share of Common Stock, exercisable until all of the Pre-Funded Warrants are exercised in full. The purchase price of each + Pre-Funded Unit will equal the price per Unit being sold to the public in this offering minus $0.001, and the exercise price of each + Pre-Funded Warrant included in the Pre-Funded Unit will be $0.001 per share of Common Stock. This offering also relates to the shares + of Common Stock issuable upon exercise of any Pre-Funded Warrants contained in the Pre-Funded Units sold in this offering. For each + Pre-Funded Unit we sell, the number of Units we are offering will be decreased on a one-for-one basis. Because we will issue an Investor + Warrant as part of each Unit or Pre-Funded Unit, the number of Investor Warrants sold in this offering will not change as a result + of a change in the mix of the Units and Pre-Funded Units sold. + + + + + + + + Common + Stock outstanding prior to the offering(1) + + 555,562. + + + + After + giving effect to the closing of the Uplist PIPE, expected to occur immediately prior to the pricing of this offering, and after giving + effect to the issuance of the Automatic Conversion Shares, 2022 Note Conversion Pre-Funded Warrants, 2024 Notes Automatic Conversion Shares,2024 Note Conversion Pre-Funded + Warrants, True-Up Shares and True-Up Pre-Funded Warrants at the closing of this offering, and the assumed exercise in full of + the Bridge Pre-Funded Warrants, PIPE Pre-Funded Warrants, True-Up Pre-Funded Warrants, 2022 Note Conversion Pre-Funded Warrants, + Execution Backstop Pre-Funded Warrants, PIPE Advance Penalty Pre-Funded Warrants and 2024 Note Conversion Pre-Funded Warrants, + if any, (collectively, the Pro Forma Pre-Funded Warrants ), but prior to giving effect to the offering, there + would be an aggregate of 13,039,759 shares of Common Stock outstanding, before giving effect to the issuance of the Units + and Pre-Funded Units in this offering. The exercise of the Pro Forma Pre-Funded Warrants (which have exercise prices of $0.001 or + $0.008 and therefore function as common stock equivalents) assumed in the previous sentence is only for illustrative purposes, and + there is no assurance as to when, if at all, any of such securities will be exercised. + + + + -18- + + Table of Contents + + + + + + + Common + Stock to be outstanding after the offering(1) + + 4,916,849 + shares + (5,062,303 shares if the underwriters exercise their option to purchase additional + shares in full, and assuming, in each case, no sale of any Pre-Funded Units and no exercise + of the Investor Warrants), which takes into account the issuance of an assumed 1,454,034 + shares of Common Stock as a result of the Automatic Conversion (aside from 2022 Note + Conversion Pre-Funded Warrants to be exercisable for an expected 184,296 shares of Common + Stock) under the 2022 Notes, an assumed 43,637 shares of Common Stock as a result of the 2024 Notes Automatic Conversion (aside from 2024 Note +Conversion Pre-Funded Warrants to be exercisable for an expected 538,182 shares of Common Stock) under the 2024 Notes and 1,893,919 True-Up Shares being issued at + the closing of this offering (aside from True-UP Pre-Funded Warrants to be exercisable + for an expected 6,330,422 shares of Common Stock) and assumes no exercise of the PIPE + Pre-Funded Warrants and PIPE Investor Warrants to be issued immediately prior to the pricing + of this offering or the 2022 Note Conversion Pre-Funded Warrants, 2024 Note Conversion + Pre-Funded Warrants, True-Up Pre-Funded Warrants, Uplist Conversion Warrants, 2024 + Note Uplist Conversion Warrants and Exchange Investor Warrants to be issued at the closing + of this offering. + + + + Assuming + the exercise in full of the Pro Forma Pre-Funded Warrants, there would be 14,009,456 shares (14,154,910 shares if the + underwriters exercise their option to purchase additional shares in full) of Common Stock outstanding after this offering. + + + + + + + + Over-allotment + Option + + We + have granted the underwriters an option, exercisable for 45 days after the date of this prospectus, to purchase up to an additional + 145,454 shares of Common Stock and/or Investor Warrants to purchase up to an additional 145,454 shares of Common Stock + (equal to 15% of the shares of Common Stock (and Pre-Funded Warrants, if any) and Investor Warrants sold in this offering), in any + combination, at the public offering price per share of Common Stock and per Investor Warrant, respectively, less the underwriting + discounts payable by us, solely to cover over-allotments, if any. + + + + + + + + Description + of Investor + + Warrants + + + Each + Unit and each Pre-Funded Unit includes an Investor Warrant to purchase one share of Common + Stock. The Investor Warrants will have an assumed exercise price per share of Common Stock + of $4.00 (which equals the minimum bid price per share under the initial listing requirements + of Cboe in Cboe Listing Rule 14.9(b)), will be immediately separable from the Common + Stock or Pre-Funded Warrant, as the case may be, will be exercisable on the date of issuance + and will expire five years from the date of issuance. Each Investor Warrant is exercisable + for one share of Common Stock, subject to adjustment in the event of stock dividends, stock + splits, stock combinations, reclassifications, reorganizations or similar events affecting + our Common Stock. A holder may not exercise any portion of an Investor Warrant to the extent + that the holder, together with its affiliates and any other person or entity acting as a + group, would own more than 4.99% of our outstanding shares of Common Stock after exercise, + as such ownership percentage is determined in accordance with the terms of the Investor Warrants, + except that upon notice from the holder to us, the holder may waive such limitation up to + a percentage not in excess of 9.99% of our outstanding shares of Common Stock. + + + + This + prospectus also registers up to 969,697 shares of Common Stock issuable upon exercise of the Investor Warrants. To better + understand the terms of the Investor Warrants, you should carefully read the Description of Securities + Description of Investor Warrants to be Issued in this Offering section of this prospectus. You should also read the + form of Investor Warrant, which is filed as an exhibit to the registration statement that includes this prospectus. + + + + + -19- + + Table of Contents + + + + + + + Use + of proceeds + + We + estimate that we will receive net proceeds from this offering of approximately $2.9 + million (assuming no sale of any Pre-Funded Warrants) or approximately $3.5 million + if the underwriters exercise their over-allotment option in full, based on the sale of the + Units and Pre-Funded Units at an assumed public offering price of $4.125 per Unit and $4.124 + per Pre-Funded Unit, which represents the minimum bid price of $4.00 per share under the + initial listing requirements of Cboe in Cboe Listing Rule 14.9(b) plus a value of + $0.125 attributed to the accompanying Investor Warrant and after deducting the underwriting + discounts and commissions and estimating offering expenses payable by us. + + + + We + intend to use the net proceeds we receive from this offering for product marketing and for general working capital purposes. See + Use of Proceeds beginning on page 47 of this prospectus for more information. + + + + + + + + Market + for Common Stock + + Our + Common Stock is traded on the OTCQB under the symbol ARTH. On June 18, 2024, the closing price of + our Common Stock was $8.72 (post-Reverse Split) per share. The public offering price per Unit and Pre-Funded Unit, + and the exercise price of the Investor Warrants, as applicable, will be determined between us and the underwriters based on market + conditions at the time of pricing, and may be at a discount to the then current market price. Therefore, the recent market price + used throughout this preliminary prospectus may not be indicative of the final offering price. We have applied to list our Common + Stock on Cboe under the symbol ARTH. No assurance can be given that an active trading market will develop for + the Common Stock. We believe that upon the completion of the offering contemplated by this prospectus, we will meet the standards + for listing on Cboe or an Alternate Exchange. We cannot guarantee that we will be successful in listing our Common Stock on Cboe + or an Alternate Exchange; however, we will not complete this offering unless we are so listed. + + + + + + + + Market +for Pre-Funded Warrants + + + There + is no established public trading market for the Pre-Funded Warrants, and we do not expect a market to develop. We do not intend to + apply for listing of the Pre-Funded Warrants on any securities exchange or other nationally recognized trading system. + + + + + + + + Market + for Investor Warrants + + There + is no established public trading market for the Investor Warrants. We have applied to list the Investor Warrants on Cboe under + the symbol ARTHW . No assurance can be given that such listing will be approved or, if successful, that an active trading + market for the Investor Warrants will develop or be sustained. + + + + + + + + Risk + Factors + + See + Risk Factors beginning on page 22 and other information in this prospectus for a discussion of the factors you + should consider before you decide to invest in our securities. + + + + + + + + Lock-ups + + We, + our directors and executive officers will enter into customary lock-up agreements pursuant to which such persons and + entities will agree, for a period of six months after the closing of this offering, not to offer, issue, sell, contract to sell, + encumber, grant any option for the sale of, or otherwise dispose of, any shares of Common Stock or any securities convertible into + or exchangeable for our Common Stock. See Underwriting-Lock-Up Agreements. + + + + + -20- + + Table of Contents + + + + + + + (1) + Based + on 555,562 shares of Common Stock outstanding on June 19, 2024. Excludes, as of such date, (i) options + granted to employees, directors and consultants under our 2013 Stock Incentive Plan (the 2013 Plan ) to purchase + up to an aggregate of 11,034 shares of Common Stock at exercise prices ranging from $32.00 to $1,040.00 per share and with + a weighted average exercise price of $277.94 per share; (ii) 3,717,114 shares of Common Stock issuable upon the exercise + of outstanding warrants, having a weighted average exercise price of $10.05 per share (which includes 2,349,826 Common Warrants + that will automatically be cancelled and exchanged for 7,049,478 Exchange Investor Warrants at the closing of this offering); + (iii) 1,724,557 shares of Common Stock issuable upon regular (non-Automatic) conversion of the 2022 Notes at the conversion + price of $4.00 per share (taking into account the operation of the Most Favored Nation Provision as a result of the Uplist PIPE); + (iv) 982,056 shares of Common Stock to be issuable upon exercise at $0.001 per share of the PIPE Pre-Funded Warrants expected + to be issued immediately prior to the pricing of this offering; (v) 982,056 shares of Common Stock to be issuable upon exercise + at $4.00 per share of the PIPE Investor Warrants expected to be issued immediately prior to the pricing of this offering; (vi) 71,533 + shares of Common Stock to be issuable upon exercise at $5.15625 per share of the PIPE Placement Agent Warrants expected to be + issued immediately prior to the pricing of this offering; (vii) 1,893,919 True-Up Shares expected to be issued at the closing + of this offering; (viii) 6,330,422 shares of Common Stock to be issuable upon exercise at $0.001 of the True-Up Pre-Funded + Warrants expected to be issued at the closing of this offering; (ix) 65,533,100 shares of Common Stock to be issuable upon + exercise at $4.00 per share of the Uplist Conversion Warrants expected to be issued at the closing of this offering; (x) 7,049,478 + shares of Common Stock to be issuable upon exercise at $4.00 per share of the Exchange Investor Warrants expected to be issued + at the closing of this offering; (xi) 538,182 shares of Common Stock to be issuable upon exercise at $0.001 per share of the 2024 + Note Conversion Pre-Funded Warrants expected to be issued at the closing of this offering; (xii) 581,819 shares of Common Stock to + be issuable upon exercise at $4.00 per share of the 2024 Note Uplist Conversion Warrants expected to be issued at the closing of + this offering; (xiii) 56,896 shares of Common Stock reserved for future issuance under the 2023 Plan; and (xiv) up to + 969,697 shares (1,115,151 shares if the underwriters option to purchase additional Investor Warrants is exercised + in full) of Common Stock issuable upon exercise at $4.00 per share of the Investor Warrants to be issued in this offering. + + + + +Except +as indicated otherwise, the discussion above assumes no sale of any Pre-Funded Units, no issuance of any 2022 Note Conversion Pre-Funded +Warrants and no exercise of the underwriters option to purchase up to 145,454 additional shares of Common Stock and/or +Investor Warrants to purchase up to 145,454 additional shares of Common Stock. + + + + -21- + + Table of Contents + + + + + +RISK +FACTORS + + + +Investment +in our securities involves a high degree of risk. You should carefully consider the risks that are summarized below and discussed in +greater detail in the following pages, together with the other information contained in this prospectus, including our financial statements +and the related notes appearing at the end of this prospectus, before making an investment decision. If any of the following risks and +uncertainties actually occur, our business, financial condition, and results of operations could be negatively impacted, and you could +lose all or part of your investment. + + + +Risk +Factor Summary + + + + + + There + is substantial doubt about our ability to continue as a going concern, and we do not believe that our current cash on hand as + of June 19, 2024 is sufficient to meet our anticipated cash requirements through the end of June 2024. + + + + + + + + We + have incurred significant losses since inception, we expect to continue to incur losses for the foreseeable future, and we may not + generate sufficient revenue to achieve or maintain profitability. + + + + + + + + Even + if this offering is successful, 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. + + + + + + + + Our + obligations under the First Notes and 2024 Notes are secured by security interests in substantially all of our assets and + our failure to comply with the terms and covenants of the First Notes and 2024 Notes could result in our loss of substantially + all of our assets. + + + + + + + + The + holders of our 2022 Notes and 2024 Notes have certain additional rights upon an event of default under such notes, which could + harm our business, financial condition, and results of operations and could require us to reduce or cease our operations. + + + + + + + + If + we issue additional shares in the future, including issuances of shares upon exercise of our outstanding warrants or conversion of + our outstanding convertible notes, our existing stockholders will be significantly diluted and our stock price may be negatively + affected. + + + + + + + + If + we do not successfully commercialize our products, we will continue to incur losses and will never be profitable. + + + + + + + + Our + flagship product is novel without any history of use in the clinical fields in which it is marketed requiring education and training + regarding its application to gain and maintain market acceptance by patients, physicians, healthcare payors or others in the medical + community. + + + + + + + + Applications + for regulatory marketing authorization for commercialization of our additional 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 + additional 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. + + + + + -22- + + Table of Contents + + + + + + + + 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 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 flagship product or additional 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 additional 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. + + + + + + + + The + flagship product for which we obtained required regulatory marketing authorization is 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 flagship product and our additional 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 whom 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. Although we have applied to list our Common Stock on Cboe there is no assurance that our application + will be approved. + + + + + + + + Even + if this offering is successful and our application to list our Common Stock and Investor Warrants on Cboe or an Alternate + Exchange is approved, no assurance can be given that an active trading market for our Common Stock or Investor Warrants will develop + or be maintained. + + + + +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. + + + + -23- + + Table of Contents + + + + + +Risks +Related to our Business, Financial Position and Capital Requirements + + + +There +is substantial doubt about our ability to continue as a going concern. + + + +We +have only recently commenced commercial sales of our first product, AC5 Advanced Wound System and we have incurred substantial net +losses as a result. For the year ended September 30, 2023, the Company recorded a net loss of $6,982,836 and used cash in operations +of $3,374,216. For the six months ended March 31, 2024, the Company recorded a net loss of $4,150,791 and used cash in operations of +$1,562,764. These factors raise substantial doubt about the Company s ability to continue as a going concern within one year of +the date that the financial statements are issued. In addition, the Company s independent registered public accounting firm, +in their report on the Company s September 30, 2023 audited financial statements, raised substantial doubt about the Company s +ability to continue as a going concern. The financial statements included herein do not include any adjustments that might be necessary +if the Company is unable to continue as a going concern. + + + +We +do not believe that our current cash on hand as of June 19, 2024 is sufficient to meet our anticipated cash requirements +through the end of June 2024. + + + +During +the first half of fiscal 2024 and during fiscal 2023 and 2022, 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 US and the EU. Even with the additional funds received +from these financings, 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 +increase 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 only recently commenced commercial sales of our first product, AC5Advanced Wound System and we have incurred substantial net +losses as a result. 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 primarily 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: + + + + + + commercialize + AC5 Advanced Wound System; + + + + + + + + develop + our principal product candidates and additional product candidates, and the underlying technology, including advancing applications + and conducting biocompatibility and other preclinical studies and clinical studies; + + + + + + + + raise + capital needed to fund our operations; + + + + + + + + enhance + investor relations and corporate communications capabilities; + + + + + + + + conduct + clinical trials on products and product candidates; + + + + + + + + attempt + to obtain regulatory marketing authorizations for product candidates; + + + + + + + + build + relationships with additional contract manufacturing partners, and invest in product and process development through such partners; + + + + + + + + maintain, + expand and protect our intellectual property portfolio; + + + + + + + + advance + additional product candidates and technologies through our research and development pipeline; + + + + + + + + seek + to commercialize selected product candidates, which may require regulatory marketing authorization; and + + + + + + + + hire + additional regulatory, clinical, quality control, scientific, financial, and management, consultants and advisors. + + + + + -24- + + Table of Contents + + + + + +To +become and remain profitable, we must successfully commercialize AC5 Advanced Wound System and succeed in developing and eventually commercializing +other 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 sufficient +operating revenues to 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 sufficient operating revenues to 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 price of our Common Stock could cause our stockholders to lose all or a part of their +investment in the Company. + + + +Even +if this offering is successful, 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, +we do not believe that our current cash on hand as of June 19, 2024 is sufficient to meet our anticipated cash requirements +through the end of June 2024. We may need to raise additional capital before then. + + + +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: + + + + + + the + success of our marketing efforts; + + + + + + + + the + success of our additional commercialization efforts; + + + + + + + + the + scope, progress and results of our research and development collaborations; + + + + + + + + the + extent of potential direct or indirect grant funding for our research and development activities; + + + + + + + + the + scope, progress, results, costs, timing and outcomes of any regulatory process and clinical trials conducted for any of our product + candidates; + + + + + + + + the + timing of entering into, and the terms of, any collaboration agreements with third parties relating to any of our product candidates; + + + + + + + + the + timing of and the costs involved in obtaining regulatory marketing authorization for our product candidates; + + + + + + + + the + costs of operating, expanding and enhancing our operations to support our clinical activities and, if our product candidates are + approved, commercialization activities; + + + + + + + + the + costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities; + + + + + + + + the + costs associated with maintaining and expanding our product pipeline; + + + + + + + + the + costs associated with expanding our geographic focus; + + + + + + + + operating + revenues, if any, received from sales of our product candidates, if any are approved by the FDA or other applicable regulatory agencies; + + + + + + + + the + cost associated with being a public company, including obligations to regulatory agencies, and increased investor relations and corporate + communications expenses; and + + + + + + + + the + costs of additional general and administrative personnel, including accounting and finance, legal and human resources employees. + + + + + -25- + + Table of Contents + + + + + +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 Bridge SPA, PIPE SPA and 2022 Notes SPA, in each case as described +in greater detail in the risk factor entitled The terms of the Bridge Offering, Uplist PIPE and 2022 Notes 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 Bridge Offering, Uplist PIPE and 2022 Notes Financing could impose additional challenges on our ability to raise funding +in the future. + + + +The +Bridge SPA contains certain restrictions on the Company s ability to conduct subsequent sales of its equity securities and certain +business activities. In particular, until July 7, 2024, the Company will be prohibited from effecting or entering into agreements to +effect any issuance by the Company or its subsidiary of Common Stock or Common Stock equivalents (or a combination of units thereof) +involving a Variable Rate Transaction (as defined below) including, but not limited to, an equity line of credit or At-the-Market +financing facility. The Uplist PIPE has the effect of extending that prohibition to November 8, 2024 with a similar provision. + + + +The +2022 Notes SPA contains certain restrictions on our ability to conduct subsequent sales of our equity securities and certain business +activities. In particular, until the 2022 Notes are paid in full and/or converted in full and the 2022 Warrants are exercised in full, +we are prohibited from (i) changing the nature of business, (ii) selling, divesting, acquiring, or changing the structure of any material +assets other than in the ordinary course of business; or (iii) negotiating or entering into certain variable rate debt transactions; +in each instance without each applicable 2022 Note holder s prior written consent, which shall not be unreasonably withheld. In +addition, the 2022 Notes, as amended, prohibit the Company from engaging in any capital raising transactions, subject to certain exceptions, +until the earlier of (A) July 7, 2027, and (B) the first date on which all Holders hold less than 20% of the original amount of the Uplist +Conversion Warrants received by each Holder, respectively, in connection with the Automatic Conversion. + + + +Our +obligations under the First Notes and 2024 Notes are secured by security interests in substantially all of our assets and our +failure to comply with the terms and covenants of the First Notes and 2024 Notes could result in our loss of substantially all +of our assets. + + + +Our +obligations under the First Notes and 2024 Notes and the related transaction documents are secured by a security interest in substantially +all of our assets. As a result, if we default on our obligations under such First Notes or 2024 Notes, the First Note or 2024 +Notes holders could foreclose on the security interests and liquidate some or all of our assets, which would harm our business, financial +condition and results of operations and could require us to reduce or cease operations. + + + + -26- + + Table of Contents + + + + + +In +connection with the First Closing and 2024 Notes closing, the respective note holders were granted a security interest +in substantially all of our assets pursuant to the terms of the related security agreements. If we fail to make payments on the +First Notes or 2024 Notes when due or otherwise comply with the covenants contained in the First Notes or 2024 Notes, the +respective note holders could declare us in default, in which event such holders would have the right to exercise their rights +as a secured creditor with respect to our assets that secure the indebtedness, which would force us to suspend operations. + + + +In +addition, the 2022 Notes and 2024 Notes (collectively, the Convertible Notes ) contain customary events of +default, which include, among other things, (i) our failure to pay when due any principal or interest payment under the Convertible +Notes; (ii) our insolvency; (iii) delisting of our Common Stock; (iv) our breach of any material covenant or other material term +or condition under the Convertible Notes ; and (v) our breach of any representations or warranties under the Convertible Notes +which cannot be cured within five (5) days. Further, events of default under the Convertible Notes also include (i) the unavailability +of Rule 144 at certain times; (ii) our failure to deliver the shares of Common Stock to the respective notes holder upon exercise +by such holder of its conversion rights under the Convertible Notes; (iii) our loss of the bid price for our Common +Stock and/or a market and such loss is not cured during the specified cure periods; and (iv) our failure to complete an Uplist Transaction +by June 30, 2024. + + + +The +Convertible Note holders have certain additional rights upon an event of default under such notes, which could harm our business, +financial condition, and results of operations and could require us to reduce or cease our operations. + + + +Under +the Convertible Notes, the holders have certain rights upon an event of default. Such rights include that, upon an event of default, +the Convertible Notes will become immediately due and payable and we will be obligated to pay to each such note holder an amount +equal to (A) 125% (the Default Premium ) multiplied by the sum of (i) the outstanding principal amount of +the 2022 Notes plus, (ii) any accrued and unpaid interest on the unpaid principal amount of the 2022 Notes to the date +of payment, plus (iii) interest, if any, on the amounts referred to in subsection (i) and/or (ii), at a rate of the lesser of (y) +eighteen percent (18%) per annum, or (z) the maximum amount allowed by law from the due date thereof until the same is paid (the Default +Interest Rate ) (the then outstanding principal of such Convertible Note to the date of payment, plus the amounts set forth in +subsections (i)-(iii) hereof are collectively, the Default Amount ), and (B) any other amounts owed to the Holder +under the respective purchase agreement; provided that, upon any subsequent event of default not in connection with +the first event of default, such holder shall be entitled to an additional 5% to the Default Premium for each subsequent event of default. +At the election of each 2022 Note holder, the Default Amount may be paid in cash or shares of Common Stock equal to the Default Amount +divided by $73.12 (which will automatically change to $4.00 as of the closing of the Uplist PIPE through the operation of the Most Favored +Nation Provision) at the time of payment. + + + +In +addition, the 2022 Notes are subject to prepayment penalties, subject to adjustment as a result of certain time-based prepayment premiums +set forth in such notes. The Convertible Notes bear interest on the unpaid principal balance at a rate equal to ten percent (10%) +(computed on the basis of the actual number of days elapsed in a 360-day year) per annum until June 30, 2024 or upon their conversion, +acceleration or by prepayment. Any amount of principal or interest on the Convertible Notes which is not paid when due will bear +interest at the rate of the lesser of (i) eighteen percent (18%) per annum or (ii) the Default Interest Rate. + + + +We +may not have sufficient funds to pay the Default Amount and, as described above, this could trigger rights under the security interest +granted to the holders and result in the foreclosure of their security interests and liquidation of some or all of our assets. The exercise +of any of these rights upon an event of default could substantially harm our financial condition, substantially dilute our other stockholders +and force us to reduce or cease operations and cause our stockholders to lose all or a part of their investment in the Company. + + + +General +economic factors may adversely affect our financial performance. + + + +General +economic conditions may adversely affect our financial performance. In the United States, changes in interest rates, changes in fuel +and other energy costs, weakness in the housing market, inflation or deflation or expectations of either inflation or deflation, higher +levels of unemployment, decreases in discretionary consumer spending or consumer demand, unavailability or limitations of consumer credit, +higher consumer debt levels or efforts by consumers to reduce debt levels, higher tax rates and other changes in tax laws, overall economic +slowdown, changes in consumer desires affecting demand for the products we sell and other economic factors could adversely affect consumer +demand for the products we sell, change the mix of products we sell to a mix with a lower average gross margin and result in slower inventory +turnover. Higher interest rates, transportation costs, inflation, higher costs of labor, insurance and healthcare, foreign exchange rates +fluctuations, higher tax rates and other changes in tax laws, changes in other laws and regulations and other economic factors in the +United States or internationally can increase our cost of sales and operating, selling, general and administrative expenses, decrease +sales, and otherwise adversely affect our operations and operating results. These factors affect not only our operations, but also the +operations of suppliers from whom we purchase goods and services, a condition that can result in an increase in the cost to us of the +goods we sell to customers. + + + + -27- + + Table of Contents + + + + + +Our +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 to a combination commercial stage and development stage company. 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, and we have only recently begun to generate revenue from commercial sales of our first product, AC5 +Advanced Wound System, and there can be no assurance that we will be successful in generating increased revenue. + + + +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. + + + +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. + + + + -28- + + Table of Contents + + + + + +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. + + + +Unfavorable +global political or economic conditions could adversely affect our business, financial condition or results of operations. + + + +Our +results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The +global credit and financial markets have experienced severe volatility and disruptions in the past several years. A severe or prolonged +economic downturn, such as the global financial crisis, could result in a variety of risks to our business, including our ability to +raise additional capital when needed on acceptable terms, if at all. There can be no assurance that further deterioration in credit and +financial markets and confidence in economic conditions will not occur. A weak or declining economy could also strain our suppliers, +possibly resulting in supply disruption, or cause our customers to delay making payments for our services. + + + +Geopolitical +conflicts could potentially affect our sales and disrupt our operations and could have a material adverse impact on the Company. + + + +Geopolitical +conflicts, including the recent war in Ukraine, could adversely impact our operations or those of our customers. The extent to which +these events impact our operations and those of our customers will depend on future developments, which are highly uncertain and cannot +be predicted with confidence. If the uncertainty surrounding geopolitical conflicts and in the global marketplace continues, or if we, +or any of our customers encounter any disruptions to our or their respective operations or facilities, then we or they may be prevented +or delayed from effectively operating our or their business, respectively, and the marketing and sale of our products and our financial +results could be adversely affected. + + + +Russia s invasion and military attacks on Ukraine have triggered +significant sanctions from North American and European leaders. These events are currently escalating and creating increasingly volatile +global economic conditions. Related sanctions, export controls or other actions have been or may in the future be initiated by nations +including the United States, the European Union or Russia (e.g., potential cyberattacks, disruption of energy flows, etc.), which could +adversely affect our business and/or our supply chain and other third parties with whom we conduct business. Furthermore, the current +military conflict between Russia and Ukraine could disrupt or otherwise adversely impact our operations and those of third parties upon +which we rely. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate +and financial market conditions could adversely impact our business. + + + +Risks +Related to the Development and Commercialization of our Product Candidates + + + +The +commercial success of AC5 Advanced Wound System will depend upon the degree of its market acceptance by patients, physicians, healthcare +payors and others in the medical community. If AC5 Advanced Wound System does not achieve an adequate level of market acceptance, we +may not generate sufficient revenues to achieve or maintain profitability. + + + +AC5 +Advanced Wound System is a novel use in the clinical fields in which it is marketed and may not gain or maintain market acceptance by +patients, physicians, healthcare payors or others in the medical community. Additionally, we believe that we will need to educate physicians +and other healthcare providers about AC5 Advanced Wound System in order to for these providers to administer AC5 Advanced Wound System. +If we are unsuccessful in educating these practitioners about AC5 Advanced Wound System, we do not expect to achieve an appropriate level +of market acceptance for AC5 Advanced Wound System. We could incur substantial and unanticipated additional expense in an effort to increase +market acceptance, which would increase the cost of commercializing AC5 Advanced Wound System and could limit its commercial success +and result in lower-than-expected revenues. We believe the degree of market acceptance of AC5 Advanced Wound System will depend on a +number of factors, including: + + + + + + its + efficacy and potential advantages over other treatments; + + + + + + + + the + extent to which physicians are successful in treating patients with other products or treatments; + + + + + + + + the + extent to which physicians and patients experience similar or improved clinical results to that reported on the approved product + labeling; + + + + + + + + market + acceptance of the cost at which we sell AC5 Advanced Wound System; + + + + + + + + the + timing of the release of competitive products or treatments; + + + + + + + + our + marketing and sales resources, the quantity of our supplies of AC5 Advanced Wound System and our ability to establish a distribution + infrastructure for AC5 Advanced Wound System; and + + + + + + + + whether + third-party and government payors cover or reimburse for AC5 Advanced Wound System, and if so, to what extent and in what amount. + + + + +If +market acceptance of AC5 Advanced Wound System is adversely affected by any of these or other factors, then sales of AC5 Advanced Wound +System may be reduced and our business will be materially harmed. + + + +We +are seeking reimbursement arrangements with privately managed care organizations and government payors and additional third-party payors. +If we are unable to obtain adequate reimbursement from third-party payors, or acceptable prices, for AC5 Advanced Wound System, our revenues +and prospects for profitability will suffer. + + + +Our +future revenues and ability to become profitable will depend heavily upon the availability of adequate reimbursement for the use of AC5 +Advanced Wound System from government-funded and private third-party payors. Reimbursement by a third-party payor depends on a number +of factors, including the third-party payor s determination that use of a product is: + + + + + + a + covered benefit under its health plan; + + + + + + + + safe, + effective and medically necessary; + + + + + + + + appropriate + for the specific patient; + + + + + + + + cost + effective; and + + + + + + + + neither + experimental, nor investigational. + + + + + -29- + + Table of Contents + + + + + +Obtaining +reimbursement approval for AC5 Advanced Wound System from each government-funded and private third-party payor is a time-consuming and +costly process, which in some cases requires us to provide to the payor supporting scientific, clinical and cost-effectiveness data for +AC5 Advanced Wound System s use. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement. + + + +Even +when a third-party payor determines that a product is generally eligible for reimbursement, third-party payors may impose coverage limitations +that preclude payment for some product uses that are approved by the FDA or similar authorities or impose patient co-insurance or co-pay +amounts that may result in lower market acceptance and which would lower our revenues. Some payors establish prior authorization programs +and procedures requiring physicians to document several different parameters, which may impede patient access to therapy. Moreover, eligibility +for coverage does not necessarily mean that AC5 Advanced Wound System will be reimbursed in all cases or at a rate that allows us to +sell AC5 Advanced Wound System at an acceptable price adequate to make a profit or even cover our costs. If we are not able to obtain +coverage and adequate reimbursement promptly from third-party payors for AC5 Advanced Wound System, our ability to generate revenues +and become profitable will be compromised. + + + +The +scope of coverage and payment policies varies among private third-party payors, including indemnity insurers, employer group health insurance +programs and managed care plans. These third-party payors may base their coverage and reimbursement on the coverage and reimbursement +rate paid by carriers for Medicare beneficiaries, which are traditionally at a substantially discounted rate. Furthermore, many such +payors are investigating or implementing methods for reducing healthcare costs, such as the establishment of capitated or prospective +payment systems. Cost containment pressures have led to an increased emphasis on the use of cost-effective products by healthcare providers. +If third-party payors do not provide adequate coverage or reimbursement for AC5 Advanced Wound System, it could have a negative effect +on our revenues, results of operations and liquidity. + + + +Applications +for regulatory marketing authorization for commercialization of our additional product candidates 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, we announced that the Company would initiate the previously disclosed study designed to address FDA comments on Arch s +previous 510(k) notification for our AC5 Topical Gel. The agency provided feedback via the pre-submission process and indicated that +the proposed study design was acceptable to support our future marketing application. On June 15, 2018, we further announced that we +completed enrollment for our human skin sensitization study and that applications of our AC5 Topical Gel were underway for all subjects. + + + +On +October 1, 2018, we announced that the Company submitted a 510(k) notification to the FDA for our AC5 Topical Gel (AC5) and received +acknowledgment 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. + + + + -30- + + Table of Contents + + + + + +The +Chemistry, Manufacturing and Control (CMC) process for our commercial product and product candidates 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 +AC5 Devices 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 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, commercialization efforts, 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 U.S. +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 AC5 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. + + + + -31- + + Table of Contents + + + + + +If +the FDA or similar foreign agencies or intermediaries impose requirements 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 U.S., 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 the 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 U.S., 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: + + + + + + take + a significant period of time; + + + + + + + + require + the expenditure of substantial resources; + + + + + + + + involve + rigorous pre-clinical and clinical testing; + + + + + + + + require + extensive post-marketing surveillance; + + + + + + + + require + changes to products; and + + + + + + + + result + in limitations on the indicated uses of products. + + + + +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 implemented 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. + + + + -32- + + Table of Contents + + + + + +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 flagship product and additional 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 we +have completed our 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: + + + + + + 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; + + + + + + + + sufficient + suitable subjects do not enroll, enroll more slowly than anticipated or remain in our trials; + + + + + + + + we + fail to produce necessary amounts of the product or product candidate; + + + + + + + + subjects + experience an unacceptable rate of efficacy of the product or product candidate; + + + + + + + + subjects + experience an unacceptable rate or severity of adverse side effects, demonstrating a lack of safety of the product or product candidate; + + + + + + + + any + portion of the trial or related studies produces negative or inconclusive results or other adverse events; + + + + + + + + reports + from preclinical or clinical testing on similar technologies and products raise safety and/or efficacy concerns; + + + + + + + + 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; + + + + + + + + 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; + + + + + -33- + + Table of Contents + + + + + + + + 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 cGMP or other applicable requirements; + + + + + + + + third-party + contractors become debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations + of regulatory requirements; + + + + + + + + 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; + + + + + + + + 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; + + + + + + + + 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; + + + + + + + + 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 + + + + + + + + the + FDA or other regulatory authorities impose prohibitive post-marketing restrictions on any of our product candidates that attain marketing + authorization. + + + + +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 additional 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 additional product candidates in any country until regulatory agencies grant marketing approval, clearance or other required +certification(s). 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 additional product candidates 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. + + + + -34- + + Table of Contents + + + + + +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 market 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 market directly, such products prospects will be harmed. + + + +AC5 +Advanced Wound System and any other product for which we obtain required regulatory marketing authorization are subject to post-approval +regulation, and we may be subject to penalties if we fail to comply with such post-approval requirements. + + + +AC5 +Advanced Wound System and any other 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, comparable foreign regulatory +authorities, or their designees, 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. The global regulatory environment is increasingly stringent +and unpredictable, and requirements continue to differ among countries. We expect this global regulatory environment will continue to +evolve, potentially impacting the cost, time, or our ability to receive or maintain clearances or approvals. + + + +Regulations +also impose extensive compliance and monitoring obligations on our business, and regulatory agencies or their designees review our design +and manufacturing processes, labeling, record keeping, and required reports of adverse experiences and other information to identify +potential problems with marketed products. + + + +We +are also subject to periodic inspections for compliance with applicable quality system regulations (e.g., 21 CFR 820, EU MDR) which govern +the methods used in, and the facilities and controls used for, the design, manufacture, packaging, and servicing of finished medical +devices intended for human use. In addition, the FDA and other regulatory bodies, both in and outside the U.S. (including the Federal +Trade Commission, the Office of the Inspector General of the Department of Health and Human Services, the U.S. Department of Justice, +and various state Attorneys General), monitor the promotion and advertising of our products. Any adverse regulatory action, depending +on its magnitude, may limit our ability to effectively market and sell our products, limit our ability to obtain future premarket approvals +or result in a substantial modification to our business practices and operations. +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. + + + + -35- + + Table of Contents + + + + + +Discovery +after approval of previously unknown problems with any approved product candidate or related manufacturing processes, or failure to comply +with regulatory requirements or agreements with regulatory agencies or their designees, may result in consequences to us such +as: + + + + + + restrictions + on the marketing or distribution of a product, including refusals to permit the import or export of the product; + + + + + + + + the + requirement to include warning labels on the products; + + + + + + + + withdrawal + or recall of the products from the market; + + + + + + + + refusal + by the FDA or other regulatory agencies to approve pending applications or supplements to approved applications that we may submit; + + + + + + + + suspension + of any ongoing clinical trials; + + + + + + + + fines, + restitution or disgorgement of profits or revenue; + + + + + + + + supply + chain disruptions due to dependency on key suppliers; + + + + + + + + reputational + damage affecting customer trust and market share; + + + + + + + + litigation + costs and financial judgments from adverse effects or non-compliance; + + + + + + + + impacts + from changes in regulatory standards or approval processes; + + + + + + + + suspension + or withdrawal of marketing approvals or certifications; or + + + + + + + + civil + or criminal penalties. + + + + +If +any of our product candidates achieve 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. + + + + -36- + + Table of Contents + + + + + +Public +perception of ethical and social issues may limit or discourage the type of research we conduct. + + + +Our +clinical trials 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 additional 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 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: + + + + + + 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; + + + + + + + + limitations + on supply availability resulting from capacity and scheduling constraints of the third parties; + + + + + + + + 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; + + + + + + + + the + possible breach of the manufacturing agreement by the third-party; and + + + + + + + + the + possible termination or non-renewal of the agreement by the third-party at a time that is costly or inconvenient for us. + + + + +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. + + + + -37- + + Table of Contents + + + + + +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 products and product candidates. + + + +We +rely on the manufacturers of our product and 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 and +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 and product candidates and establish programs to educate and train surgeons as to +the distinctive characteristics of our product and product candidates, we will not be able to generate revenues on our product candidates. + + + +Acceptance +in the marketplace of AC5 Advanced Wound System and 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. + + + + -38- + + Table of Contents + + + + + +The +use of our product and 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 product liability and clinical trial liability coverage. 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 appealed this decision. MIT granted European patent EP1879606, to which Arch Therapeutics has an exclusive license, was +the subject of a hearing at the European Patent Office Board of Appeal (the Board of Appeal ) on November 26, +2021 as a result of an appeal by MIT to obtain broader claim scope than was upheld by the European Patent Opposition Division in +2016 and appeals by opponents for the upheld scope to be denied to MIT. At the oral proceedings, in light of concerns expressed by +the Board of Appeal, MIT withdrew its appeal and the affected claims, resulting in a formal revocation of the European patent. There +is a pending divisional patent application in which the concerns that the Board of Appeal expressed can be addressed. MIT can file +further divisional patent applications to seek additional claim scope. There is no guarantee that any divisional patent application +will result in a granted patent or that any granted patent will not be opposed and revoked. The Board of Appeal s decision is +in relation to the granted European patent EP1879606 and the various national patents that are derived therefrom, and it has no +legal significance outside of Europe except in Hong Kong. Further, we cannot be certain in 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 March 31, 2024, we either own or license from others a number of U.S. patents, U.S. patent applications, foreign +patents and foreign patent applications. + + + +We +have also 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. + + + + -39- + + Table of Contents + + + + + +The +two portfolios exclusively licensed from MIT include approximately 30 patents and pending applications drawn to self-assembling peptides, +formulations and methods of use thereof and self-assembling peptidomimetics and methods of use thereof in a total of nine jurisdictions. +The portfolios include five issued U.S. patents (US 9,511,113; US 9,084,837; US 10,137,166; US 9,327,010; and US 9,364,513) that expire +between 2026 and 2027 (absent any potential patent term extension), as well as additional patents that have been either allowed, issued +or granted in foreign jurisdictions. + + + +The +three portfolios non-exclusively licensed from MIT include a number of US and foreign applications, including three issued U.S. +patents (US 7,846,891; US 7,713,923; and US 8,901,084) that expire between 2024 and 2026 (absent any potential patent term extension), +as well as additional patents that have been either allowed, issued or granted in foreign jurisdictions. + + + +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 and Investor Warrants + + + +We +have pursued an Uplist Transaction by filing an application to list our Common Stock to trade on Cboe. We may not satisfy the +listing requirements and thereby consummate an Uplist Transaction, including the requirement to have sufficient capital to satisfy our +working capital requirements for at least one year, and the minimum bid price requirement to list on Cboe. In the event we fail +to list our Common Stock on Cboe, such failure may inhibit or preclude our ability to raise additional financing. + + + +We +have committed to pursue an Uplist Transaction. Accordingly, we have filed an application to list our Common Stock on Cboe. To +successfully list our Common Stock, we are required to satisfy certain Cboe listing requirements, including having sufficient +capital to satisfy our working capital requirements for at least one year, achieving a minimum bid price for our Common Stock, among +other requirements relating to stockholder equity, market value of listed securities and number of market makers and stockholders. If +we fail to meet any of those requirements, our application to list our Common Stock on Cboe will be denied. No assurances can +be given that we will satisfy the listing requirements. If our application is not successful, our Board will weigh the available alternatives +to successfully consummate an Uplist Transaction and list our Common Stock on Cboe. However, there can be no assurance that we +will be able to successfully meet such listing requirements. If, for any reason, our listing application is not approved by Cboe +and we are unable to otherwise consummate an Uplist Transaction on another national securities exchange or take action to successfully +list our Common Stock on Cboe, our ability to raise additional capital may be adversely affected. + + + + -40- + + Table of Contents + + + + + +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. Even if this offering is successful and our application to list our Common Stock on Cboe or an Alternate +Exchange is approved, no assurance can be given that an active trading market for our Common Stock will develop or be maintained. + + + +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 +have applied to list our Common Stock on Cboe under the symbol ARTH. No assurance can be given that our application +will be approved or that, if approved, an active trading market for our securities will develop or be maintained. If our Common Stock +is not approved for listing on Cboe or an Alternate Exchange, we will not complete this offering. Even if our Common Stock is +approved for listing on Cboe or an Alternate Exchange, an active trading market for our Common Stock may not develop or be sustained. +In the absence of an active trading market for our Common Stock, the ability of our stockholders to sell their securities could be limited. +As a result, investors must bear the economic risk of holding their shares of our Common Stock for an indefinite period of time. + + + +Under +the 2022 Notes, we are obligated to complete an Uplist Transaction by June 30, 2024 to Cboe or an Alternate Exchange. In +the event we are unable to uplist our Common Stock, we 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. +There is no assurance that our Common Stock will ever be listed on a national securities exchange, that we will be able to comply with +or continue to meet such applicable listing standards. + + + +There +is not now and may not be an active liquid trading market for our Investor Warrants. + + + +There +is no established public trading market for our Investor Warrants. Although we plan to apply to have the Investor Warrants listed on +Cboe or Alternate Exchange under the symbol ARTHW, there is no assurance our application will be approved, or even +if it is approved, that a public trading market will develop or if one develops that it will be maintained. Without a public market, +the liquidity of the Investor Warrants will remain limited. However, if our Investor Warrants are not approved for listing on Cboe +or an Alternate Exchange, we will still complete this offering. + + + +Even +if our planned Reverse Split achieves the requisite increase in the market price of our Common Stock, there can be no assurance that +we will be approved for listing on Cboe or an Alternate Exchange or be able to comply with other continued listing standards of +Cboe or an Alternate Exchange. + + + +On +August 22, 2023, the stockholders approved a reverse stock split between 1-for-1.5 to 1-for-20, and the Company intends to effect the +Reverse Split at a ratio of 1-for-8 prior to the pricing of this offering, and without correspondingly decreasing the number of authorized +shares of Common Stock. Even if our planned Reverse Split increases the market price of our Common Stock sufficiently so that we comply +with the minimum market price requirement, no assurance can be given that we will be able to comply with the other standards that we +are required to meet in order to be approved for listing on Cboe or an Alternate Exchange or maintain a listing of our Common +Stock on such exchange. Our failure to meet these requirements prior to listing will result in the offering not occurring and our failure +to meet these requirements following listing may result in our Common Stock being delisted from Cboe or an Alternate Exchange. + + + +The +Reverse Split may decrease the liquidity of the shares of our Common Stock. + + + +The +liquidity of the shares of our Common Stock may be affected adversely by the Reverse Split given the reduced number of shares that will +be outstanding following the Reverse Split. In addition, the Reverse Split may increase the number of stockholders who own odd lots (less +than 100 shares) of our Common Stock, creating the potential for such stockholders to experience an increase in the cost of selling their +shares and greater difficulty affecting such sales. + + + + -41- + + Table of Contents + + + + + +If +this offering is successful, we will be subject to the continued listing requirements of Cboe or an Alternate Exchange. If we +are unable to comply with such requirements, our Common Stock and Investor Warrants would be delisted from Cboe or such Alternate +Exchange, which would limit investors ability to effect transactions in our Common Stock and Investor Warrants and +subject us to additional trading restrictions. + + + +Even +if this offering is successful and our application to list our Common Stock and Investor Warrants on Cboe or an Alternate Exchange +is approved, if we fail to meet the Cboe or such Alternate Exchange continued listing requirements, including stockholder equity +requirements, our Common Stock and Investor Warrants could be subject to delisting by Cboe or such Alternate Exchange, which could +reduce the liquidity of our Common Stock and Investor Warrants materially and result in a corresponding material reduction in the price +of our Common Stock and Investor Warrants. In addition, delisting could harm our ability to raise capital through alternative financing +sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and business +development opportunities. Such a delisting likely would impair your ability to sell or purchase our Common Stock and Investor Warrants +when you wish to do so. Further, if we were to be delisted from Cboe or an Alternate Exchange, our Common Stock and Investor Warrants +would no longer be recognized as a covered security and we would be subject to regulation in each state in which we offer +our securities. Thus, delisting from Cboe or an Alternate Exchange could adversely affect our ability to raise additional financing +through the public or private sale of equity securities, would significantly impact the ability of investors to trade our securities +and would negatively impact the value and liquidity of our Common Stock and Investor Warrants. + + + +Our +Common Stock may experience extreme stock price volatility unrelated to our actual or expected operating performance, financial condition +or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Common Stock. + + + +Recently, +there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number +of recent initial public offerings, especially among companies with relatively smaller public floats. As a relatively small-capitalization +company with relatively small public float, we may experience greater stock price volatility, extreme price run-ups, lower trading volume +and less liquidity than large-capitalization companies. In particular, our Common Stock may be subject to rapid and substantial price +volatility, low volumes of trades and large spreads in bid and ask prices. Such volatility, including any stock-run up, may be unrelated +to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess +the rapidly changing value of our Common Stock. + + + +In +addition, if the trading volumes of our Common Stock are low, persons buying or selling in relatively small quantities may easily influence +prices of our Common Stock. This low volume of trades could also cause the price of our Common Stock to fluctuate greatly, with large +percentage changes in price occurring in any trading day session. Holders of our Common Stock may also not be able to readily liquidate +their investment or may be forced to sell at depressed prices due to low volume trading. If high spreads between the bid and ask prices +of our Common Stock exist at the time of a purchase, the stock would have to appreciate substantially on a relative percentage basis +for an investor to recoup their investment. Broad market fluctuations and general economic and political conditions may also adversely +affect the market price of our Common Stock. + + + +As +a result of this volatility, investors may experience losses on their investment in our Common Stock. A volatile market price of our +Common Stock also could adversely affect our ability to issue additional shares of Common Stock or other securities and our ability to +obtain additional financing in the future. + + -42- + + Table of Contents + + + + + +Substantial +future sales of our shares of Common Stock or rights to purchase shares of our Common Stock, or the perception that such sales could +occur, could cause the market price of our Common Stock to decline, even if our business is doing well. + + + +As +noted above under the risk factor entitled, Even if this offering is successful, 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. Sales of substantial amounts of our Common Stock +in the public market or the perception that such sales could occur, could adversely affect the trading price of our Common Stock, and +may make it more difficult for you to sell your Common Stock at a time and price that you deem appropriate. We are unable to predict +the effect that such sales may have on the prevailing price of our Common Stock. These sales, or the possibility that these sales may +occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. + + + +We, +our directors and executive officers have entered into or will enter into lock-up agreements with the underwriter of this offering pursuant +to which they and we have agreed, or will agree, that, subject to certain exceptions, we will not issue or offer, and they will not sell, +contract to sell, encumber, grant any option for the sale of, or otherwise dispose of any shares or any securities convertible into or +exchangeable for shares of our Common Stock for a period of 6 months after the offering is completed. See the section titled Underwriting +for more information. Sales of a substantial number of such shares upon expiration of, or the perception that such sales may occur, or +early release of the securities subject to, the lock-up agreements, could cause our stock price to fall or make it more difficult for +you to sell your Common Stock at a time and price that you deem appropriate. A decline in the price of our Common Stock might impede +our ability to raise capital through the issuance of additional Common Stock or other equity securities. + + + +In +addition, in the future, we may issue additional shares of Common Stock, warrants or other equity or debt securities convertible into +Common Stock in one or more transactions, at prices and in a manner we determine from time to time, in connection with a financing, acquisition, +litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders +and could cause the price of our Common Stock or warrants to decline. + + + +If +we issue additional shares in the future, including issuances of shares upon exercise of our outstanding warrants and convertible notes, +our existing stockholders will be significantly diluted. + + + +As +of September 21, 2023, our articles of incorporation authorize the issuance of up to 350,000,000 shares of Common Stock. The issuance +of shares of our Common Stock upon the exercise of our outstanding warrants or conversion of outstanding convertible notes, summarized +below, could result in substantial dilution to our stockholders, which may have a negative effect on the price of our Common Stock. + + + +As +of June 19, 2024, there were issued and outstanding (or expected to be issued and outstanding, as specified below): +(i) options granted to employees, directors and consultants under the 2013 Plan to purchase up to an aggregate of 11,034 shares of +Common Stock at exercise prices ranging from $32.00 to $1,040.00 per share and with a weighted average exercise price of $277.94 per +share; (ii) 3,717,114 shares of Common Stock issuable upon the exercise of outstanding warrants, having a weighted average exercise price +of $10.05 per share (which includes 2,349,826 Common Warrants that will automatically be cancelled and exchanged for 7,049,478 Exchange +Investor Warrants at the closing of this offering); (iii) 1,724,557 shares of Common Stock issuable upon regular (non-Automatic) conversion +of the 2022 Notes at the conversion price of $4.00 per share (taking into account the operation of the Most Favored Nation Provision +as a result of the Uplist PIPE); (iv) 982,056 shares of Common Stock to be issuable upon exercise at $0.001 per share of the PIPE Pre-Funded +Warrants expected to be issued immediately prior to the pricing of this offering; (v) 982,056 shares of Common Stock to be issuable upon +exercise at $4.00 per share of the PIPE Investor Warrants expected to be issued immediately prior to the pricing of this offering; (vi) +71,533 shares of Common Stock to be issuable upon exercise at $5.15625 per share of the PIPE Placement Agent Warrants expected to be +issued immediately prior to the pricing of this offering; (vii) 1,893,919 True-Up Shares expected to be issued at the closing of this +offering; (viii) 6,330,422 shares of Common Stock to be issuable upon exercise at $0.001 of the True-Up Pre-Funded Warrants expected +to be issued at the closing of this offering; (ix) 65,533,100 shares of Common Stock to be issuable upon exercise at $4.00 per share +of the Uplist Conversion Warrants expected to be issued at the closing of this offering; (x) 7,049,478 shares of Common Stock to be issuable +upon exercise at $4.00 per share of the Exchange Investor Warrants expected to be issued at the closing of this offering; (xi) 538,182 +shares of Common Stock to be issuable upon exercise at $0.001 per share of the 2024 Note Conversion Pre-Funded Warrants expected to be +issued at the closing of this offering; (xii) 581,819 shares of Common Stock to be issuable upon exercise at $4.00 per share of the 2024 +Note Uplist Conversion Warrants expected to be issued at the closing of this offering; (xiii) 56,896 shares of Common Stock reserved +for future issuance under the 2023 Plan; and (xiv) up to 969,697 shares (1,115,151 shares if the underwriters option to purchase +additional Investor Warrants is exercised in full) of Common Stock issuable upon exercise at $4.00 per share of the Investor Warrants +to be issued in this offering. + + + +After +giving effect to the closing of the Uplist PIPE, expected to occur immediately prior to the pricing of this offering, and after +giving effect to the issuance of the Automatic Conversion Shares, 2022 Note Conversion Pre-Funded Warrants, 2024 Notes Automatic +Conversion Shares, 2024 Note Conversion Pre-Funded Warrants, True-Up Shares and True-Up Pre-Funded Warrants at the closing of this +offering, and the assumed exercise in full of the Bridge Pre-Funded Warrants, PIPE Pre-Funded Warrants, True-Up Pre-Funded Warrants, +2022 Note Conversion Pre-Funded Warrants, Execution Backstop Pre-Funded Warrants, PIPE Advance Penalty Pre-Funded Warrants and 2024 +Note Conversion Pre-Funded Warrants, if any, +(collectively, the Pro Forma Pre-Funded Warrants ), but prior to giving effect to the offering, there would be +an aggregate of 13,039,759 shares of Common Stock outstanding, before giving effect to the issuance of the Units and +Pre-Funded Units in this offering. The exercise of the Pro Forma Pre-Funded Warrants (which have exercise prices of $0.001 or $0.008 +and therefore function as common stock equivalents) assumed in the previous sentence is only for illustrative purposes, and there is +no assurance as to when, if at all, any of such securities will be exercised. + + + + -43- + + Table of Contents + + + + + +The +2013 Plan expired on June 18, 2023. Finally, on August 13, 2023, the Company adopted and approved the Amended and Restated 2023 Equity +Incentive Plan (the A&R Plan ). As of September 30, 2023, no option awards were granted under the A&R Plan. +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 deems are in the Company s best interest. 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 stockholders. Further, +such issuance may result in a change of control of our Company. + + + +We +are a smaller reporting company, and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies +will make our Common Stock less attractive to investors. + + + +We +are currently a smaller reporting company , meaning that we are not an investment company, an asset-backed issuer, or a +majority-owned subsidiary of a parent company that is not a smaller reporting company and we either have a public float of less than +$250 million as of the last business day of our second fiscal quarter or annual revenues of less than $100 million during our most recently +completed fiscal year and a public float of less than $700 million. Smaller reporting companies are able to provide simplified executive +compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that +independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial +reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required +to provide two years of audited financial statements in annual reports and in a registration statement under the Exchange Act on Form +10. Decreased disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze +our results of operations and financial prospects. + + + +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. + + + + -44- + + Table of Contents + + + + + +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 Common 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. + + + + -45- + + Table of Contents + + + + + +The +market price of our Common Stock may be volatile which could subject us to securities class action litigation. + + + +The +market price for our Common Stock has been and may continue to be volatile and subject to wide fluctuations in response to factors including +the following: + + + + + + sales + or potential sales of substantial amounts of our Common Stock; + + + + + + + + delay + or failure in initiating or completing preclinical or clinical trials or unsatisfactory results of these trials; + + + + + + + + announcements + about us or about our competitors, including clinical trial results, regulatory approvals or new product introductions; + + + + + + + + developments + concerning our product manufacturers; + + + + + + + + litigation + and other developments relating to our patents or other proprietary rights or those of our competitors; + + + + + + + + conditions + in the pharmaceutical or biotechnology industries; + + + + + + + + governmental + regulation and legislation; + + + + + + + + variations + in our anticipated or actual operating results; + + + + + + + + change + in securities analysts estimates of our performance, or our failure to meet analysts expectations; foreign currency + values and fluctuations; and + + + + + + + + overall + economic conditions. + + + + +In +the past, securities class action litigation has been brought against companies following periods of volatility of its securities in +the marketplace. The stock markets in general, and the market for pharmaceutical and biotechnology companies in particular, have historically +experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating +performance of these companies. These broad market and industry factors could reduce the market price of our Common Stock, regardless +of our actual operating performance. 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. + + + +Risks +Related to This Offering + + + +Management +will have broad discretion as to the use of the proceeds from this offering, and we may not use the proceeds effectively. + + + +Our +management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described +in the section entitled Use of Proceeds, and could spend the proceeds in ways that do not improve our results of +operations or enhance the value of our Common Stock. You will be relying on the judgment of our management with regard to the use of +these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are +being used appropriately. It is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return +for us. Our failure to apply these funds effectively could have a material adverse effect on our business and cause the price of our +Common Stock to decline. + + + +You +will experience immediate and substantial dilution in the net tangible book value per share of the Common Stock included in the Units +or issuable upon exercise of the Pre-Funded Warrants in this offering. + + + +The +public offering price of the Units and Pre-Funded Units being offered in this offering is substantially higher than the net tangible +book value per share of our Common Stock prior to the offering. Investors purchasing Units or Pre-Funded Units in this offering may pay +an effective price per share of Common Stock that may substantially exceed the pro forma book value of our tangible assets after subtracting +our liabilities. Based on an assumed public offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit, which represents the minimum +bid price of $4.00 per share under the initial listing requirements of Cboe in Cboe Listing Rule 14.9(b) plus a value of $0.125 +attributed to the accompanying Investor Warrant, if you purchase shares of our Common Stock in this offering, you will suffer immediate +and substantial dilution of $3.677 per share with respect to the net tangible book value of the Common Stock. See the section +entitled Dilution below for a more detailed discussion of the dilution you will incur if you purchase securities +in this offering. As a result of the dilution to investors purchasing securities in this offering, investors may receive significantly +less than the purchase price paid in this offering, if anything, in the event of a liquidation of our company. + + + +There +is no public market for the Investor Warrants or the Pre-Funded Warrants. + + + +There +is no established public trading market for the Investor Warrants or the Pre-Funded Warrants, and we do not expect a market to develop +for the Pre-Funded Warrants. We have applied to list the Investor Warrants on Cboe under the symbol ARTHW. No assurance +can be given that such listing will be approved or, if successful, that an active trading market for the Investor Warrants will develop +or be sustained. In addition, we do not intend to apply to list the Pre-Funded Warrants on any national securities exchange or other +nationally recognized trading system. Without an active market, the liquidity of the Investor Warrants and the Pre-Funded Warrants will +be limited. + + + +The +Investor Warrants and the Pre-Funded Warrants in this offering are speculative in nature. + + + +Neither +the Investor Warrants nor the Pre-Funded Warrants in this offering confer any rights of Common Stock ownership on its holders, such as +voting rights or the right to receive dividends, but rather merely represent the right to acquire shares of Common Stock at a fixed price, +as the case maybe. In addition, following this offering, the market value of the Investor Warrants, if any, is uncertain and there can +be no assurance that the market value of the Investor Warrants will equal or exceed their imputed offering price. The Pre-Funded Warrants +will not be listed or quoted for trading on any market or exchange. + + + + -46- + + Table of Contents + + + + +USE +OF PROCEEDS + + + +We +expect to receive net proceeds of approximately $2.9 million from this offering or approximately $3.5 million if the underwriters +exercise their option to purchase additional shares of Common Stock and/or Investor Warrants in full, based on an assumed public offering +price of $4.125 per Unit and $4.124 per Pre-Funded Unit, which represents the minimum bid price of $4.00 per share under the initial +listing requirements of Cboe in Cboe Listing Rule 14.9(b) plus a value of $0.125 attributed to the accompanying Investor Warrant, +after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. We currently intend to use +the net proceeds we receive from this offering for product marketing and for general working capital purposes. + + + +Our +expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. +As of the date of this prospectus, we cannot currently allocate specific percentages of the net proceeds that we may use for the purposes +specified above, and we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion +of this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures +will depend upon numerous factors, including our sales and marketing efforts, demand for our products, our operating costs and the other +factors described under Risk Factors in this prospectus. Accordingly, our management will have flexibility in applying +the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information +on which we base our decisions on how to use the proceeds. + + + +Each +$0.25 increase (decrease) in the assumed public offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit, which represents the +minimum bid price of $4.00 per share under the initial listing requirements of Cboe in Cboe Listing Rule 14.9(b) plus a value +of $0.125 attributed to the accompanying Investor Warrant, would increase (decrease) the net proceeds to us from this offering, after +deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $0.2 million, assuming +that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or +decrease the number of Units we are offering. An increase (decrease) of 1,000,000 in the number of Units we are offering would increase +(decrease) the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering +expenses payable by us, by approximately $3.8 million, assuming the public offering price stays the same. We do not expect that a change +in the offering price or the number of Units by these amounts would have a material effect on our intended uses of the net proceeds from +this offering, although it may impact the amount of time prior to which we may need to seek additional capital. + + + + -47- + + Table of Contents + + + + + +MARKET +PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED MATTERS + + + +Market +Information + + + +Our +Common Stock is currently quoted on the OTCQB over-the-counter quotation system under the stock symbol ARTH . Our Common +Stock began quotation on the OTCBB and the OTCQB on June 27, 2013 and since that date has been primarily traded on the OTCQB. There was +no trading of our Common Stock on the OTCBB, OTCQB or any other over-the-counter market prior to January 2, 2013. Although our Common +Stock is currently quoted on the OTCQB, there is a limited trading market for our Common Stock and there has been limited trading activity +in our Common Stock to date. Because our Common Stock is thinly traded on the OTCQB, (i) any reported sale prices may not be a true market-based +valuation of our Common Stock; and (ii) such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, +mark-down or commission and may not necessarily represent actual transactions. + + + +We +have applied to list our Common Stock and Investor Warrants on Cboe under the symbols ARTH and ARTHW , +respectively. There is no assurance that our listing application will be approved by Cboe, or, if successful, that an active trading +market for our Common Stock or Investor Warrants will develop or be sustained. If we are unable to list our Common Stock on Cboe +or an Alternate Exchange, we will not consummate this offering. + + + +Dividends + + + +We +have never declared or paid any cash dividends or distributions on our Common Stock. We currently intend to retain our future earnings, +if any, to support operations and to finance expansion, and, therefore, we do not anticipate paying any cash dividends on our Common +Stock in the foreseeable future. Any future payment of dividends will depend upon our results of operations, financial condition, cash +requirements and other factors deemed relevant by our Board. + + + +Holders + + + +As +of June 19, 2024, there were approximately 124 holders of record of our Common Stock. + + + +Transfer +Agent and Registrar + + + +The +transfer agent and warrant agent for our Common Stock and Investor Warrants, respectively, is Empire Stock Transfer. Our transfer agent s +address is 1859 Whitney Mesa Drive, Henderson, Nevada 89014. + + + + -48- + + Table of Contents + + + + + +CAPITALIZATION + + + +The +following table sets forth our cash and capitalization as of March 31, 2024: + + + + + + on + an actual basis; + + + + + + + on + a pro forma basis to give effect to (i) the assumed full exercise of all of the Bridge Pre-Funded Warrants, Execution + Backstop Pre-Funded Warrants and PIPE Advance Penalty Pre-Funded Warrants, (ii) the expected issuance immediately prior to the + pricing of this offering of 982,056 PIPE Pre-Funded Warrants (and related PIPE Investor Warrants) in the Uplist PIPE + for net proceeds of approximately $3,528,000, and assuming the full exercise of all of the PIPE Pre-Funded Warrants, (iii) + the expected issuance at the closing of this offering of 1,893,919 True-Up Shares and True-Up Pre-Funded Warrants to purchase + an aggregate of 6,330,422 shares of Common Stock, based on the sale of the Units and Pre-Funded Units at an assumed public + offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit, and assuming the full exercise of all of the True-Up Pre-Funded Warrants, + (iv) the issuance of $2,400,000 in principal amount of the 2024 Notes between May 15, 2024 and June 12, 2024 for net proceeds of + $2,000,000, the expected issuance at the closing of this offering of an aggregate of 581,819 shares of Common Stock (and related + 2024 Note Uplist Conversion Warrants) upon the 2024 Notes Automatic Conversion of the full principal amount under the 2024 Notes, + assuming no issuance of any 2024 Note Conversion Pre-Funded Warrants, based on the conversion price of $4.125 per share and (v) + the expected issuance at the closing of this offering of an aggregate of 1,638,330 shares of Common Stock (and related + Uplist Conversion Warrants) upon the Automatic Conversion of an aggregate of $6,553,310 of principal amount under the + 2022 Notes, assuming no issuance of any 2022 Note Conversion Pre-Funded Warrants, based on the assumed exercise price of the + Investor Warrants being offered as part of the Units and Pre-Funded Units in this offering of $4.00 per share (the events in clauses + (i) through (v), the Pro Forma Events ); and + + + + + + + on + a pro forma, as adjusted basis, to give effect to the issuance and sale by us of 969,697 Units in this offering based on an + assumed public offering price of $4.125 per Unit (assuming no sale of any Pre-Funded Units), after deducting estimated underwriting + discounts and commissions and estimated offering expenses payable by us and the receipt by us of the proceeds of such sale. + + + + +You +should read this table together with Use of Proceeds, Management s Discussion and Analysis +of Financial Condition and Results of Operations and our audited and unaudited financial statements and related notes thereto +included elsewhere in this prospectus. + + + + + + As of March 31, 2024 + Pro Forma As + + + + Actual + Pro Forma + Adjusted + + + + (unaudited) + (unaudited) + (unaudited) (1) + + + Cash + $26,426 + $5,563,330 + $8,468,330 + + + Total liabilities + 12,417,551 + 3,712,278 + 3,712,278 + + + Stockholders equity (deficit): + + + + + + Common stock, $0.001 par value, 350,000,000 shares authorized as of March 31, 2024, and 555,562 shares, + actual, 13,039,759 shares, pro forma and 14,009,456 shares, pro forma as adjusted, issued as of March 31, 2024 + 556 + 13,040 + 14,009 + + + Additional paid-in capital + $55,328,360 + $68,735,891 + $71,639,921 + + + Accumulated deficit + $(66,206,400) + $(65,384,238) + $(65,384,238) + + + Total stockholders equity (deficit) + $(10,877,484) + $3,364,693 + $6,269,693 + + + Total capitalization + $1,540,067 + $7,076,971 + $9,981,971 + + + + + + -49- + + Table of Contents + + + + + +(1) +A $0.25 increase or decrease in the assumed public offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit, which represents +the minimum bid price of $4.00 per share under the initial listing requirements of Cboe in Cboe Listing Rule 14.9(b) plus a value +of $0.125 attributed to the accompanying Investor Warrant, would increase or decrease the pro forma as adjusted amount of each of cash, +additional paid-in capital, total stockholders equity (deficit) and total capitalization by approximately $0.2 million, assuming +that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same (assuming no sale of any +Pre-Funded Units) and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by +us and assuming no exercise of the Investor Warrants issued as part of the Units. An increase or decrease of 1,000,000 in the number +of Units offered by us, as set forth on the cover page of this prospectus (assuming no sale of any Pre-Funded Units), would increase +or decrease the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders equity (deficit) +and total capitalization by approximately $3.8 million, assuming no change in the assumed public offering price per Unit and after deducting +the estimated underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise of the Investor +Warrants issued as part of the Units. + + + +Except +as indicated otherwise, the total number of shares reflected in the discussion and tables above is based on 555,562 shares of +our Common Stock outstanding as of March 31, 2024, and excludes, in each case: As of such date, (i) options granted to employees, +directors and consultants under the 2013 Plan to purchase up to an aggregate of 11,034 shares of Common Stock at exercise prices ranging +from $32.00 to $1,040.00 per share and with a weighted average exercise price of $277.94 per share; (ii) 3,340,562 shares of Common Stock +issuable upon the exercise of outstanding warrants, having a weighted average exercise price of $11.09 per share (which includes 2,349,826 +Common Warrants that will automatically be cancelled and exchanged for 7,049,478 Exchange Investor Warrants at the closing of this offering); +(iii) 1,724,557 shares of Common Stock issuable upon regular (non-Automatic) conversion of the 2022 Notes at the conversion price of +$4.00 per share (taking into account the operation of the Most Favored Nation Provision as a result of the Uplist PIPE); (iv) 982,056 +shares of Common Stock to be issuable upon exercise at $0.001 per share of the PIPE Pre-Funded Warrants expected to be issued immediately +prior to the pricing of this offering; (v) 982,056 shares of Common Stock to be issuable upon exercise at $4.00 per share of the PIPE +Investor Warrants expected to be issued immediately prior to the pricing of this offering; (vi) 71,533 shares of Common Stock to be issuable +upon exercise at $5.15625 per share of the PIPE Placement Agent Warrants expected to be issued immediately prior to the pricing of this +offering; (vii) 1,893,919 True-Up Shares expected to be issued at the closing of this offering; (viii) 6,330,422 shares of Common Stock +to be issuable upon exercise at $0.001 of the True-Up Pre-Funded Warrants expected to be issued at the closing of this offering; (ix) +65,533,100 shares of Common Stock to be issuable upon exercise at $4.00 per share of the Uplist Conversion Warrants expected to be issued +at the closing of this offering; (x) 7,049,478 shares of Common Stock to be issuable upon exercise at $4.00 per share of the Exchange +Investor Warrants expected to be issued at the closing of this offering; (xi) 538,182 shares of Common Stock to be issuable upon exercise +at $0.001 per share of the 2024 Note Conversion Pre-Funded Warrants expected to be issued at the closing of this offering; (xii) 581,819 +shares of Common Stock to be issuable upon exercise at $4.00 per share of the 2024 Note Uplist Conversion Warrants expected to be +issued at the closing of this offering; (xiii) 56,896 shares of Common Stock reserved for future issuance under the 2023 Plan; and (xiv) +up to 969,697 shares (1,115,151 shares if the underwriters option to purchase additional Investor Warrants is exercised in full) +of Common Stock issuable upon exercise at $4.00 per share of the Investor Warrants to be issued in this offering. + + + +Except +as indicated otherwise, the discussion and table above assume no sale of Pre-Funded Units and no exercise of the underwriters +option to purchase up to 145,454 additional shares of Common Stock and/or Investor Warrants to purchase up to 145,454 additional +shares of Common Stock. + + + + -50- + + Table of Contents + + + + + +DILUTION + + + +If +you invest in our securities in this offering, your interest will be diluted to the extent of the difference between the public offering +price per share of Common Stock included in each Unit or issuable upon exercise of the Pre-Funded Warrants (attributing no value to the +Investor Warrants) and the as adjusted net tangible book value per share of our Common Stock after this offering. We calculate net tangible +book value per share by dividing the net tangible book value (tangible assets less total liabilities) by the number of outstanding shares +of our Common Stock. + + + +The +net tangible book value (deficit) of our Common Stock as of March 31, 2024, was approximately $(10.9 million), or approximately +$(19.579) per share of Common Stock. Net tangible book value per share represents the amount of our total tangible assets less +total liabilities divided by the total number of our shares of Common Stock outstanding as of March 31, 2024. + + + +The +following proforma adjustments were made to the shares of Common Stock outstanding as of March 31, 2024 and related net tangible book +value to compute our proforma net tangible book value as of March 31, 2024: + + + +a.Issuance + of 7,082,955 shares of Common Stock upon conversion of prefunded warrants, with a par value + impact of $7,083 (see items (i) and (iii) in the paragraph that follows); + +b.Issuance + of 1,638,300 shares of Common Stock upon mandatory conversion of the 2022 Notes and cancellation + of accrued interest, for an aggregate effect of $7,580,273 as a result of this offering (see + item (v) in the paragraph that follows); and + +c.Issuance + of 3,762,912 shares of Common Stock upon mandatory conversion of PIPE instruments, for an + aggregate effect of $6,654,821 as a result of this offering (see items (i), (ii) and (iv) + in the paragraph that follows). + + + +Our +pro forma net tangible book value as of March 31, 2024 was $3.4 million, or $0.258 per share of Common Stock. +Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect +to (i) the assumed full exercise of all of the Bridge Pre-Funded Warrants, Execution Backstop Pre-Funded Warrants and PIPE +Advance Penalty Pre-Funded Warrants, (ii) the expected issuance immediately prior to the pricing of this offering of 982,056 PIPE +Pre-Funded Warrants (and related PIPE Investor Warrants) in the Uplist PIPE for net proceeds of approximately $3,528,000, and +assuming the full exercise of all of the PIPE Pre-Funded Warrants, (iii) the expected issuance at the closing of this offering of +1,893,919 True-Up Shares and True-Up Pre-Funded Warrants to purchase an aggregate of 6,330,422 shares of Common Stock, based on the +sale of the Units and Pre-Funded Units at an assumed public offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit, and +assuming the full exercise of all of the True-Up Pre-Funded Warrants, (iv) the issuance of $2,400,000 in principal amount of the +2024 Notes between May 15, 2024 and June 12, 2024 for net proceeds of $2,000,000, the expected issuance at the closing of this +offering of an aggregate of 581,819 shares of Common Stock (and +related 2024 Note Uplist Conversion Warrants) upon the 2024 Notes Automatic Conversion of the full principal amount under the 2024 +Notes, assuming no issuance of any 2024 Note Conversion Pre-Funded Warrants, based on the conversion price of $4.125 per share and +(v) the expected issuance at the closing of this offering of an aggregate of 1,638,330 shares of Common Stock (and related Uplist +Conversion Warrants) upon the Automatic Conversion of an aggregate of $6,553,310 of principal amount under the 2022 Notes, assuming +no issuance of any 2022 Note Conversion Pre-Funded Warrants, based on the assumed exercise price of the Investor Warrants being +offered as part of the Units and Pre-Funded Units in this offering of $4.00 per share. Pro forma net tangible book value per +share represents the pro forma net tangible book value divided by the total number of shares outstanding as of March 31, +2024, after giving effect to the pro forma adjustment described above. + + + +After +giving further effect to the sale of 969,697 shares of Common Stock included in the Units in this offering at an assumed public +offering price of $4.125 per share of Common Stock included in each Unit (assuming no sale of Pre-Funded Units), and after deducting +the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and assuming no exercise of the Investor +Warrants issued as part of the Units, our pro forma, as adjusted net tangible book value as of March 31, 2024 would have been +approximately $6.3 million, or approximately $0.448 per share of Common Stock. This amount represents an immediate increase +in actual book value of $20.027 per share to our existing stockholders and immediate dilution of approximately $3.677 per +share to new investors in this offering (attributing no value to the Investor Warrants). We determine dilution by subtracting the as +adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of Common +Stock included in each Unit in this offering. The following table illustrates this dilution: + + + + + Assumed + public offering price per Unit + + + + + + $ + 4.125 + + + + Pro + forma net tangible book value per share after giving effect to the Pro Forma Events + + + 0.258 + + + + + + + + Increase + in pro forma net tangible book value per share after giving effect to this offering (including the Pro Forma Events) + + + 0.189 + + + + + + + + Pro + forma, as adjusted net tangible book value per share as of March 31, 2024 after giving effect to this offering and the Pro + Forma Events + + + + + + + (0.448 + ) + + + Dilution + per share to new investors in this offering + + + + + + $ + 3.677 + + + + Percentage + of Dilution of Investment + + + + + + + 89 + % + + + + + +If +the underwriters exercise their option to purchase additional shares of our Common Stock in full, the pro forma, as adjusted net tangible +book value after this offering would be approximately $0.482 per share, the increase in pro forma net tangible book value per +share would be approximately $0.224 and dilution per share to new investors would be approximately $3.643 per share. + + + + -51- + + Table of Contents + + + + + +Each +$0.25 increase (decrease) in the assumed public offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit, which represents the +minimum bid price of $4.00 per share under the initial listing requirements of Cboe in Cboe Listing Rule 14.9(b) plus a value +of $0.125 attributed to the accompanying Investor Warrant, would increase (decrease) the net proceeds to us from this offering, after +deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $0.2 million, assuming +that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same (assuming no sale of any +Pre-Funded Warrants) and assuming no exercise of the Investor Warrants issued as part of the Units. We may also increase or decrease +the number of Units we are offering. An increase (decrease) of 1,000,000 in the number of Units we are offering would increase (decrease) +the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses +payable by us, by approximately $3.8 million, assuming the public offering price stays the same (assuming no sale of any Pre-Funded Warrants) +and assuming no exercise of the Investor Warrants issued as part of the Units. We do not expect that a change in the offering price or +the number of Units by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although +it may impact the amount of time prior to which we may need to seek additional capital. + + + +The +total number of shares reflected in the discussion and tables above is based on 555,562 shares of our Common Stock outstanding +as of March 31, 2024, and excludes, in each case: As of such date, (i) options granted to employees, directors and consultants +under the 2013 Plan to purchase up to an aggregate of 11,034 shares of Common Stock at exercise prices ranging from $32.00 to $1,040.00 +per share and with a weighted average exercise price of $277.94 per share; (ii) 3,340,562 shares of Common Stock issuable upon the exercise +of outstanding warrants, having a weighted average exercise price of $11.09 per share (which includes 2,349,826 Common Warrants that +will automatically be cancelled and exchanged for 7,049,478 Exchange Investor Warrants at the closing of this offering); (iii) 1,724,557 +shares of Common Stock issuable upon regular (non-Automatic) conversion of the 2022 Notes at the conversion price of $4.00 per share +(taking into account the operation of the Most Favored Nation Provision as a result of the Uplist PIPE); (iv) 982,056 shares of Common +Stock to be issuable upon exercise at $0.001 per share of the PIPE Pre-Funded Warrants expected to be issued immediately prior to the +pricing of this offering; (v) 982,056 shares of Common Stock to be issuable upon exercise at $4.00 per share of the PIPE Investor Warrants +expected to be issued immediately prior to the pricing of this offering; (vi) 71,533 shares of Common Stock to be issuable upon exercise +at $5.15625 per share of the PIPE Placement Agent Warrants expected to be issued immediately prior to the pricing of this offering; (vii) +1,893,919 True-Up Shares expected to be issued at the closing of this offering; (viii) 6,330,422 shares of Common Stock to be issuable +upon exercise at $0.001 of the True-Up Pre-Funded Warrants expected to be issued at the closing of this offering; (ix) 65,533,100 shares +of Common Stock to be issuable upon exercise at $4.00 per share of the Uplist Conversion Warrants expected to be issued at the closing +of this offering; (x) 7,049,478 shares of Common Stock to be issuable upon exercise at $4.00 per share of the Exchange Investor Warrants +expected to be issued at the closing of this offering; (xi) 538,182 shares of Common Stock to be issuable upon exercise at $0.001 per +share of the 2024 Note Conversion Pre-Funded Warrants expected to be issued at the closing of this offering; (xii) 581,819 shares of +Common Stock to be issuable upon exercise at $4.00 per share of the 2024 Note Uplist Conversion Warrants expected to be issued at the +closing of this offering; (xiii) 56,896 shares of Common Stock reserved for future issuance under the 2023 Plan; and (xiv) up to 969,697 +shares (1,115,151 shares if the underwriters option to purchase additional Investor Warrants is exercised in full) of Common Stock +issuable upon exercise at $4.00 per share of the Investor Warrants to be issued in this offering. + + + +Except +as indicated otherwise, the discussion and table above assume no sale of Pre-Funded Units and no exercise of the underwriter s +option to purchase up to 145,454 additional shares of Common Stock and/or Investor Warrants to purchase up to 145,454 additional +shares of Common Stock. + + + + -52- + + Table of Contents + + + + + +SELLING +STOCKHOLDERS + + + +The +Common Stock being offered in the Resale Prospectus by the selling stockholders are the 2022 Inducement Shares, Bridge Shares, +True-Up Shares and those issuable to the selling stockholders, upon conversion of the 2022 Notes and 2024 Notes and exercise of +the Resale Warrants. For additional information regarding the issuances of such securities, see Prospectus Summary +above. We are registering the shares of Common Stock in order to permit the selling stockholders to offer the shares for resale from +time to time. Except for Terrence Norchi, our Chief Executive Officer; Michael Abrams, our Chief Financial Officer; Laurence Hicks, a +member of our Board and holder of an ownership interest in Drake Partners LLC and Maxim Group LLC, the selling stockholders have not +had any material relationship with us within the past three years. + + + +The +table below lists the selling stockholders and other information regarding the beneficial ownership of the shares of Common Stock by +each of the selling stockholders. The second column lists the number of shares of Common Stock beneficially owned by each selling stockholder, +based on its ownership of the shares of Common Stock, convertible debt and warrants, as of June 19, 2024, assuming exercise +of the warrants and conversion of convertible notes held by the selling stockholders on that date, without regard to any limitations +on exercises. The third column lists the shares of Common Stock being offered by this prospectus by the selling stockholders. The fourth +column assumes the sale of all of the shares offered by the selling stockholders pursuant to this prospectus. + + + +In +accordance with the terms of (i) Third Amended and Restated Registration Rights Agreement with certain of the selling stockholders +or (ii) the terms of the 2022 Notes, 2022 Warrants and 2022 Placement Agent Warrants held by certain of the selling stockholders, this +prospectus generally covers the resale of the sum of (A) the maximum number of shares of Common Stock issuable upon conversion of the +2022 Notes issued to the selling stockholders in the 2022 Private Placement Financing; and (B) the maximum number of shares of Common +Stock issuable upon exercise of the 2022 Warrants and 2022 Placement Agent Warrant, determined as if the outstanding 2022 Notes were +converted and the 2022 Warrants and 2022 Placement Agent Warrants were exercised in full as of the trading day immediately preceding +the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable +date of determination and all subject to adjustment as provided in the Third Amended and Restated Registration Rights Agreement, +2022 Note, 2022 Warrant or 2022 Placement Agent Warrant, as applicable, without regard to any limitations on the conversion of the 2022 +Notes or the exercise of the 2022 Warrants and 2022 Placement Agent Warrants. + + + +This +prospectus also covers the maximum number of shares of Common Stock issuable upon exercise of the maximum number of 2022 Note Conversion +Pre-Funded Warrants that may be issuable under the 2022 Notes at the closing of the Primary Offering in lieu of Automatic Conversion +Shares otherwise issuable, as if such maximum amount of 2022 Note Conversion Pre-Funded Warrants were exercised in full as of the trading +day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately +preceding the applicable date of determination and all subject to adjustment as provided in the 2022 Note Conversion Pre-Funded Warrants, +without regard to any limitations on the exercise of 2022 Note Conversion Pre-Funded Warrants. + + + +Additionally, +this prospectus covers the maximum number of shares of Common Stock issuable upon exercise of the Uplist Conversion Warrants that are +expected to be issued under the 2022 Notes at the closing of the Primary Offering, as if such Uplist Conversion Warrants were exercised +in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of +the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the Uplist Conversion +Warrants, without regard to any limitations on the exercise of Uplist Conversion Warrants. + + + +In +accordance with the terms of (i) 2024 Notes Registration Rights Agreement with certain of the selling stockholders or (ii) the terms +of the 2024 Notes held by certain of the selling stockholders, this prospectus generally covers the resale of the maximum number of shares +of Common Stock issuable upon conversion of the 2024 Notes issued to the selling stockholders in the 2024 Notes Financing, determined +as if the outstanding 2024 Notes were converted in full as of the trading day immediately preceding the date this registration statement +was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject +to adjustment as provided in the 2024 Notes Registration Rights Agreement or 2024 Note, as applicable, without regard to any limitations +on the conversion of the 2024 Notes. + + + + -53- + + Table of Contents + + + + + +This +prospectus also covers the maximum number of shares of Common Stock issuable upon exercise of the maximum number of 2024 Note Conversion +Pre-Funded Warrants that may be issuable under the 2024 Notes at the closing of the Primary Offering in lieu of 2024 Notes Automatic +Conversion Shares otherwise issuable, as if such maximum amount of 2024 Note Conversion Pre-Funded Warrants were exercised in full as +of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading +day immediately preceding the applicable date of determination and all subject to adjustment as provided in the 2024 Note Conversion +Pre-Funded Warrants, without regard to any limitations on the exercise of 2024 Note Conversion Pre-Funded Warrants. + + + +Additionally, +this prospectus covers the maximum number of shares of Common Stock issuable upon exercise of the 2024 Notes Uplist Conversion Warrants +that are expected to be issued under the 2024 Notes at the closing of the Primary Offering, as if such 2024 Notes Uplist Conversion Warrants +were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the +SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided +in the 2024 Notes Uplist Conversion Warrants, without regard to any limitations on the exercise of 2024 Notes Uplist Conversion Warrants. + + + +In +accordance with the terms of (i) Bridge Registration Rights Agreement with certain of the selling stockholders or (ii) the terms of the +Bridge Warrants held by certain of the selling stockholders, this prospectus generally covers the resale of the sum of the maximum number +of shares of Common Stock issuable upon exercise of the Bridge Warrants determined as if the outstanding Bridge Warrants were exercised +in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of +the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the Bridge Registration +Rights Agreement and Bridge Warrants, as applicable, without regard to any limitations on the exercise of the Bridge Warrants. + + + +In +accordance with the terms of (i) the PIPE Registration Rights Agreement with certain of the selling stockholders or (ii) the PIPE Warrants +held by certain of the selling stockholders, this prospectus generally covers the resale of the sum of the maximum number of shares of +Common Stock issuable upon exercise of the PIPE Warrants determined as if the outstanding PIPE Warrants were exercised in full as of +the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day +immediately preceding the applicable date of determination and all subject to adjustment as provided in the PIPE Registration Rights +Agreement and PIPE Warrants, as applicable, without regard to any limitations on the exercise of the PIPE Warrants. + + + +This +prospectus covers the resale of the maximum number of True-Up Shares that may be issuable under the Bridge SPA at the closing of the +Primary Offering, based on the sale of the Units and Pre-Funded Units at an assumed public offering price of $4.125 per Unit and $4.124 +per Pre-Funded Unit, which represents the minimum bid price of $4.00 per share under the initial listing requirements of Cboe in Cboe +Listing Rule 14.9(b) plus a value of $0.125 attributed to the accompanying Investor Warrant. This prospectus also covers the maximum +number of shares of Common Stock issuable upon exercise of the maximum number of True-Up Pre-Funded Warrants that may be issuable under +the Bridge SPA at the closing of the Primary Offering in lieu of True-Up Shares otherwise issuable, as if such maximum amount of True-Up +Pre-Funded Warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially +filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment +as provided in the True-Up Pre-Funded Warrants, without regard to any limitations on the exercise of True-Up Pre-Funded Warrants. + + + +This +prospectus covers the resale of the sum of the maximum number of shares of Common Stock issuable upon exercise of the Funding Backstop +Pre-Funded Warrants and Backstop Common Warrants, based on the assumption that the conditions for the issuance of such warrants under +the Backstop Agreement are satisfied, prior to the closing of the Primary Offering, determined as if such warrants were exercised in +full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the +trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in such warrants, as +applicable, without regard to any limitations on the exercise of such warrants. + + + +This +prospectus covers the resale of the sum of the maximum number of shares of Common Stock issuable upon exercise of the remaining Resale +Warrants not otherwise referenced in the foregoing ten paragraphs, determined as if the outstanding Resale Warrants were exercised in +full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the +trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the Resale Warrants, +as applicable, without regard to any limitations on the exercise of the Resale Warrants. + + + + -54- + + Table of Contents + + + + + +Under +the terms of the 2022 Notes, 2024 Notes and Resale Warrants, a selling stockholder may not convert the notes or exercise the warrants +to the extent such exercise would cause such selling stockholder, together with its affiliates and attribution parties, to beneficially +own a number of shares of Common Stock which would exceed 4.99% (or 9.99% if elected and as applicable) of our then outstanding Common +Stock following such exercise, excluding for purposes of such determination shares of Common Stock issuable upon conversion of the 2022 +Notes and 2024 Notes and exercise of the Resale Warrants which have not been exercised. The number of shares in the second +column does not reflect this limitation. The selling stockholders may sell all, some or none of their shares in this offering. See Plan +of Distribution on page 61. + + + + + Name of Selling Stockholder + Number of shares of Common + + Stock Owned Prior to Offering + Maximum Number of shares of + + Common Stock to be Sold + Pursuant to this Prospectus + Number of shares of + Common Stock + Owned After + Offering + + + Tiburon Opportunity Fund LP (1) + 794,265 + 31,394,777 + 972,379 + + + District 2 Capital Fund LP (2) + 327,069 + 9,664,127 + 486,721 + + + Bigger Capital Fund, LP (3) + 327,198 + 9,664,123 + 486,785 + + + Cavalry Fund I LP (4) + 423,941 + 10,428,410 + 964,176 + + + Sanibel Island Associates LLC (Anestis) (5) + 21,767 + 780,270 + 16,309 + + + Michael & Ana Parker (6) + 280,168 + 10,262,003 + 225,560 + + + ProActive Capital Partners, L.P. (7) + 64,901 + 2,378,431 + 53,195 + + + Michael Abrams (8) + 11,408 + 389,970 + 8,840 + + + Jason Adelman (9) + 21,614 + 779,941 + 16,479 + + + Centurion Therapeutics, Inc. (10) + 23,802 + 920,250 + 1,302 + + + Drake Partners LLC (11) + 11,246 + 389,970 + 8,678 + + + Terrence Norchi (12) + 19,821 + 259,982 + 18,111 + + + Michael Tuttle (13) + 31,736 + 1,227,000 + 1,736 + + + Trina Whitridge GST Trust (14) + 76,979 + 2,825,975 + 58,343 + + + Mark Woolfson (15) + 27,019 + 974,924 + 20,601 + + + Steve Woolfson (16) + 30,620 + 1,104,915 + 23,345 + + + Walleye Opportunities Master Fund Ltd (17) + 37,500 + 3,284,351 + 957,210 + + + Sixth Borough Capital Fund, LP (18) + 37,500 + 949,133 + 272,904 + + + Brandt Wilson and Mona Wilson (19) + 270,388 + 4,495,137 + 957,210 + + + Andrew Stahl (20) + 270,388 + 4,495,137 + 957,210 + + + John Robert Baleno (21) + 9,091 + 154,545 + 54,546 + + + Roxanne Rosetto (22) + 4,546 + 77,273 + 27,273 + + + Robert Forster (23) + 22,728 + 386,363 + 136,365 + + + Thomas Pilgrim (24) + 9,091 + 154,545 + 54,546 + + + Rajiv P Dewan (25) + 5,000 + 85,000 + 30,000 + + + David L McClain (26) + 2,500 + 42,500 + 15,000 + + + Norman McClain (27) + 5,000 + 85,000 + 30,000 + + + Ronald Nash (28) + 4,546 + 77,273 + 27,273 + + + Richard Molinsky (29) + 6,819 + 115,908 + 40,911 + + + George Benashivili (30) + 1,288 + 21,887 + 7,725 + + + Dan Armstrong (31) + 9,091 + 154,545 + 54,546 + + + CNP Consulting (32) + 1,750 + 29,750 + 10,500 + + + Ivan Chi Vei Tong (33) + 2,500 + 42,500 + 15,000 + + + Genmark Holdings (34) + 9,091 + 154,545 + 54,546 + + + Stephen Ross (35) + 2,273 + 38,637 + 13,638 + + + Efrat Investments (36) + 4,546 + 77,273 + 27,273 + + + Daniel Shalhoub (37) + 2,273 + 38,637 + 13,638 + + + Jeffrey and Shiela Negus (38) + 2,273 + 38,637 + 13,638 + + + Maxim Group LLC (39) + 4,760 + 821 + 3,939 + + + Total + 3,218,494 + 98,444,466 + 7,137,449 + + + + + + -55- + + Table of Contents + + + + + + + 1. + Assuming + exercise or conversion of the warrants or convertible notes held by Tiburon Opportunity Fund LP ( Tiburon ) + or its affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable + to such warrants or convertible notes, Tiburon may be deemed to have beneficial ownership of 32,367,156 shares of Common + Stock, which includes the following: (i) 1,223 Inducement Pre-Funded Warrant Shares; (ii) 37,510 Legacy Pre-Funded + Warrant Shares; (iii) 1,116,834 True-Up Shares; (v) 700,180 Conversion Shares; (vi) 665,171 Automatic Conversion + Shares; (vii) 40,261 2022 Warrant Shares; (viii) 665,171 2022 Note Conversion Pre-Funded Warrant Shares; (ix) 319,096 + Common Warrant Shares; (x) 125,657 Bridge Pre-Funded Warrant Shares; (xi) 26,606,840 Uplist Conversion Warrant Shares; + and (xii) 1,116,834 True-Up Pre-Funded Warrant Shares. + + + + + + + 2. + Assuming exercise or conversion of the warrants or convertible + notes held by District 2 Capital Fund LP ( District 2 ) or its affiliates as of June 19, 2024 and disregarding + any limitations on exercise or conversion applicable to such warrants or convertible notes, District 2 may be deemed to have beneficial + ownership of 10,150,848 shares of Common Stock, which includes the following: (i) 236 2022 Inducement Shares; (ii) 17,897 Bridge + Shares; (iii) 558,393 True-Up Shares; (v) 181,250 Conversion Shares; (vi) 172,188 Automatic Conversion Shares; (vii) 3,144 2022 Warrant + Shares; (viii) 172,188 2022 Note Conversion Pre-Funded Warrant Shares; (ix) 159,541 Common Warrant Shares; (x) 61,874 Bridge Pre-Funded + Warrant Shares; (xi) 6,887,500 Uplist Conversion Warrant Shares; (xii) 558,393 True-Up Pre-Funded Warrant Shares; (xiii) 178,818 + PIPE Investor Warrant Shares; (xiv) 178,818 PIPE Pre-Funded Warrant Shares; (xv) 69,375 2024 Notes Conversion Shares; (xvi) 67,273 + 2024 Notes Automatic Conversion Shares; (xvii) 67,273 2024 Note Conversion Pre-Funded Warrant Shares; (xviii) 9,472 PIPE Advance + Penalty Pre-Funded Warrant Shares; (xiv) 28,125 Execution Backstop Pre-Funded Warrant Shares; (xv) 93,750 Funding Backstop Pre-Funded + Warrant Shares; (xvi) 67,273 2024 Notes Uplist Conversion Warrant Shares; (xvii) 9,472 PIPE Advance Penalty Common Warrants; and + (xviii) 121,875 Backstop Common Warrants. + + + + + + + 3. + Assuming exercise or conversion of the warrants or convertible notes held by Bigger Capital Fund, LP ( Bigger +Capital ) or its affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such +warrants or convertible notes, Bigger Capital may be deemed to have beneficial ownership of 10,150,909 shares of Common Stock, which includes +the following: (i) 236 2022 Inducement Shares; (ii) 17,961 Bridge Shares; (iii) 558,391 True-Up Shares; (v) 181,250 Conversion Shares; +(vi) 172,188 Automatic Conversion Shares; (vii) 3,144 2022 Warrant Shares; (viii) 172,188 2022 Note Conversion Pre-Funded Warrant Shares; +(ix) 159,541 Common Warrant Shares; (x) 61,809 Bridge Pre-Funded Warrant Shares; (xi) 6,887,500 Uplist Conversion Warrant Shares; (xii) +558,391 True-Up Pre-Funded Warrant Shares; (xiii) 178,818 PIPE Investor Warrant Shares; (xiv) 178,818 PIPE Pre-Funded Warrant Shares; +(xv) 69,375 2024 Notes Conversion Shares; (xvi) 67,273 2024 Notes Automatic Conversion Shares; (xvii) 67,273 2024 Note Conversion Pre-Funded +Warrant Shares; (xviii) 9,472 PIPE Advance Penalty Pre-Funded Warrant Shares; (xiv) 28,125 Execution Backstop Pre-Funded Warrant Shares; +(xv) 93,750 Funding Backstop Pre-Funded Warrant Shares; (xvi) 67,273 2024 Notes Uplist Conversion Warrant Shares; (xvii) 9,472 PIPE Advance +Penalty Common Warrants; and (xviii) 121,875 Backstop Common Warrants. + + + + + + + 4. + Assuming exercise or conversion of the warrants or convertible notes held by Cavalry Fund I, LP ( Cavalry ) +or its affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such warrants or convertible +notes, Cavalry may be deemed to have beneficial ownership of 11,392,587 shares of Common Stock, which includes the following: (i) 189 +2022 Inducement Shares; (ii) 36,406 Bridge Shares; (iii) 1,116,771 True-Up Shares; (v) 145,000 Conversion Shares; (vi) 137,750 Automatic +Conversion Shares; (vii) 2,516 2022 Warrant Shares; (viii) 137,750 2022 Note Conversion Pre-Funded Warrant Shares; (ix) 319,078 Common +Warrant Shares; (x) 123,133 Bridge Pre-Funded Warrant Shares; (xi) 5,510,000 Uplist Conversion Warrant Shares; (xii) 1,116,771 True-Up +Pre-Funded Warrant Shares; (xiii) 357,636 PIPE Investor Warrant Shares; (xiv) 357,636 PIPE Pre-Funded Warrant Shares; (xv) 138,750 2024 +Notes Conversion Shares; (xvi) 134,545 2024 Notes Automatic Conversion Shares; (xvii) 134,545 2024 Note Conversion Pre-Funded Warrant +Shares; (xviii) 18,944 PIPE Advance Penalty Pre-Funded Warrant Shares; (xiv) 56,250 Execution Backstop Pre-Funded Warrant Shares; (xv) +187,500 Funding Backstop Pre-Funded Warrant Shares; (xvi) 134,545 2024 Notes Uplist Conversion Warrant Shares; (xvii) 18,944 PIPE Advance +Penalty Common Warrants; and (xviii) 243,750 Backstop Common Warrants. + + + + + + + 5. + Assuming + exercise or conversion of the warrants or convertible notes held by Sanibel Island Associates LLC (Anestis) ( Sanibel ) + or its affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such warrants + or convertible notes, Sanibel may be deemed to have beneficial ownership of 796,579 shares of Common Stock, which includes + the following: (i) 23 2022 Inducement Shares; (ii) 2,573 Bridge Shares; (iii) 18,012 True-Up Shares; (iv) 18,000 Conversion Shares; + (v) 17,100 Automatic Conversion Shares; (vi) 302 2022 Warrant Shares; (vii) 17,100 2022 Note Conversion Pre-Funded + Warrant Shares; (viii) 5,147 Common Warrant Shares; (ix) 684,000 Uplist Conversion Warrant Shares; and (x) 18,012 True-Up + Pre-Funded Warrant Shares. + + + + + -56- + + Table of Contents + + + + + + + 6. + Assuming + the exercise or conversion of the warrants or convertible notes held by Ana Parker or her affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such warrants or convertible notes, Ms. Parker + may be deemed to have beneficial ownership of 10,488,469 shares of Common Stock, which includes the following: (i) + 24,035 Bridge Shares; (ii) 240,399 True-Up Shares; (iii) 236,631 Conversion Shares; (iv) 224,799 Automatic Conversion Shares; + (v) 224,799 2022 Note Conversion Pre-Funded Warrant Shares; (vi) 68,686 Common Warrant Shares; (vii) 10,308 Bridge Pre-Funded + Warrant Shares; (viii) 8,991,946 Uplist Conversion Warrant Shares; and (ix) 240,399 True-Up Pre-Funded Warrant Shares. + + + + + + + 7. + Assuming + exercise of the warrants held by ProActive Capital Partners, L.P. ( ProActive ) as of June 19, + 2024 and disregarding any limitations on exercise applicable to such warrants, ProActive may be deemed to have beneficial ownership + of 2,431,626 shares of Common Stock, which includes the following: (i) 8,576 Bridge Shares; (ii) 60,034 True-Up Shares; + (iii) 59,158 Conversion Shares; (iv) 51,859 Automatic Conversion Shares; (v) 51,859 2022 Note Conversion Pre-Funded + Warrant Shares; (vi) 17,153 Common Warrant Shares; (vii) 2,074,327 Uplist Conversion Warrant Shares; and (viii) 60,034 True-Up + Pre-Funded Warrant Shares. + + + + + + + 8. + Assuming + exercise or conversion of the warrants or convertible notes held by Michael Abrams or his affiliates as of June 19, + 2024 and disregarding any limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Abrams + may be deemed to have beneficial ownership of 398,810 shares of Common Stock, which includes the following: (i) 1,287 + Bridge Shares; (ii) 9,005 True-Up Shares; (iii) 9,000 Conversion Shares; (iv) 8,550 Automatic Conversion Shares; (v) 8,550 + 2022 Note Conversion Pre-Funded Warrant Shares; (vi) 2,573 Common Warrant Shares; (vii) 342,000 Uplist Conversion Warrant + Shares; and (viii) 9,005 True-Up Pre-Funded Warrant Shares. + + + + + + + 9. + Assuming + exercise or conversion of the warrants or convertible notes held by Jason Adelman or his affiliates as of June 19, + 2024 and disregarding any limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Adelman + may be deemed to have beneficial ownership of 796,420 shares of Common Stock, which includes the following: (i) 2,573 + Bridge Shares; (ii) 18,011 True-Up Shares; (iii) 18,000 Conversion Shares; (iv) 17,100 Automatic Conversion Shares; (v) 17,100 + 2022 Note Conversion Pre-Funded Warrant Shares; (vi) 5,146 Common Warrant Shares; (vii) 684,000 Uplist Conversion Warrant + Shares; and (viii) 18,011 True-Up Pre-Funded Warrant Shares. + + + + + + + 10. + Assuming + exercise or conversion of the warrants or convertible notes held by Centurion Therapeutics, Inc. ( Centurion ) or its + affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such warrants + or convertible notes, Centurion may be deemed to have beneficial ownership of 921,552 shares of Common Stock, which includes + the following: (i) 22,500 Conversion Shares; (ii) 21,375 Automatic Conversion Shares; (iii) 21,375 2022 Note Conversion + Pre-Funded Warrant Shares; and (iv) 855,000 Uplist Conversion Warrant Shares. + + + + + + + 11. + Assuming + exercise or conversion of the warrants or convertible notes held by Drake Partners LLC ( Drake Partners ) or its + affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such warrants + or convertible notes, Drake Partners may be deemed to have beneficial ownership of 398,648 shares of Common Stock, which includes + the following: (i) 1,287 Bridge Shares; (ii) 9,005 True-Up Shares; (iii) 9,000 Conversion Shares; (iv) 8,550 Automatic + Conversion Shares; (v) 8,550 2022 Note Conversion Pre-Funded Warrant Shares; (vi) 2,573 Common Warrant Shares; (vii) 342,000 + Uplist Conversion Warrant Shares; and (viii) 9,005 True-Up Pre-Funded Warrant Shares. + + + + + -57- + + Table of Contents + + + + + + + 12. + Assuming + exercise or conversion of the warrants or convertible notes held by Terrence Norchi or his affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Norchi + may be deemed to have beneficial ownership of 278,093 shares of Common Stock, which includes the following: (i) 858 + Bridge Shares; (ii) 6,004 True-Up Shares; (iii) 6,000 Conversion Shares; (iv) 5,700 Automatic Conversion Shares; (v) 5,700 + 2022 Note Conversion Pre-Funded Warrant Shares; (vi) 1,716 Common Warrant Shares; (vii) 228,000 Uplist Conversion Warrant + Shares; and (viii) 6,004 True-Up Pre-Funded Warrant Shares. + + + + + + + 13. + Assuming + exercise or conversion of the warrants or convertible notes held by Michael Tuttle or his affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Tuttle + may be deemed to have beneficial ownership of 1,228,736 shares of Common Stock, which includes the following: (i) 30,000 + Conversion Shares; (ii) 28,500 Automatic Conversion Shares; (iii) 28,500 2022 Note Conversion Pre-Funded Warrant Shares; + and (iv) 1,140,000 Uplist Conversion Warrant Shares. + + + + + + + 14. + Assuming + exercise or conversion of the warrants or convertible notes held by Trina Whitridge GST Trust ( Whitridge ) or + its affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such + warrants or convertible notes, Whitridge may be deemed to have beneficial ownership of 2,884,318 shares of Common Stock, which + includes the following: (i) 46 2022 Inducement Shares; (ii) 9,435 Bridge Shares; (iii) 66,038 True-Up Shares + (iv) 65,158 Conversion Shares; (v) 61,900 Automatic Conversion Shares; (vi) 604 2022 Warrant Shares; (vii) 61,900 2022 + Note Conversion Pre-Funded Warrant Shares; (viii) 18,868 Common Warrant Shares; (ix) 2,475,987 Uplist Conversion Warrant Shares; + and (x) 66,038 True-Up Pre-Funded Warrant Shares. + + + + + + + 15. + Assuming + exercise or conversion of the warrants or convertible notes held by Mark Woolfson or his affiliates as of June 19, 2024 + and disregarding any limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Woolfson may + be deemed to have beneficial ownership of 995,525 shares of Common Stock, which includes the following: (i) 3,217 + Bridge Shares; (ii) 22,512 True-Up Shares; (iii) 22,500 Conversion Shares; (iv) 21,375 Automatic Conversion Shares; (v) + 21,375 2022 Note Conversion Pre-Funded Warrant Shares; (vi) 6,432 Common Warrant Shares; (vii) 855,000 Uplist Conversion + Warrant Shares; and (viii) 22,512 True-Up Pre-Funded Warrant Shares. + + + + + + + 16. + Assuming + exercise or conversion of the warrants or convertible notes held by Steve Woolfson or his affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Woolfson + be deemed to have beneficial ownership of 1,128,260 shares of Common Stock, which consists of the following: (i) 3,645 Bridge + Shares; (ii) 25,515 True-Up Shares; (iii) 25,500 Conversion Shares; (iv) 24,225 Automatic Conversion Shares; (v) 24,225 + 2022 Note Conversion Pre-Funded Warrant Shares; (vi) 7,290 Common Warrant Shares; (vii) 969,000 Uplist Conversion Warrant + Shares; and (viii) 25,515 True-Up Pre-Funded Warrant Shares. + + + + + + + 17. + Assuming + exercise or conversion of the warrants held by Walleye Opportunities Master Fund Ltd ( Walleye ) or its + affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such + warrants or convertible notes, Walleye may be deemed to have beneficial ownership of 4,241,561 shares of Common Stock, which includes the + following: (i) 37,500 Bridge Shares; (ii) 1,116,743 True-Up Shares; (iv) 319,070 Common Warrant Shares; (v) 122,035 Bridge + Pre-Funded Warrant Shares; (vi) 1,116,743 True-Up Pre-Funded Warrant Shares; (vii) 286,130 PIPE Investor Warrant Shares; and (viii) + 286,130 PIPE Pre-Funded Warrant Shares. + + + + + + + 18. + Assuming exercise or conversion of the warrants held by Sixth Borough Capital Fund, LP ( Sixth Borough ) +or its affiliates as of June 19, 2024 and disregarding any limitations on exercise or conversion applicable to such warrants or convertible +notes, Sixth Borough may be deemed to have beneficial ownership of 1,046,126 shares of Common Stock, which includes the following: (i) +37,500 Bridge Shares; (ii) 318,385 True-Up Shares; (iii) 90,967 Common Warrant Shares; (iv) 7,984 Bridge Pre-Funded Warrant Shares; (v) +318,385 True-Up Pre-Funded Warrant Shares; (vi) 45,000 2024 Notes Conversion Shares; (vii) 43,637 2024 Notes Automatic Conversion Shares; +(viii) 43,637 2024 Notes Conversion Pre-Funded Warrants; and (ix) 43,637 2024 Notes Uplist Conversion Warrants. + + + + + + + 19. + Assuming exercise or conversion of the warrants held by Brandt Wilson and Mona Wilson or their affiliates as of June +19, 2024 and disregarding any limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Wilson and Mrs. +Wilson may be deemed to have beneficial ownership of 5,309,335 shares of Common Stock, which includes the following: (i) 37,500 Bridge +Shares; (ii) 1,116,743 True-Up Shares; (iii) 138,750 2024 Notes Conversion Shares; (iv) 134,545 2024 Notes Automatic Conversion Shares; +(v)134,545 2024 Notes Conversion Pre-Funded Warrants; (vi) 18,944 PIPE Advance Penalty Pre-Funded Warrants; (vii) 56,250 Execution Backstop +Pre-Funded Warrants; (viii) 187,500 Funding Backstop Pre-Funded Warrants; (ix) 134,545 2024 Notes Uplist Conversion Warrants; (x) 18,944 +PIPE Advance Penalty Common Warrants; (xi) 243,750 Backstop Common Warrants; (xii) 319,070 Common Warrant Shares; (xiii) 122,035 Bridge +Pre-Funded Warrant Shares; (xiv) 1,116,743 True-Up Pre-Funded Warrant Shares; (xv) 357,636 PIPE Investor Warrant Shares; and (xvi) 357,636 +PIPE Pre-Funded Warrant Shares. + + + + + + + 20. + Assuming exercise or conversion of the warrants held by Andrew Stahl or his affiliates as of June 19, 2024 and disregarding +any limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Stahl may be deemed to have beneficial +ownership of 5,309,335 shares of Common Stock, which includes the following: (i) 37,500 Bridge Shares; (ii) 1,116,743 True-Up Shares; +(iii) 138,750 2024 Notes Conversion Shares; (iv) 134,545 2024 Notes Automatic Conversion Shares; (v)134,545 2024 Notes Conversion Pre-Funded +Warrants; (vi) 18,944 PIPE Advance Penalty Pre-Funded Warrants; (vii) 56,250 Execution Backstop Pre-Funded Warrants; (viii) 187,500 Funding +Backstop Pre-Funded Warrants; (ix) 134,545 2024 Notes Uplist Conversion Warrants; (x) 18,944 PIPE Advance Penalty Common Warrants; (xi) +243,750 Backstop Common Warrants; (xii) 319,070 Common Warrant Shares; (xiii) 122,035 Bridge Pre-Funded Warrant Shares; (xiv) 1,116,743 +True-Up Pre-Funded Warrant Shares; (xv) 357,636 PIPE Investor Warrant Shares; and (xvi) 357,636 PIPE Pre-Funded Warrant Shares. + + + + + -58- + + Table of Contents + + + + + + + 21. + Assuming + exercise or conversion of the warrants held by John Robert Baleno or his affiliates as of June 19, 2024 and disregarding any + limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Baleno may be deemed to have beneficial + ownership of 209,091 shares of Common Stock, which includes the following: (i) 9,091 Bridge Shares; (ii) 63,636 True-Up + Shares; (iii) 18,182 Common Warrant Shares; and (iv) 63,636 True-Up Pre-Funded Warrant Shares. + + + + + + + 22. + Assuming + exercise or conversion of the warrants held by Roxanne Rosetto or her affiliates as of June 19, 2024 and disregarding any + limitations on exercise or conversion applicable to such warrants or convertible notes, Ms. Rosetto may be deemed to have beneficial + ownership of 104,546 shares of Common Stock, which includes the following: (i) 4,546 Bridge Shares; (ii) 31,818 True-Up Shares; + (iii) 9,091 Common Warrant Shares; and (iv) 31,818 True-Up Pre-Funded Warrant Shares. + + + + + + + 23. + Assuming + exercise or conversion of the warrants held by Robert Forster or his affiliates as of June 19, 2024 and disregarding any limitations + on exercise or conversion applicable to such warrants or convertible notes, Mr. Forster may be deemed to have beneficial ownership + of 522,728 shares of Common Stock, which includes the following: (i) 22,727 Bridge Shares; (ii) 159,090 True-Up Shares; + (iii) 45,455 Common Warrant Shares; and (iv) 159,090 True-Up Pre-Funded Warrant Shares. + + + + + + + 24. + Assuming + exercise or conversion of the warrants held by Thomas Pilgrim or his affiliates as of June 19, 2024 and disregarding any limitations + on exercise or conversion applicable to such warrants or convertible notes, Mr. Pilgrim may be deemed to have beneficial ownership + of 209,091 shares of Common Stock, which includes the following: (i) 9,091 Bridge Shares; (ii) 63,636 True-Up Shares; + (iii) 18,182 Common Warrant Shares; and (iv) 63,636 True-Up Pre-Funded Warrant Shares. + + + + + + + 25. + Assuming + exercise or conversion of the warrants held by Rajiv P. Dewan or his affiliates as of June 19, 2024 and disregarding any limitations + on exercise or conversion applicable to such warrants or convertible notes, Mr. Dewan may be deemed to have beneficial ownership + of 115,000 shares of Common Stock, which includes the following: (i) 5,000 Bridge Shares; (ii) 35,000 True-Up Shares; (iii) + 10,000 Common Warrant Shares; and (iv) 35,000 True-Up Pre-Funded Warrant Shares. + + + + + + + 26. + Assuming + exercise or conversion of the warrants held by David L. McClain or his affiliates as of June 19, 2024 and disregarding any + limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. McClain may be deemed to have beneficial + ownership of 57,500 shares of Common Stock, which includes the following: (i) 2,500 Bridge Shares; (ii) 17,500 True-Up Shares; + (iii) 5,000 Common Warrant Shares; and (iv) 17,500 True-Up Pre-Funded Warrant Shares. + + + + + + + 27. + Assuming + exercise or conversion of the warrants held by Norman McClain or his affiliates as of June 19, 2024 and disregarding any limitations + on exercise or conversion applicable to such warrants or convertible notes, Mr. McClain may be deemed to have beneficial ownership + of 115,000 shares of Common Stock, which includes the following: (i) 5,000 Bridge Shares; (ii) 35,000 True-Up Shares; (iii) + 10,000 Common Warrant Shares; and (iv) 35,000 True-Up Pre-Funded Warrant Shares. + + + + + + + 28. + Assuming + exercise or conversion of the warrants held by Ronald Nash or his affiliates as of June 19, 2024 and disregarding any limitations + on exercise or conversion applicable to such warrants or convertible notes, Mr. Nash may be deemed to have beneficial ownership of + 104,546 shares of Common Stock, which consists of the following: (i) 4,546 Bridge Shares; (ii) 31,818 True-Up Shares; (iii) 9,091 + Common Warrant Shares; and (iv) 31,818 True-Up Pre-Funded Warrant Shares. + + + + + + + 29. + Assuming + exercise or conversion of the warrants held by Richard Molinsky or his affiliates as of June 19, 2024 and disregarding any + limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Molinsky may be deemed to have beneficial + ownership of 156,819 shares of Common Stock, which includes the following: (i) 6,818 Bridge Shares; (ii) 47,726 True-Up + Shares; (iii) 13,636 Common Warrant Shares; and (iv) 47,726 True-Up Pre-Funded Warrant Shares. + + + + + + + 30. + Assuming + exercise or conversion of the warrants held by George Benashivili or his affiliates as of June 19, 2024 and disregarding any + limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Benashivili may be deemed to have beneficial + ownership of 29,612 shares of Common Stock, which includes the following: (i) 1,288 Bridge Shares; (ii) 9,012 True-Up Shares; + (iii) 2,575 Common Warrant Shares; and (iv) 9,012 True-Up Pre-Funded Warrant Shares. + + + + + + + 31. + Assuming + exercise or conversion of the warrants held by Dan Armstrong or his affiliates as of June 19, 2024 and disregarding any limitations + on exercise or conversion applicable to such warrants or convertible notes, Mr. Armstrong may be deemed to have beneficial ownership + of 209,091 shares of Common Stock, which includes the following: (i) 9,091 Bridge Shares; (ii) 63,636 True-Up Shares; + (iii) 18,182 Common Warrant Shares; and (iv) 63,636 True-Up Pre-Funded Warrant Shares. + + + + + + + 32. + Assuming + exercise or conversion of the warrants held by CNP Consulting or its affiliates as of June 19, 2024 and disregarding any limitations + on exercise or conversion applicable to such warrants or convertible notes, CNP Consulting may be deemed to have beneficial ownership + of 40,250 shares of Common Stock, which includes the following: (i) 1,750 Bridge Shares; (ii) 12,250 True-Up Shares; (iii) + 3,500 Common Warrant Shares; and (iv) 12,250 True-Up Pre-Funded Warrant Shares. + + + + + + + 33. + Assuming + exercise or conversion of the warrants held by Ivan Chi Vei Tong or his affiliates as of June 19, 2024 and disregarding any + limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Tong may be deemed to have beneficial + ownership of 57,500 shares of Common Stock, which includes the following: (i) 2,500 Bridge Shares; (ii) 17,500 True-Up Shares; + (iii) 5,000 Common Warrant Shares; and (iv) 17,500 True-Up Pre-Funded Warrant Shares. + + + + + -59- + + Table of Contents + + + + + + + 34. + Assuming + exercise or conversion of the warrants held by Genmark Holdings or its affiliates as of June 19, 2024 and disregarding any + limitations on exercise or conversion applicable to such warrants or convertible notes, Genmark Holdings may be deemed to have beneficial + ownership of 209,091 shares of Common Stock, which includes the following: (i) 9,091 Bridge Shares; (ii) 63,636 True-Up + Shares; (iii) 18,182 Common Warrant Shares; and (iv) 63,636 True-Up Pre-Funded Warrant Shares. + + + + + + + 35. + Assuming + exercise or conversion of the warrants held by Stephen Ross or his affiliates as of June 19, 2024 and disregarding any limitations + on exercise or conversion applicable to such warrants or convertible notes, Mr. Ross may be deemed to have beneficial ownership of + 52,275 shares of Common Stock, which includes the following: (i) 2,273 Bridge Shares; (ii) 15,909 True-Up Shares; (iii) + 4,546 Common Warrant Shares; and (iv) 15,909 True-Up Pre-Funded Warrant Shares. + + + + + + + 36. + Assuming + exercise or conversion of the warrants held by Efrat Investments or its affiliates as of June 19, 2024 and disregarding any + limitations on exercise or conversion applicable to such warrants or convertible notes, Efrat Investments may be deemed to have beneficial + ownership of 104,546 shares of Common Stock, which includes the following: (i) 4,546 Bridge Shares; (ii) 31,818 True-Up Shares; + (iii) 9,091 Common Warrant Shares; and (iv) 31,818 True-Up Pre-Funded Warrant Shares. + + + + + + + 37. + Assuming + exercise or conversion of the warrants held by Daniel Shalhoub or his affiliates as of June 19, 2024 and disregarding any + limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Shalhoub may be deemed to have beneficial + ownership of 52,275 shares of Common Stock, which includes the following: (i) 2,273 Bridge Shares; (ii) 15,909 True-Up + Shares; (iii) 4,546 Common Warrant Shares; and (iv) 15,909 True-Up Pre-Funded Warrant Shares. + + + + + + + 38. + Assuming + exercise or conversion of the warrants held by Jeffrey and Shiela Negus or their affiliates as of June 19, 2024 and disregarding + any limitations on exercise or conversion applicable to such warrants or convertible notes, Mr. Negus and Mrs. Negus may be deemed + to have beneficial ownership of 52,275 shares of Common Stock, which includes the following: (i) 2,273 Bridge Shares; + (ii) 15,909 True-Up Shares; (iii) 4,546 Common Warrant Shares; and (iv) 15,909 True-Up Pre-Funded Warrant Shares. + + + + + + + 39. + Assuming + exercise or conversion of the warrants held by Maxim or its affiliates as of June 19, 2024 and disregarding any limitations + on exercise or conversion applicable to such warrants or convertible notes, Maxim may be deemed to have beneficial ownership of 821 + shares of Common Stock, which consists of the following: (i) 821 2022 Placement Agent Warrant Shares. + + + + + -60- + + Table of Contents + + + + + +PLAN +OF DISTRIBUTION + + + +Each +selling stockholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any +or all of their securities covered hereby on the principal Trading Market or any other stock exchange, market or trading facility on +which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may +use any one or more of the following methods when selling securities: + + + + + + ordinary + brokerage transactions and transactions in which the broker dealer solicits purchasers; + + + + + + + + block + trades in which the broker dealer will attempt to sell the securities as agent but may position and resell a portion of the block + as principal to facilitate the transaction; + + + + + + + + purchases + by a broker dealer as principal and resale by the broker dealer for its account; + + + + + + + + an + exchange distribution in accordance with the rules of the applicable exchange; + + + + + + + + privately + negotiated transactions; + + + + + + + + settlement + of short sales; + + + + + + + + in + transactions through broker dealers that agree with the selling stockholders to sell a specified number of such securities at a stipulated + price per security; + + + + + + + + through + the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; + + + + + + + + a + combination of any such methods of sale; or + + + + + + + + any + other method permitted pursuant to applicable law. + + + + +The +selling stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, +rather than under this prospectus. + + + +Broker +dealers engaged by the selling stockholders may arrange for other brokers dealers to participate in sales. Broker dealers may receive +commissions or discounts from the selling stockholders (or, if any broker dealer acts as agent for the purchaser of securities, from +the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction +not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup +or markdown in compliance with FINRA IM-2440. + + + +In +connection with the sale of the securities or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers +or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they +assume. The selling stockholders may also sell securities short and deliver these securities to close out their short positions, or loan +or pledge the securities to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option +or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the +delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer +or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). + + + +The +selling stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be underwriters +within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers +or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts +under the Securities Act. Each selling stockholder has informed the Company that it does not have any written or oral agreement or understanding, +directly or indirectly, with any person to distribute the securities. + + + +The +Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company +has agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under +the Securities Act. + + + +We +agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the selling stockholders +without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for +the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar +effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule +of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable +state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered +or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is +complied with. + + + +Under +applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously +engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, +prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the +Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the +common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders +and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including +by compliance with Rule 172 under the Securities Act). + + + + -61- + + Table of Contents + + + + + +MANAGEMENT S +DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS + + + +The +following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other sections +of this prospectus, including our audited annual consolidated financial statements and related notes beginning on page F-1 +of this prospectus. This discussion and analysis contains forward-looking statements, including information about possible or assumed +results of our financial condition, operations, plans, objectives and performance that involve risks, uncertainties and assumptions. +See Cautionary Note Regarding Forward-Looking Statements beginning on page 2 +of this prospectus. Our actual results may differ materially from those anticipated or suggested in any forward-looking statements. + + + +Corporate +Overview + + + +Arch +Therapeutics, Inc. (together with its subsidiary, the Company or Arch ) is a biotechnology company developing and marketing products based on our +innovative AC5 self-assembling technology platform. Archa rose from the June +26, 2013 merger (the Merger ) of three entities previously known as Arch Biosurgery, Inc., Almah, Inc., and Arch +Acquisition Corporation, respectively. + + + +Arch +Biosurgery, Inc. ( ABS ) is a biotechnology company that was incorporated under the laws of the Commonwealth of Massachusetts +on March 6, 2006 as Clear Nano Solutions, Inc., changed its name from Clear Nano Solutions, Inc. to Arch Therapeutics, Inc. on April +7, 2008, and, as part of the Merger transaction, changed its name from Arch Therapeutics, Inc. to Arch Biosurgery. + + + +Almah, +Inc., was incorporated under the laws of the State of Nevada on September 16, 2009 and, as part of the Merger transaction, changed its +name to Arch Therapeutics, Inc. and abandoned both its prior business plan and operations in order to adopt those of ABS. + + + +Arch Acquisition Corporation (the Merger Sub ), was a wholly +owned subsidiary of Almah, Inc., formed for the purpose of the Merger transaction, pursuant to which the Merger Sub merged with and into +ABS, and ABS thereafter became the wholly owned subsidiary of the Company. + + + +The +Company s principal offices are located in Framingham, Massachusetts. + + + +The Company has recently devoted a substantial part of its operational +effort to the market adoption and commercial sales of AC5 Advanced Wound System, its first product. To date, the Company has principally +raised capital through debt borrowings, the issuance of convertible debt, and the issuance of units consisting of shares of Common Stock +and warrants to purchase Common Stock. + + + +The +Company expects to incur substantial expenses for the foreseeable future relating to research, development and commercialization of current +and potential products. However, there can be no assurance that the Company will be successful in securing additional capital 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 for one year past the issuance of the financial statements. The consolidated financial statements do not include any +adjustments related to the recoverability of assets that might be necessary despite this uncertainty. + + + +Our Company + + + +We are a biotechnology company marketing and 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 managing wounds created during surgery, trauma or interventional care, or from disease; +stopping bleeding (hemostasis); and controlling leaking (sealant). We have recently devoted a substantial part of our operational effort +to the market adoption and commercial sales of AC5 Advanced Wound System, our first product. Our goal is to make care faster and safer +for patients by providing products for use on external wounds, which we refer to as Dermal Sciences applications, and products for use +inside the body, which we refer to as BioSurgery applications. + + + +Commercial +Update + + + +During +its fourth fiscal quarter ended September 30, 2023, the Company experienced a significant increase in AC5 orders, posting record monthly +order volumes during both August and September. Taken together, orders from August and September represented more than half of total +fiscal year volume, and September orders more than doubled August orders. The Company also observed favorable coverage and reimbursement +decisions from multiple payors in different regions of the country with a commensurate increase in paid claims. Early in the fourth fiscal +quarter, the Company received its first payment from a provider as a result of a paid claim for reimbursement of AC5 using A2020, and +the number of paid claims across different payor networks increased throughout the quarter. Throughout the first fiscal quarter ended +December 31, 2023 and second fiscal quarter ending March 31, 2024, the number of providers using AC5 and the number of related coverage +and reimbursement decisions continued to expand. While numbers remain expectedly modest, the Company is optimistic that its ongoing efforts +will result in contracted pricing opportunities with several regional Medicare Administrator Contractors, which management believes is +the next important milestone in the Company s comprehensive strategic commercialization plan. + + + +Core +Technology + + + +Our flagship product 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 (US) and the European +Union (EU), respectively, and which are intended for skin applications, such as management of complicated chronic wounds and acute surgical +wounds. Marketing for AC5 Topical Hemostat in the EU has not initiated. Other products are in development for use in minimally invasive +or open surgical procedures and include, for example, AC5-G 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. + + + + -62- + + Table of Contents + + + + + +Products +based on the AC5 platform contain a proprietary biocompatible peptide that is synthesized from proteinogenic, 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 tissue and self-assemble (i.e., self-build) 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 semi-solid physical-mechanical barrier that interacts with the extracellular matrix, + is responsible for sealant, hemostatic and/or other properties that may be observed even in the presence of antithrombotic agents + (i.e., blood thinners), 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. Furthermore, we believe that AC5 SAP technology permits cell +and tissue growth and is self-healing, in that it can dynamically self-repair around migrating cells. 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, +self-assembles into a wound care matrix that can provide clinicians with multi-modal support, 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 for wounds inside or on the body, including those for which +a hemostatic agent or sealant is needed. 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 SurgeryTM. +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. +AC5 Topical Hemostat has not yet been marketed in Europe but has received marketing authorization. + + + +Sales +and marketing efforts for our AC5 Advanced Wound System, which has received 510(k) marketing clearance from the FDA, address the demand +for improved solutions to treat challenging chronic and acute surgical wounds, with a particular early focus on diabetic foot ulcers, +venous leg ulcers and pressure ulcers. Chronic wounds are typically defined as wounds that have not healed after four weeks of standard +care. Approximately 4 million to 6.5 million new onset chronic wounds are estimated to occur in the U.S. annually, including approximately +700,000 to 2 million diabetic foot ulcers, 2.5 million pressure ulcers, and 1.2 million venous leg ulcers. If untreated, improperly treated +or unresponsive to treatment, these wounds can ultimately lead to amputation. The 5-year mortality rate among patients with chronic wounds, +especially after an amputation, is significant. + + + + -63- + + Table of Contents + + + + + +Published +data on AC5 Advanced Wound System shows encouraging outcomes, including limb salvage (avoided limb loss), among patients with multiple +co-morbidities and challenging chronic wounds that failed to heal despite treatment with either traditional or other advanced wound care +modalities over prolonged periods of time. + + + +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; supporting surgeons performing clinical case studies; obtaining post-marketing +clinical data; 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: + + + + + + growing + revenues and building upon recent commercial momentum by driving product awareness, continued adoption and favorable payment policies + for AC5 Advanced Wound System with the now-effective CMS Level II HCPCS code dedicated to AC5; + + + + + + + + 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 third party 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. + + + + +To +support our long-term business goals, we expect to focus on the following activities during the next twelve months: + + + + + + further + develop our product clinical profile; + + + + + -64- + + Table of Contents + + + + + + + + enhance + product packaging features; + + + + + + + + identify + and address opportunities for supply chain efficiencies; + + + + + + + + assess + our technology platform in order to identify and select product candidates for potential advancement into development; + + + + + + + + seek + additional funding as required to support the previously described milestones necessary to support our operations; + + + + + + + + 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, maintaining granted patents in desired jurisdictions, and/or adding to our trade secrets in self-assembly, manufacturing, + analytical methods and formulation, as appropriate. + + + + +In +addition to capital required for operating expenses, depending upon input from regulatory authorities, authorized representatives, patent +and trademark offices, or other agencies in the US, EU or elsewhere, as well as for potential additional regulatory filings and approvals +during the approximately next two years, additional capital will be required. + + + +We +have no commitments for future capital. We will require significant additional financing to fund our planned operations, including, but +not limited to, further research and development relating to AC5; seeking regulatory approval for any product we may choose to develop, +launch or license; commercializing any product for which we are able to obtain regulatory approval or certification; seeking to license +or acquire new assets or business; supporting our intellectual property rights; pursuing new technologies; and financing the investor +relations and incremental administrative costs associated with being a public corporation. We do not presently have, nor do we expect +in the near future to have, sufficient revenue to fund our business from operations, and we will need to obtain substantially all of +our necessary funding from external sources for the foreseeable future. We may not be able to obtain additional financing on commercially +reasonable or acceptable terms when needed, or at all. 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. + + + +The +estimated capital requirements could potentially 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 . We anticipate +that our operating and other expenses will continue to increase as we continue to implement our business plan and pursue and achieve +these goals. After giving effect to the funds received in past equity and debt financings and assuming our use of that funding at the +rate we presently anticipate, as of June 19, 2024, we do not believe that our current cash on hand is sufficient to meet our anticipated +cash requirements through the end of June 2024, and we must obtain additional financing in order to continue to operate our business. +Even if this offering is successful, we could spend our financial resources much faster than we expect, in which case we would need to +raise additional capital. + + + +Research +and Development + + + +Preclinical +and clinical testing is required in order to receive regulatory marketing authorizations for our products and to support those products +upon and after commercialization, and we anticipate continuing such testing as appropriate. + + + +Preclinical +Testing + + + +We +have engaged and continue to engage third parties in the United States and abroad to advise on and/or perform certain preclinical and +related activities, typically with assistance from our team. These third parties can include contract research organizations, academic +institutions, consultants, advisors, scientists, clinicians, and other collaborators. + + + +We +have conducted, and anticipate continuing to conduct, in vivo and in vitro research and development studies on our products and product +candidates. A co-founding inventor of certain of our technology, Dr. Rutledge Ellis-Behnke, performed a significant portion of the early +preclinical animal experiments conducted with our technology. Some of the most significant findings from Dr. Ellis-Behnke s studies +have been published. Additionally, through collaborations with the National University of Ireland system and related parties, preclinical +bench-top and animal research and development studies were performed in Dublin, Cork and Galway, Ireland over an approximately eight-year +period that concluded in the third quarter of fiscal 2018. + + + +Before +initiating our clinical trials and submitting marketing applications for a given product in most jurisdictions, we complete a biocompatibility +assessment using a battery of standard in vitro and in vivo tests. Examples of such tests may include the following, as set forth in +ISO 10993 issued by the International Organization for Standardization: + + + + -65- + + Table of Contents + + + + + + + + in + vitro cytotoxicity; + + + + + + + + in + vitro blood compatibility; + + + + + + + + irritation/intracutaneous + reactivity; + + + + + + + + sensitization + (allergenic reaction); + + + + + + + + implantation + (performed on devices that contact the body s interior); + + + + + + + + pyrogenicity + (causing fever or inflammation); and + + + + + + + + systemic + toxicity. + + + + +We +completed the biocompatibility studies required to receive marketing authorizations for AC5 Advanced Wound System in the United States +and AC5 Topical Hemostat in Europe, and such test results support that the products are biocompatible. We plan to perform further biocompatibility +testing that we deem necessary for additional indications, classifications, jurisdictions, and/or as required by regulatory authorities. + + + +Acute +and survival animal studies assessing the safety and performance of our technology have also demonstrated favorable outcomes in Dermal +Sciences and BioSurgery applications. + + + +Porcine +studies, also known as swine or pig studies, are often selected due to the morphological, physiological, and biochemical similarities +between porcine skin and human skin and are very useful to assess the performance of AC5 Advanced Wound System or AC5 Topical Hemostat +as a barrier and advanced wound dressing, as well as their safety and effects on healing. + + + +In +an assessment versus saline in a porcine partial thickness excision wound model, tissue response to AC5 Advanced Wound System over a +28-day follow-up period was consistent with normal wound healing and included complete re-epithelialization, normal collagen organization +and minimal inflammation, and TTH was faster. + + + +In +an assessment versus both a market leading skin substitute and saline in a porcine full thickness 10 mm punch biopsy wound model, AC5 +Advanced Wound System was solely associated with complete epithelialization by the end of the 11-day study. + + + +In +an assessment versus both a market leading antimicrobial burn dressing, a hydrogel, and saline in a porcine second degree burn wound +model, AC5 Advanced Wound System was associated with less progression of thermal damage and less inflammation over three days. + + + +Arch +Therapeutics AC5 technology has also demonstrated hemostasis in liver and other organs in in vivo surgical models, including rapid +hemostasis within 15 seconds. In a range of small and large animal models, our compositions have been shown to stop bleeding, seal leaking, +allow for normal healing, and mitigate inflammation while being biocompatible. + + + +The +AC5 technology has also demonstrated rapid average TTH when applied to a range of animal tissues. Certain surgical procedure studies +have assessed TTH when using AC5 Surgical Hemostat as well as using an active control, a saline control, a peptide control, and a cautery +control. The results of those tests have shown a TTH of approximately 10 - 30 seconds when AC5 Surgical Hemostat was applied, compared +to 80 seconds to significantly more than 300 seconds when various control substances were applied, depending on the nature of the control +substance and procedure performed. In several studies comparing AC5 Surgical Hemostat to popular commercially available branded hemostatic +agents (absorbable cellulose, flowable gelatin with and without thrombin, and fibrin) applied to stop the bleeding from full thickness +penetrating wounds surgically created in rat livers, AC5 Surgical Hemostat achieved hemostasis in significantly less than 30 seconds, +whereas control products took from over 50% - 400% longer to achieve hemostasis. + + + +The +AC5 technology was also demonstrated in preclinical tests to stop surgically induced liver bleeding in animals that had been treated +with therapeutic amounts of anticoagulant and antiplatelet medications, collectively known as antithrombotic medications and commonly +called blood thinners. In one preclinical study, an independent third-party research group obtained positive data assessing +the use of AC5 Surgical Hemostat in animals that had been treated with therapeutic doses of the antiplatelet medications Plavix +(clopidogrel) and aspirin, alone and in combination. The results of the study were consistent with data obtained from two prior preclinical +studies, in which AC5 Surgical Hemostat quickly stopped bleeding from surgical wounds created in rats following treatment with clinically +relevant doses of the anticoagulant medication heparin. In these studies, the average TTH after AC5 Surgical Hemostat was applied to +bleeding liver wounds in animals that had received anticoagulant medication was comparable to the average TTH as measured in their non-anticoagulated +counterparts. + + + +AC5-V +was assessed for its ability to provide hemostasis after bleeding was intentionally created at vascular reconstruction sites in preclinical +studies. In an acute study in swine that had been premedicated with therapeutic doses of heparin before undergoing end-to-end femoral +artery anastomosis and synthetic graft to vessel anastomosis in carotid and femoral arteries, AC5-V promoted effective hemostasis at +the vascular anastomotic site and allowed for clear visualization of the surgical site. + + + + -66- + + Table of Contents + + + + + +In +a 14-day survival study in sheep that had been premedicated with therapeutic doses of heparin before undergoing end-to-side anastomosis +between synthetic vascular grafts and carotid arteries, AC5-V promoted effective hemostasis at the vascular anastomotic site, the graft +remained patent during the study as assessed by angiography and ultrasound, clinical observations were normal during the study, and tissue +response as assessed by histopathological examination at the end of the study was consistent with expectations for a biodegrading implant. + + + +AC5-G +was studied in swine to assess visualization, submucosal lift generation and durability, and hemostatic and sealant performance when +used during endoscopic mucosal resections and endoscopic submucosal dissections as well as hemostatic performance during endoscopic management +of gastrointestinal bleeding. AC5-G was easily delivered through a 25G endoscopic injection needle into the tissue and provided a durable +submucosal lift in the gastric antrum that lasted beyond 2 hours. When delivered with the visualizing agent prior to tissue dissection, +AC5-G allowed for easy visualization with both snare and electrosurgical knives, and no visible bleeding was observed following polyp +removal. AC5-G was also shown to provide hemostasis in actively bleeding lesions when applied with or without the visualizing agent either +topically to a bleeding site or when injected into the nearby mucosa. AC5-G was found to be useful in conjunction with clips as a potential +sealant when applied following application of clips to a post-polypectomy site for the purpose of mitigating leaks and potentially enabling +healing. + + + +The +AC5 self-assembling peptide was studied in an experimental intraocular inflammation model of injected Lipopolysaccharide (LPS), +in which an intraocular application of the peptide with LPS was associated with a marked reduction in retinal inflammation. The density +of activated retinal microglial cells was significantly lower in the eyes of the study animals with LPS and AC5 than in the eyes of the +LPS-only control group. The results suggest that the AC5 self-assembling peptide may reduce inflammation and may represent a new class +of devices that act as anti-inflammatory agents to control ocular inflammation. + + + +Clinical +Testing + + + +We +have engaged and continue to engage third parties in the United States and abroad to advise on and/or perform certain clinical studies +and related activities, typically with assistance from our team. These third parties can include contract research organizations, academic +institutions, consultants, advisors, scientists, clinicians, and other collaborators. + + + +In +order to enroll patients in a clinical trial, we are required to obtain each patient s informed consent in a form and substance +that complies with the FDA and/or other regulatory authority requirements as well as state and federal privacy and human subject protection +regulations. + + + +We +have completed two randomized controlled clinical studies to date. The first study, which met its primary and secondary endpoints, assessed +the safety and performance of AC5 in 46 patients with bleeding skin wounds, including a group of patients taking anti-platelet medications +(i.e., a blood thinner) that resulted from excision of skin lesions and followed for 30 days. The second study assessed AC5 on skin, +determining that it was neither an irritant nor a sensitizer, and no immunogenic response or other adverse events attributable to this +product were reported in any of the approximately 50 enrolled volunteers. The AC5 product candidate in these studies subsequently received +marketing authorization and is presently known as AC5 Advanced Wound System in the US and AC5 Topical Hemostat in the EU. + + + +Post +marketing clinical case reports have been published demonstrating both efficacy and safety in a range of challenging acute surgical or +chronic wounds on patients. + + + +Many +factors could lead to delays or inefficiencies in conducting clinical trials, some of which are discussed under the heading RISK +FACTORS in this prospectus. Further, we, the FDA or an institutional review board (IRB could suspend a clinical trial at any +time for various reasons, including a belief that the risks to the subjects of the trial outweigh the anticipated benefits. Even if a +trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise +not be sufficient to obtain FDA clearance or approval to market the product in the US. + + + +Commercialization + + + +Our +Dermal Sciences products are AC5 Advanced Wound System in the United States and AC5 Topical Hemostat in Europe, and the indication for +use, or purpose, for each product follows, respectively: + + + + + + Under + the supervision of a health care professional, AC5 Advanced Wound System is a topical dressing used for the management of partial + and full-thickness wounds, such as pressure sores, leg ulcers, diabetic ulcers, and surgical wounds. + + + + + + + + AC5 + Topical Hemostat is intended for use locally 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. + + + + + -67- + + Table of Contents + + + + + +Our +commercialization efforts are currently focused on Dermal Sciences. Our BioSurgery products for internal use will require additional +preclinical and clinical testing before we seek marketing authorization to commercialize them. + + + +For +at least the near term future, in order to maximize operational efficiencies and to account for changing landscapes since the COVID-19 +pandemic during which both marketing authorizations were received, we have prioritized the launch of AC5 Advanced Wound System in the +United States over that of AC5 Topical Hemostat in Europe, where we have not launched. + + + +We +expect the commercialization ramp to be gradual through 2024 and into 2025, while we encourage product use among key opinion leaders +and early adopters in developing market channels, and then moderately accelerate. + + + +We +recently started to commercialize AC5 Advanced Wound System. We rely on both an internal commercial team and independent sales distributors +to drive awareness and adoption of AC5 Advanced Wound System in several targeted channels with a particular focus on physician offices +and government channels, such as Veterans Health Administration (VA) hospitals and military treatment facilities. These settings tend +to have many patients whose needs we believe can be addressed by AC5 Advanced Wound System because it is a synthetic self-assembling +wound care product that provides clinicians with multi-modal support and utility across all phases of wound healing. Numerous published +case studies and accolades highlight the efficacy and safety of AC5 in the treatment of challenging chronic and acute surgical wounds, +including limb salvage and healing after other modalities have failed. + + + +We +anticipate that material growth in the physician office setting will require product reimbursement. To that end, we applied to the Centers +for Medicare and Medicaid Services (CMS) for a dedicated Healthcare Common Procedure Coding System (HCPCS) Level II reimbursement code +specific to AC5 Advanced Wound System to better enable providers to bill third party payors for AC5 that is used in doctors offices. +The unique HCPCS code, A2020, was granted and made effective on April 1, 2023. A dedicated HCPCS code is an important step toward, although +not a guarantee of, coverage and reimbursement, and we intend it to enhance our ability to work directly with payors as we expand access +in outpatient settings and continue to advocate for clinically appropriate usage of our technology for patients. + + + +In +support of the government market, we partnered with Lovell Government Services (LGS), a service-disabled veteran-owned small business, +to be our government channel distributor. As a direct result of our relationship with LGS, AC5 Advanced Wound System has been added to +the four major government contracting vehicles: Federal Supply Schedule (FSS), General Services Administration (GSA) schedule, Defense +Logistics Agency s Medical Electronic Catalog Program (ECAT), and Distribution and Pricing Agreement (DAPA). This listing enables +purchase by federal government agencies, including the Department of Veterans Affairs (VA), Indian Health Services (IHS), and Department +of Defense (DOD) Medical Treatment Facilities, and it allows doctors in government channels to order AC5 Advanced Wound System. + + + +Our +internal core team oversees AC5 Advanced Wound System sales, marketing, and inventory distribution from the warehouse to the customer. +We envision hiring additional internal sales representatives to support commercialization. + + + +We +have partnerships with reputable, value-added independent sales representatives and distributors, and we expect to add more collaborative +agreements on a case-by-case basis to expand the overall reach and footprint of the sales organization. Such collaborations may include +strategic partners. We anticipate that we will also periodically terminate certain agreements based on performance or other business +criteria. + + + +We +are committed to continuous improvement processes. We collect feedback and data when feasible and appropriate to both develop and commercialize +products that serve patients and doctors; to develop marketing messages; to learn about product use; to evaluate product performance +in different settings; to improve our products; to address reimbursement needs; and to support collaborations that we may have or may +establish. Data has been and will continue to be collected by informal feedback, observational case reports and/or clinical trials. + + + +The +COVID-19 Pandemic Impact on Commercialization + + + +The +COVID-19 pandemic environment introduced significant challenges related to product launch, marketing and sales. While the overall environment +has improved, negative direct and indirect effects may variously wax and wane. Some effects that we periodically observe include curtailed +access to non-US surgeons, facilities, and potential strategic partners, as well as to some US medical facilities. + + + +The +pandemic brought additional attention to the tendency for interventions for wounds to be too often considered elective procedures instead +of essential or emergent, as National Pressure Ulcer Advisory Panel guidelines and others recommend, resulting in a projected increased +risk to limb and life. Furthermore, the implications of these delays are a growing backlog of chronic wounds awaiting care and a worsening +of such wounds, leading to greater morbidity, such as infection, necrosis, and amputation, and potentially mortality. + + + + -68- + + Table of Contents + + + + + +We +believe that these challenges reveal an underlying problem in the healthcare system clinicians and other providers are being asked +to accomplish more in less time with fewer resources. These resources may include higher acuity settings, such as operating rooms; expensive +wound care products that may not work as well as desired; nursing time to change wound dressings; and surgeon time for managing wounds +during debridement; repeat patient visits over months and often years, and others. Our discussions with surgeons, economic stakeholders +and other decision-making personnel often include whether AC5 Advanced Wound System may enable them to accomplish more for their patients +while deploying overall fewer resources and achieving desired outcomes. + + + +We +believe that these challenges may present an opportunity for new technology, such as ours, to address poorly met needs and limited healthcare +overall resources. + + + +Manufacturing + + + +We +work with contract manufacturing and related organizations, including those operating under cGMP, as is required by applicable regulatory +agencies for production of products that can be used for preclinical and human testing as well as for commercial use. We also have engaged +and continue to engage other third parties in the United States and abroad to advise on and perform certain manufacturing and related +activities, typically with assistance from our team. The activities include development of our primary product candidates, as well as +generation of appropriate analytical methods, scale-up, and other procedures for use by manufacturers and/or other members of our supply +chain to produce or process our products at current and/or larger scale quantities for research, development, and commercialization. + + + +Our +products are regulated as medical devices, and as such, many of our activities have focused on optimizing traditional parameters to target +specifications, biocompatibility, physical appearance, stability, and handling characteristics, among other metrics, to achieve the desired +product. We and our partners intend to continue to monitor manufacturing processes and formulation methods closely, as success or failure +in establishing and maintaining appropriate specifications may directly impact our ability to conduct additional preclinical and clinical +trials, and/or deliver commercial products. + + + +We +believe that the manufacturing methods used for a product, including the type and source of ingredients and the burden of waste byproduct +elimination, are important determinants of its opportunity for profitability. Industry participants are keenly aware of the downsides +of products that rely on expensive biotechnology techniques and facilities for manufacture, onerous and expensive programs to eliminate +complex materials, or ingredients that are sourced from the complicated process of human or other animal plasma separation, since those +products typically are expensive, burdensome to produce, and at greater risk for failing regulatory oversight. + + + +Industry +and Competition + + + +Arch +is developing technology for Dermal Sciences and BioSurgery applications. We seek to provide a product set with broad utility in external +and internal applications. Features of the technology highlight its potential utility in a range of settings, including traditional open +procedures and the often more challenging minimally invasive surgeries. + + + +Common +features of our current and planned products, as described herein, are driven by the mechanism of action, which itself is derived from +the underlying physicochemical properties or our AC5 self-assembling peptide technology and Arch s product safety and performance +specifications. Those features, which include, among others, that they possess barrier properties and can create an environment permissive +to healing, can deliver a benefit in the treatment of external and internal wounds that are open, exposed, bleeding, leaking, and/or +at risk for excessive inflammation or contamination. + + + +Dermal +Sciences + + + +We +have received marketing authorizations for AC5 Advanced Wound System in the United States and AC5 Topical Hemostat in Europe. Compared +to many other advanced wound dressings on the market, ours can be used throughout all phases of wound healing (i.e., inflammatory, proliferative, +and remodeling). + + + +Wounds +can vary widely in terms of degree of bleeding and oozing, chronicity, acuity, complications, anatomic location, biochemistry, micromilieu, +bioburden and other factors that may inhibit an ideal response. Patients can also vary widely in terms of co-morbidities, compliance, +setting of their care, ability to contribute to their own care, and other risk factors. And the approach by surgeons to clinical practice +can vary widely in terms of debridement strategy, timing and/or use of advanced modalities, choice and use of consumables, follow-up, +and dressing change frequency, and more. Our products are designed to self-assemble on the wound site in response to locally present +stimuli (ions), despite these diverse situations, with the objective of providing greater utility to clinicians and enabling better outcomes +for patients. + + + +The +incidence and prevalence of both acute surgical and chronic wounds is noteworthy. According to a 2020 report by Steiner et al for The +Healthcare Cost and Utilization Project (www.ncbi.nlm.nih.gov/books/NBK442035), approximately 17 million hospital visits (inpatient and +ambulatory) in 2014 resulted in almost 22 million invasive therapeutic surgeries. While more acute surgical wounds occur per year versus +chronic wounds, the nature of chronic wounds provides greater challenges due to the prolonged duration of the healing period, the frequency +of interventions needed to help the wound heal, and the often-underlying medical problem that placed the patient at risk for the wound +in the first place, which is itself a hindrance to the healing process. + + + + -69- + + Table of Contents + + + + + +Chronic +wounds affect approximately 2% of the United States Population, accounting for an estimated 6-7 million people (https://www.facs.org/media/buthal55/nonhealing_wounds.pdf; www.doi.org/10.1111/wrr.12994; www.doi.org/10.1186/s13643-016-0400-8; www.doi.org/10.19080/ARR.2020.06.555678). + + + +Diabetic +foot ulcers develop in approximately 2 million Americans each year, according to The Health Innovation Program, University of Wisconsin +(https://hip.wisc.edu/DiabeticFootUlcers), while the annual incidence across developed countries is estimated to be 2-4%, according to +Woods et al in 2020 (www.doi.org/10.1371/journal.pone.0232395). Pressure ulcers develop in over 2.5 million Americans each year, according +to the United States Agency for Healthcare Research & Quality (www.ahrq.gov/topics/pressure-ulcers.html). + + + +Venous +leg ulcers, representing the most common chronic wounds, occur in approximately 2.2% of Americans over age 65 each year, according to +Rice et al in 2014, which equates to roughly 1.2 million new wounds per year among just that population (www.doi.org/10.3111/13696998.2014.903258), +while Qiu et al in 2021 provided an estimated prevalence of 2-4% (www.doi.org/10.3389/fmed.2021.614059). The Centers for Disease Control +and Prevention estimates that approximately 56 million Americans are over age 65. Additional chronic wounds not accounted for above can +include, among others, surgical wounds that become chronic wounds, typically in patients with co-morbidities. + + + +The +morbidity and mortality associated with wounds, and particularly chronic wounds, is problematic. A 2017 article by J rbrink et al +noted that chronic wounds may not heal for several years or, in some cases, decades, during which time the patient may suffer from severe +pain, emotional and physical distress, less mobility and greater social isolation, while the family may suffer from other stresses and +challenges (www.doi.org/10.1186/s13643-016-0400-8). Woods et al in 2020 stated that only 2/3 of diabetic foot ulcers heal within 12 months +(www.doi.org/10.1371/journal.pone.0232395). Some wounds just do not heal, remaining stagnant or progressing to limb loss or worse. J rbrink +et al noted in 2017 that ulcers precede 85% of all amputations (www.doi.org/10.1186/s13643-016-0400-8). + + + +The +Health Innovation Program, University of Washington, cited that of patients with diabetic foot ulcers in the United States, more than +50% will die within five years and 5% will have an amputation (https://hip.wisc.edu/DiabeticFootUlcers). A common phrase in medicine, +which we often cite, is, Save a limb, save a life. Even the amputations that are required to save a patient from a non-healing, +progressing chronic wound are associated with additional significant morbidity and mortality. In an examination of mortality rates after +amputations from a chronic wound, Meshkin et al performed a systematic literature review and found that of the sixty-one studies yielding +approximately 36,000 patients who previously received a nontraumatic major lower extremity amputation, approximately 34% died by year +one, 55% died by year two, and 64% died by year five (http://www.doi.org/10.1053/j.jfas.2020.06.027). Stern et al in 2017 reported an +even higher mortality rate one year after amputation of approximately 48% (www.doi.org/10.1016/j.avsg.2016.12.015). + + + +According +to the US Market Report for Wound and Tissue Management, 2018, by iData Research, advanced wound dressings account for approximately +$2 billion in annual revenues while the overall wound care market is projected to surpass $10 billion in the United States, yet this +represents a relatively small percentage of the overall cost to care for wounds, including chronic wounds, such as venous leg ulcers, +diabetic foot ulcers, and pressure ulcers. + + + +As +such, the total expenditure required to treat wounds is an important consideration in assessing market opportunity, product need, industry +dynamics, and needs of insurers. Several wound related phenomenon influence the overall cost and challenge of wound care. For instance, +many surgeons believe that a chronic wound is essentially a chronic infection, which raises costs and complicates treatment plans, and +that healing requires aggressive debridement (surgical removal of damaged, dead, lacerated, devitalized, or contaminated tissue), which +narrows the scope of which wound care products can be used at the time of the procedure as a useful tool to support healing. + + + +According +to a 2018 report by Nussbaum et al., data from calendar year 2014 estimated that Medicare alone spent between $28.1 to $96.8 billion +for all wound care types, and that nearly 15% ($8.2 million) of Medicare beneficiaries were diagnosed with at least one type of wound +or wound-related infection (https://www.doi.org/10.1016/j.jval.2017.07.007). Furthermore, a 2017 report by Chan et al indicated that +the mean one-year cost of care from the perspective of a health-care public payer was $44,200 for a diabetic foot ulcer, $15,400 for +a pressure ulcer and $11,000 for a leg ulcer (https://www.doi.org/10.12968/jowc.2017.26.sup4.s4). Woods et al in 2020 estimated that +the cost per admission among patients with diabetic foot ulcers was $8,145 if the wound was not infected and $11,290 if the wound was +infected (www.doi.org/10.1371/journal.pone.0232395). Han et al noted in 2017 that lessening a hospital admission by just one day represents +an enormous cost savings and is separately beneficial to the patient (https://www.doi.org/10.1007/s12325-017-0478-y). + + + +A +common wound care topic, which has been further highlighted during the COVID-19 pandemic, is how to provide high quality care in lower +acuity settings. It is less expensive, more convenient, and potentially better for the patient if a wound care procedure, such as debridement, +can be safely performed in a doctor s office or wound clinic in lieu of a hospital operating room. For example, a report by Rogers +et al in 2020 discussed changing sites of service to the lowest acuity setting in which care could be safely delivered (https://www.researchgate.net/publication/340950761). +As such, we believe that wound care products should be designed to enable clinicians to do more with less , such as debride +in a clinic or office a wound that otherwise may have required an operating room visit. + + + + -70- + + Table of Contents + + + + + +While +the wound care opportunity is large for safe, efficacious, and novel products, the competitive landscape is also crowded and challenging. +For instance, while many of the commercially marketed advanced wound care dressings or other products, may provide utility in certain +situations, and possess some novel features, surgeons often describe an inability to differentiate one from the other. In addition, many +advanced products are expensive when accounting for wound surface area coverage, are not user friendly, and/or may need to rely on the +passage of several weeks of time for the wound bed to adequately be prepared before they can be used, which itself adds burden to their +use. + + + +We +believe that the aforementioned elevated wound incidence and prevalence, consequential morbidity and mortality, prolonged healing times +and exorbitant cost of overall care underscores the potential opportunity for the overall market and for our products. We believe that +the addressable market opportunity for advanced wound care products in the US alone can exceed $20 billion if improvements enable the +best products to increase penetration at the expense of less effective wound care products and categories, lessen expensive non-product-related +treatment costs for insurers (e.g., skin grafts, dressing changes, etc.), and deliver improved outcomes more quickly and in lower acuity +settings. + + + +We +believe that AC5 Advanced Wound System is sufficiently differentiated to replace certain competitive products, will complement other +products and procedures by potentially enabling the wound bed to be ready sooner, and will enable more procedures to be done sooner and/or +in settings where they could not be performed easily before. + + + +Features +and benefits of AC5 Advanced Wound System may include that it: + + + + + + is + a self-assembling wound care matrix and may provide better outcomes across all phases of wounds; + + + + conforms + to irregularly shaped wound geometry; + + + + may + be used in either lower acuity (e.g., doctor s offices) or higher acuity (e.g., operating rooms) settings; + + + + can + be used in conjunction with aggressive surgical debridement; + + + + can + be used on a wound whether or not it is bleeding; + + + + is + agnostic to the presence of anti-thrombotic therapy (aka, blood thinners); + + + + can + be used on a chronic, stalled wound that has been previously unresponsive to or failed treatment regimens; + + + + provides + a protective barrier to mitigate contamination and modulating inflammation; + + + + donates + moisture to the wound; + + + + can + create wound microenvironment conducive to healing; + + + + aids + in epithelial cell migration; + + + + creates + an extracellular matrix-like structure to enable cell and tissue growth; + + + + is + self-healing, in that it can dynamically self-repair around migrating cells; + + + + may + reduce healing time and patient burden; + + + + is + user-friendly, easy to prepare, and easy to apply; + + + + may + be stored at ambient temperature; and + + + + may + reduce treatment costs while improving outcomes in certain patients. + + + + +BioSurgery + + + +We +are developing BioSurgery products for internal use, including for hemostasis and sealant applications, and gastrointestinal endoscopic +surgical procedures, and we believe that our technology will be useful in addressing the constant demand for better performance and safety +in minimally invasive surgery (MIS), traditional surgery, Natural Orifice Translumenal Endoscopic Surgery (NOTES), and other procedures. + + + +While +developing our products, we engaged commercial strategy and marketing consultants and communicated directly with care providers to understand +the needs of potential customers and to assess product feature preferences. Surgeons, operating room managers, sales representatives +and hospital decision-makers identified several characteristics deemed desirable, including that a product is: + + + + + + reliable; + + + + able + to protect the wounds in tissues and organs where used; + + + + laparoscopic + friendly; + + + + easily + handled and applied; + + + + able + to promote a clear field of vision and not obstruct view; + + + + sufficiently + flowable; + + + + non-sticky + (to tissue or equipment); + + + + permits + normal healing; + + + + agnostic + to the presence of antithrombotic medications ( blood thinners ) to whether the patient has bleeding abnormalities; + + + + non-toxic; + and + + + + not + sourced from human or other animal blood or tissue components. + + + + + -71- + + Table of Contents + + + + + +We +believe that long-term trends, which support a need for products to better support clinicians in surgical procedures, include: + + + + + + a + persistent drive to migrate the site of surgical care from inpatient hospital operating room to progressively lower acuity same-day + ambulatory settings due to cost and other potential negative impacts of unnecessary hospitalizations, such as infection risk or occupying + scarce resources that may be more usefully deployed elsewhere; + + + + + + + + increased + use of anticoagulants and other anti-thrombotic agents (blood thinners) due to co-morbidities, but which predispose patients to bleeding; + + + + + + + + the + increasingly difficult nature of procedures expected to be performed by surgeons with the least invasive method feasible in the less + expensive settings accessible; and + + + + + + + + the + desire to lower procedure time to increase operating room through-put, increase shift volume, and lessen in-procedure time for patient s + well-being; + + + + +We +believe that a motivating factor for some of these trends may be the increased costs associated with procedures performed in hospital +operating rooms, which have been estimated to cost between $2,000 and $10,000 per hour, according to MedMarket Diligence and others. + + + +These +costs likely drive the desire for increased operating room [throughput] and increased volume of procedures performed in outpatient settings. +Both of those trends highlight the need for highly effective products that can decrease operating room time for inpatient procedures +and help to increase the safety in performing more types of procedures in less expensive outpatient settings. + + + +Since +the early days of modern MIS in the 1990s, the percent of minimally invasive surgeries has increased significantly, such that it is now +widespread and common. Laparoscopic surgery is among the most recognized types of MIS, although there are many additional types. Advantages +of MIS tend to include less scarring, less post-operative pain, less need for pain medications, shorter recovery times, and faster discharge +times. However, such procedures often present the surgeon with less margin for error and less capacity to deal with certain risks, such +as excessive bleeding, without having to convert the surgery to a traditional open procedure. + + + +In +a trend to make traditional minimally invasive surgery even less invasive, known as NOTES, a procedure is performed through an endoscope +that is passed through a natural orifice, such as the mouth, urethra, anus, or vagina, and then through an internal incision in the stomach, +vagina, bladder or colon. NOTES advantages include those of MIS to a potentially even greater degree, as well as the lack of external +incisions and external scars, improved visibility, and the possibility to avoid managing potential obstacles to surgery, such as extensive +adhesions from prior procedures. However, compared to MIS, margin for error in NOTES is even less. NOTES may be performed by surgeons +or endoscopists, yet the techniques can be challenging to learn and are in their early stages of development. Practitioners may seek +additional tools, including BioSurgery products where relevant, to enable them to operate efficiently, effectively, and safely. + + + +We +consider these items while developing our BioSurgery products with the objective of meeting these needs. + + + +We +are developing products for hemostasis and sealant applications. Many of the hemostasis products currently available do not possess certain +features and handling characteristics that are ideal for use in a laparoscopic setting. For instance, many available products are difficult +to use in MIS or NOTES because they tend to be sticky, powdery, fabric-based or are otherwise difficult to insert into and control through +the small gauge, yet long, catheters used during these procedures. We believe that the novel features and differentiating characteristics +of our BioSurgery products will make them more suitable for such surgeries compared to many or most of the presently available alternatives. + + + +According +to a 2015 MedMarket Diligence, LLC report, the market for hemostatic agents and sealants achieved approximately $4.2 billion in worldwide +sales in 2015 and was projected to reach $4.8 billion in 2017 and surpass $7.5 billion in 2022. While the majority of those sales are +for hemostats, we believe that the projected growth rate for sealants in multiple applications, such as the gastrointestinal track, could +become greater as additional products become available. + + + +In +spite of the large size of the market for these products, many available hemostatic agents and sealants possess a combination of limitations, +including slow onset of action, general unreliability, user-unfriendliness, and risk for adverse effects, such as healing problems, adhesion +formation, infection and other safety concerns. Many of the deficiencies of currently available hemostatic agents and sealants are comparable +to those of their earlier-generation counterparts, as revolutionary advances in underlying technologies have been elusive. + + + +Participants +in the hemostatic and sealant market include large medical device and biopharmaceutical companies, as well as various smaller companies. +Commercially available hemostatic agents can cost between $50 and $500 per procedure, with the higher value-added products generally +priced at the upper end of that range. We believe, however, that approaches to many surgical problems have evolved and will continue +to do so, such that what may have recently appeared to be an interesting market may be less so in the future if the required tools also +evolve. For instance, the endovascular approach to vascular reconstruction may lessen the need for hemostatic agents in certain procedures. + + + +We +are also developing products for gastrointestinal and NOTES procedures, endoscopic mucosal resections (EMR) and endoscopic submucosal +dissections (ESD). Surgical endoscopists are removing more complicated tumors and lesions from the gastrointestinal tract via EMR and +ESD, which are endoscopic techniques to remove early-stage cancer and precancerous growths from the lining of the digestive tract through +long and narrow equipment, which consist of ports, catheters, lights, monitors, and video cameras. This represents the least invasive +interventional approach known. + + + +The +EMR/ESD market is immature and growing, we believe, because of an increasing elderly population and incidence of gastrointestinal malignancies. +The opportunity is noteworthy in North America, Europe, and Asia, where a higher prevalence of certain gastrointestinal malignancies +and lower screening rates leads to later discovery and removal of tumors than would be desired. We believe that overall costs of care +associated with these procedures, when compared to that of more invasive alternatives, and potentially faster recovery times will encourage +a growth trend. It should be noted that these procedures do require that the doctor possess additional non-routine skill and equipment, +thereby tempering potential adoption curves. + + + +A +particular need for which we are developing AC5-G is a product that provides both a durable and safe lift while being inherently hemostatic. +The concept is to inject AC5-G beneath a polyp or tumor to be resected or dissected, thus creating separation between the lesion and +the underlying healthy tissue. + + + +Incomplete +lesion removal, bleeding and perforation are known challenges and risks of EMR/ESD. The objective of a lift is to minimize the risk for +perforation into the peritoneum, which can cause significant morbidity and mortality, and increase the probability of visualizing and +removing the entire desired lesion. The lift should also be durable, potentially lasting at least two hours, such that the frequency +of repeat injections and perforation risk is minimized. Normal and abnormal tissues can also bleed during these procedures, and it can +be challenging and time consuming to stop. Surgeons have expressed a desire for an improved agent that can prophylactically or actively +address such bleeding. Surgeons have further expressed interest in sealant properties in the event that a perforation occurs during the +procedure. + + + +Several +companies have products that provide either a lift or are hemostatic. Based on early indicators, we believe that AC5-G provides properties +for both lift and hemostasis. AC5-G was featured in a video presentation during the Emerging Technology Session of the Society of American +Gastrointestinal and Endoscopic Surgeons (SAGES) 2020 Annual Meeting. + + + +Potential +Disadvantages of our Current and Planned Products Compared to the Competition + + + +Some +potential disadvantages of our products compared to currently marketed products follow: + + + + + + The + favorable handling characteristics of AC5 Devices result, in part, from their non-sticky and non-glue-like nature. However, if a + surgeon or healthcare provider requires a product to adhere tissues together, or provide similar glue-like action, then AC5 Devices + in their current form would not achieve that effect. + + + + While + we project that our products will be sufficiently economical to manufacture at scale, they may not be able to compete from a price + perspective with inexpensive products. + + + + We + have generated less data in humans compared to many successful products in the Dermal Sciences or BioSurgery categories. + + + + While + we believe that the flowable nature of our products before they assemble into a dense nanofiber network can provide a meaningful + advantage, some surgeons may prefer a solid product in certain applications. + + + + Reimbursement + for some competing products and product categories may be more established, and reimbursement for advanced wound care products, in + general, is being re-evaluated by payers, raising potential barriers to use. + + + + + -72- + + Table of Contents + + + + + +Other +Governmental Regulations and Environmental Matters + + + +We +are or may become subject to various laws and regulations regarding laboratory practices and the use of animals in testing, as well as +environmental laws and regulations governing, among other things, any use and disposal by us of hazardous or potentially hazardous substances +in connection with our research. At this time, costs attributable to environmental compliance are not material. In each of these areas, +applicable US and foreign government agencies have broad regulatory and enforcement powers, including, among other things, the ability +to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals, any one +or more of which could have a material adverse effect on our business. Additionally, if we are able to successfully obtain approvals +for, and commercialize our product candidates, then the Company and our products may become subject to various federal, state and local +laws targeting fraud, abuse, privacy and security in the healthcare industry. + + + +Intellectual +Property + + + +We +are focused on the development of self-assembling compositions, particularly self-assembling peptide compositions, and methods of making +and using such compositions primarily in healthcare applications. Suitable applications of these compositions include limiting or preventing +the movement of bodily fluids and contaminants within or on the human body, preventing adhesions, treatment of leaky or damaged tight +junctions, and reinforcement of weak or damaged vessels, such as aneurysms. Our strategy to date has been to develop an intellectual +property portfolio in high-value jurisdictions that tend to uphold intellectual property rights and apply business judgment rules to +determine which patent applications to pursue and, if granted, which patents to maintain. The information provided is subject to change +if pending patent applications are abandoned, issued patents are allowed to lapse, or new applications are filed. + + + +As +of March 31, 2024, we either own or license from others a number of US patents, US patent applications, foreign patents and foreign patent +applications. + + + +Six +patent portfolios assigned to Arch Biosurgery, Inc. include approximately 50 patents and pending applications in approximately 20 jurisdictions, +including approximately 10 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 approximately 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 any potential patent term extension), as well as approximately 30 patents that have been either allowed, issued +or granted in foreign jurisdictions. + + + +We +have also 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. + + + +The +two portfolios exclusively licensed from MIT include approximately 30 patents and pending applications drawn to self-assembling peptides, +formulations and methods of use thereof and self-assembling peptidomimetics and methods of use thereof in a total of nine jurisdictions. +The portfolios include five issued US patents (US 9,511,113; US 9,084,837; US 10,137,166; US 9,327,010; and US 9,364,513) that expire +between 2026 and 2027 (absent any potential patent term extension), as well as additional patents that have been either allowed, issued +or granted in foreign jurisdictions. + + + +The +portfolios non-exclusively licensed from MIT include a number of US and foreign applications, including three issued US patents (US 7,846,891; +US 7,713,923; and US 8,901,084) that expire between 2024 and 2026 (absent any potential patent term extension), as well as additional +patents that have been either allowed, issued or granted in foreign jurisdictions. + + + +Our +license agreement with MIT imposes or imposed certain diligence, capital raising, and other obligations on us, including obligations +to raise certain amounts of capital by specific dates. Additionally, we are responsible for all patent prosecution and maintenance fees +under that agreement. Our breach of any material terms of our license agreement with MIT could permit the counterparty to terminate the +agreement, which could result in our loss of some or all of our rights to use certain intellectual property that is material to our business +and our lead product candidate. Our loss of any of the rights granted to us under our license agreement with MIT could materially harm +our product development efforts and could cause our business to fail. + + + +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 of Arch Biosurgery, Inc. + + + + -73- + + Table of Contents + + + + + +Employees + + + +We +presently have eight full-time employees, and we make extensive use of third-party contractors, consultants, and advisors to perform +many of our present activities. We expect to increase the number of our employees as we increase our operations. + + + +On +December 5, 2023, Daniel Yrigoyen resigned, effective as of such date, from his position as an executive officer and as Vice President +of Sales of the Company. Effective December 5, 2023 Shawn Carlson was appointed to serve as the Company s Vice President of Sales. + + + +Recent +Events + + + +Charter +Amendments + + + +On +July 18, 2023, the board of directors of the Company (the Board ) adopted resolutions by unanimous written consent, +pursuant to which the Board determined that it is advisable and in the best interests of the Company to amend the Articles +of Incorporation of the Company (the Amendment ) to (i) increase the total number of authorized shares of Common +Stock from 12,000,000 to 350,000,000 (the Authorized Share Increase ), (ii) authorize 5,000,000 shares of blank +check preferred stock of the Company, thereby giving the Board the authority to designate from time to time one or more series +of preferred stock (the Blank Check Preferred ), and (iii) provide for a reverse stock split of the outstanding Common +Stock, at a ratio within a range of 1-for-1.5 to 1-for-20, with the exact ratio to be determined by the Board subsequent to the applicable +approval by the Company s stockholders, within 1 year following the date of such approval, and without correspondingly decreasing +the number of authorized shares of Common Stock (the Reverse Split and, together with the Authorized Share Increase +and the Blank Check Preferred, the Charter Amendments ). On August 22, 2023, stockholders representing a majority +of the voting power of the then outstanding shares of voting stock of the Company (the Majority Stockholders ) executed +a written consent approving the Charter Amendments and the Company filed a preliminary Information Statement with the SEC with respect +to the transactions contemplated hereby. The Company filed a definitive Information Statement with the SEC and mailed the definitive +Information Statement to the Company s stockholders notifying them of the action taken by written consent on September 1, 2023. +Accordingly, the Company filed the Amendment with respect to the Authorized Share Increase and the Blank Check Preferred with the Secretary +of State of Nevada on September 21, 2023. The Company intends to effect the Reverse Split at a ratio of 1-for-8 prior to the pricing +of this offering. All share and per share information in this prospectus, other than the historical financial statements included herein, +has been adjusted to give effect to the Reverse Split. + + + +Reverse +Stock Split + + + +On +January 17, 2023, the Company effected a prior reserve stock split (the Prior Reverse Stock Split ) of the Common +Stock at a ratio of 1-for-200. As a result of the Prior Reverse Stock Split, every two hundred (200) shares of Common Stock issued and +outstanding were combined into one (1) share of Common Stock, with a proportionate 1:200 reduction in the Company s authorized +Common Stock. The Prior Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder s percentage +interest in the Company s equity, except to the extent that the Prior Reverse Stock Split would have resulted in some stockholders +owning a fractional share. No fractional shares were issued in connection with the Prior Reverse Stock Split. Any fractional shares of +Common Stock resulting from the Prior Reverse Stock Split were rounded up to the nearest whole post-Prior Reverse Stock Split share and +no stockholders received cash in lieu of fractional shares. The Prior Reverse Stock Split did not change the par value of the Common +Stock. All outstanding securities entitling their holders to purchase shares of Common Stock or acquire shares of Common Stock, including +stock options, restricted stock units, and warrants, were adjusted as a result of the Prior Reverse Stock Split, as required by the terms +of those securities. The Prior Reserve Stock Split was approved by the Company s stockholders on September 29, 2022. + + + + + +On +January 13, 2023, the Company filed a Certificate of Amendment (the Certificate of Amendment ) to the Company s +Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada to increase the number of authorized +shares of Common stock from 4,000,000 shares to 12,000,000 shares. The increase in the number of authorized shares was approved by the +Company s stockholders on September 29, 2022. + + + + -74- + + Table of Contents + + + + + +PIPE, +Bridge and Note Financings + + + +Uplist +PIPE + + + +On +November 8, 2023, the Company and certain institutional and accredited individual investors (collectively, the PIPE Investors ) +entered into a Securities Purchase Agreement, as subsequently amended on June 19, 2024 (as amended, the PIPE SPA ), +pursuant to which the Company has agreed to issue and sell to the PIPE Investors, and the PIPE Investors have agreed to purchase from +the Company, an aggregate of (i) warrants (the PIPE Pre-Funded Warrants ) to purchase an aggregate of 1,430,650 shares +of Common Stock (the PIPE Pre-Funded Warrant Shares ) and (ii) warrants (the PIPE Investor Warrants +and together with the PIPE Pre-Funded Warrants, the PIPE Warrants ) to purchase an aggregate 1,430,650 shares of +Common Stock (the PIPE Investor Warrant Shares and together with the PIPE Pre-Funded Warrant Share, the PIPE +Warrant Shares ), at a purchase price of $4.124 per PIPE Pre-Funded Warrant to purchase one share of Common Stock and accompanying +PIPE Investor Warrant to purchase one share of Common Stock, for aggregate gross proceeds of $5.9 million, before deducting the placement +agent s fees and estimated offering expenses, and expected net proceeds of $5.4 million after deducting the placement agent s +fees and estimated offering expenses payable by the Company. The PIPE Pre-Funded Warrants and PIPE Investor Warrants will be issued as +part of a private placement offering authorized by the Company s board of directors (the Uplist PIPE ). The +Company currently intends to use the net proceeds it receives from the Uplist PIPE for product marketing and for general working capital +purposes. The purpose of the Uplist PIPE is mainly to assist the Company in meeting the initial listing requirements of Cboe, including +for purposes of the minimum stockholders equity requirement and the requirement of the Company to achieve its listing in connection +with a firm commitment underwritten public offering. + + + +Between +December 13, 2023 and March 28, 2024, certain of the PIPE Investors advanced the Company an aggregate of $1.25 million as partial prepayment +of their respective purchase price under the PIPE SPA, which funds were advanced outside of the escrow provided for in the PIPE SPA, +and which funds have been available to the Company in support of its operations (the PIPE Advances ). On May 15, +2024, the 2024 Notes Investors (as defined below) purchased an aggregate of $2,220,000 in principal amount of 2024 Notes (as defined below) +for an aggregate purchase price of $1,850,000, which amount was paid through the surrender and cancellation of the PIPE Advances by the +2024 Notes Investors and an incremental amount of $600,000 in cash. Under the PIPE SPA, a PIPE Investor s obligation to purchase +PIPE Pre-Funded Warrants and PIPE Investor Warrants is reduced by the purchase price paid by such PIPE Investor for 2024 Notes under +the 2024 Notes SPA (as defined below). Accordingly, it is currently anticipated that PIPE Pre-Funded Warrants to purchase an aggregate +of 982,056 shares of Common Stock and PIPE Investor Warrants to purchase an aggregate of 982,056 shares of Common Stock will be issued +in the Uplist PIPE, for gross proceeds of $4,050,000, and expected net proceeds of $3,528,000, while the $2,220,000 in principal amount +of 2024 Notes will automatically convert at the closing of this offering into (i) 2024 Note Conversion Pre-Funded Warrants to purchase +an aggregate of 538,182 shares of Common Stock and (ii) 2024 Note Uplist Conversion Warrants to purchase an aggregate of 538,182 shares +of Common Stock, reflecting a net addition for the benefit of the PIPE Investors that are 2024 Notes Investors of an aggregate of 89,700 +shares underlying the 2024 Note Conversion Pre-Funded Warrants and 2024 Note Uplist Conversion Warrants, respectively, that is the result +of the premium of the principal amount of $2,220,000 of the 2024 Notes over their purchase price of $1,850,000 (which purchase price, +as stated above, has reduced the aggregate purchase price of the securities sold in the PIPE SPA). + + + +The +closing of the Uplist PIPE is contingent upon, among other conditions, the registration statement of which this prospectus forms a part +being declared effective by the SEC and the approval of the listing of the Common Stock on any securities exchange registered with the +SEC as a national securities exchange under Section 6 of the Exchange Act (a National Exchange ), +and the closing is expected to occur immediately prior to the pricing of this offering. + + + +The +Company retained Dawson James Securities, Inc. ( DJ ), pursuant to a placement agency agreement, dated November 8, +2023, as placement agent in connection with the Uplist PIPE. The Company will pay DJ a cash fee equal to 8.0% of the aggregate gross +proceeds of the Uplist PIPE (expected to be $472,000), will reimburse DJ for legal and other expenses of up to $150,000 and will issue +to DJ, or its designees, warrants (the PIPE Placement Agent Warrants ) to purchase an aggregate of 71,533 shares +of Common Stock. The PIPE Placement Agent Warrants will be exercisable at any time and from time to time, in whole or in part, during +the five-year period commencing upon issuance, at a price per share equal to $5.15625 (which is 125% of the price per Unit sold in this +offering). + + + + -75- + + Table of Contents + + + + + +PIPE +Pre-Funded Warrants + + + +The +PIPE Pre-Funded Warrants (i) will have a nominal exercise price of $0.001 per share; (ii) will be exercisable immediately upon issuance; +(iii) will be exercisable until all of the PIPE Pre-Funded Warrants are exercised in full; and (iv) will have a provision preventing +the exercisability of such PIPE Pre-Funded Warrants if, as a result of the exercise of the PIPE Pre-Funded Warrants, the holder, 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 either 4.99% or 9.99% of the Common Stock (the Ownership Limitation ) immediately +after giving effect to the exercise of the PIPE Pre-Funded Warrants. + + + +PIPE +Investor Warrants + + + +The +PIPE Investor Warrants (i) will have an exercise price of $4.00 per share; (ii) will have a term of exercise equal to 5 years after their +issuance date; (iii) will be exercisable immediately upon issuance; and (iv) will have a provision preventing the exercisability of such +PIPE Investor Warrants if, as a result of the exercise of the PIPE Investor Warrants, the holder, 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 the Ownership Limitation immediately after giving effect to the exercise of the PIPE Investor Warrants. + + + +Pursuant +to the PIPE SPA, the Company has agreed to file no later than sixty (60) days after the closing date of an offering conducted in conjunction +with an uplist of the Common Stock to, and in compliance with the rules of, any National Exchange (the Uplist Transaction ), +which this offering is intended to be, a registration statement on Form S-4, or other appropriate form, registering the offer by the +Company to exchange, on a one-for-one basis, all outstanding PIPE Investor Warrants, 2022 Warrants (as defined below), Uplist Conversion +Warrants (as defined below) and Exchange Investor Warrants (as defined below) for newly issued warrants identical to the Investor Warrants +being sold in this offering, which warrants are expected to be listed on Cboe under the symbol ARTHW. + + + +Registration +Rights Agreement + + + +The +Company also entered into a registration rights agreement with the PIPE Investors dated November 8, 2023 (the PIPE Registration +Rights Agreement ), pursuant to which the Company is obligated, subject to certain conditions, to file with the SEC within +the earlier of (i) the closing date of the Uplist Transaction and (ii) the 60th calendar day following the date of the PIPE Registration +Rights Agreement one or more registration statements to register the PIPE Warrant Shares, the Uplist Conversion Warrant Shares (as defined +below) and the 2022 Note Conversion Pre-Funded Warrant Shares (as defined below) for resale under the Securities Act of 1933, as amended +(the Securities Act ). The Company s failure to satisfy certain filing and effectiveness deadlines and certain other +requirements set forth in the PIPE Registration Rights Agreement may subject the Company to payment of monetary penalties. The Resale +Prospectus currently covers the resale of the PIPE Warrant Shares, the Uplist Conversion Warrant Shares and the 2022 Note Conversion +Pre-Funded Warrant Shares. + + + +PIPE +Advances + + + +Under the terms of the PIPE Advances, since the Common Stock has not been approved for listing on the Nasdaq Capital +Market by March 31, 2024, with respect to a portion of the PIPE Advances, or April 30, 2024, with respect to the remainder of the PIPE +Advances, the Company has issued to the advancing parties (A) additional pre-funded warrants (the PIPE Advance Penalty Pre-Funded +Warrants ) to purchase up to an aggregate of 75,776 shares of Common Stock (which represents a 25% addition) and (B) additional +investor warrants (the PIPE Advance Penalty Common Warrants ) to purchase up to an aggregate of 75,776 shares of Common +Stock. The Resale Prospectus currently covers the resale of the shares of Common Stock underlying the PIPE Advance Penalty Pre-Funded +Warrants (the PIPE Advance Penalty Pre-Funded Warrant Shares ) and the PIPE Advance Penalty Common Warrants (the PIPE +Advance Penalty Common Warrant Shares ). + + + +Backstop +Agreement + + + +On +June 19, 2024, certain of the PIPE Investors (the Backstop Buyers ) agreed that in the event that as of the +close of business on the date that is 10 calendar days prior to the date that the Company reasonably expects the closing of the +Uplist PIPE to occur (the Escrow Date ) there is not an amount of funds in escrow for the PIPE equal to +$5,900,000 less the aggregate purchase price paid for the 2024 Notes (the Escrow Minimum Amount ) (such +circumstance, an Escrow Deficiency ), then each of the Backstop Buyers will deposit in escrow the +purchase price for a pro rata share of an amount, no greater than $1,500,000, equal to (A) $320,000 plus (B) (i) $5,900,000, minus +(ii) the amount of funds in escrow on the Escrow Date, minus (iii) the aggregate purchase price paid by PIPE Investors for the 2024 +Notes ( the Backstop Amount ) of additional PIPE Pre-Funded Warrants and PIPE Investor Warrants under the PIPE +SPA (such agreement, the Backstop Agreement ), and shall purchase such additional PIPE Pre-Funded +Warrants and PIPE Investor Warrants at the Uplist PIPE closing. In consideration for the execution by the Backstop Buyers of the +Backstop Agreement, the Company agreed to issue to the Backstop Buyers, as soon as practicable, pre-funded warrants (the + Execution Backstop Pre-Funded Warrants ), in form and substance substantially similar to the PIPE Pre-Funded +Warrants, to purchase an aggregate of 225,000 shares of Common Stock. The Company also agreed to issue to the Backstop Buyers (i) +additional pre-funded warrants (the Funding Backstop Pre-Funded Warrants and, together with the Execution +Backstop Pre-Funded Warrants, the Backstop Pre-Funded Warrants ) to purchase an amount of shares of Common Stock +equal to 0.5 shares per dollar of funding deposited under the Backstop Agreement, or up to an aggregate of 750,000 shares, and (ii) +investor warrants (the Backstop Common Warrants ), in form and substance substantially similar to the PIPE +Investor Warrants, to purchase an amount of shares of Common Stock equal to 0.65 shares per dollar of funding deposited under the +Backstop Agreement, or up to an aggregate of 975,000 shares. The Resale Prospectus currently covers the resale of the shares of +Common Stock underlying the Backstop Pre-Funded Warrants (the Backstop Pre-Funded Warrant Shares ) and the +Backstop Common Warrants (the Backstop Common Warrant Shares ). + + + + -76- + + Table of Contents + + + + + +2024 +Notes + + + +On +May 15, 2024, the Company entered into a Securities Purchase Agreement (the 2024 Notes SPA ) with certain +institutional and accredited individual investors who are also PIPE Investors (collectively, the 2024 Notes +Investors ) providing for the issuance and sale by the Company to the 2024 Notes Investors certain Secured Promissory +Notes (each a 2024 Note and collectively, the 2024 Notes ) convertible into shares of +Common Stock. On June 12, 2024, an additional investor, which is not a PIPE Investor (the Additional 2024 Notes +Investor ) purchased 2024 Notes in the principal amount of $180,000, including an original issue discount of $$30,000. The +2024 Notes were issued as part of a convertible notes offering authorized by the Company s board of directors (the + 2024 Notes Financing ). + + + +In +connection with the 2024 Notes Financing, the Company issued and sold to the 2024 Notes Investors and Additional 2024 Notes Investor +the 2024 Notes in the aggregate principal amount of $2,400,000, which includes an aggregate $370,000 original issue discount in +respect of the 2024 Notes. The aggregate net proceeds for the sale of the 2024 Notes was approximately $2,000,000, after deducting +issuance discounts. The closing of the sales of the 2024 Notes to the 2024 Notes Investors under the 2024 Notes SPA occurred on May +15, 2024 (the 2024 Notes Closing Date ). The Company is using the net proceeds from the 2024 Notes Financing +primarily for working capital and general corporate purposes, and has not allocated specific amounts for any specific +purposes. + + + +The +2024 Notes become due and payable on June 30, 2024 (the 2024 Notes Maturity Date ) and may be prepaid provided +that an Event of Default (as defined therein) has not occurred. The 2024 Notes bear interest on the unpaid principal balance at a +rate equal to ten percent (10%) (computed on the basis of the actual number of days elapsed in a 360-day year) per annum accruing +from their issuance date until the 2024 Notes become due and payable at maturity or upon their conversion, acceleration or by +prepayment, and may become due and payable upon the occurrence of an Event of Default under the 2024 Notes. Any amount of principal +or interest on the 2024 Notes which is not paid when due shall bear interest at the rate of the lesser of (i) eighteen percent (18%) +per annum or (ii) the maximum amount allowed by law from the due date thereof until payment in full (the Default +Interest ). + + + +The +2024 Notes are convertible into an aggregate of 600,000 shares of Common Stock (such shares of Common Stock, the 2024 Conversion +Shares ) at the option of each holder of the 2024 Notes from their issuance date at the 2024 Conversion Price (as defined +below) through the later of (i) the 2024 Notes Maturity Date and (ii) the date of payment of the Default Amount (as defined in the 2024 +Note) provided, however, the 2024 Notes include a provision preventing such conversion if, as a result, the holder, together +with its affiliates and any other persons whose beneficial ownership of Common Stock would be aggregated with the holder s, would +be deemed to beneficially own more than 4.99% of the outstanding shares of the Common Stock (the 2024 Notes Ownership Limitation ) +immediately after giving effect to the conversion and provided further, the holder, upon notice to the Company, may increase +or decrease the 2024 Notes Ownership Limitation provided that (i) the 2024 Notes Ownership Limitation may only be increased +to a maximum of 9.99% of the outstanding shares of the Common Stock and (ii) any increase in the 2024 Notes Ownership Limitation +will not become effective until the 61st day after delivery of such waiver notice. + + + +The +initial conversion price of the 2024 Notes (the 2024 Conversion Price ) shall be equal to $4.00 per share and may +be reduced or increased proportionately as a result of any stock dividends, recapitalizations, reorganizations, and similar transactions. +If the Company fails to deliver the shares of Common Stock issuable upon a conversion by the Deadline (as defined in the 2024 Notes), +then the Company is obligated to pay such 2024 Note holder $5,000 per day in cash for each day beyond the Deadline. + + + +The +2024 Notes contain customary events of default, which include, among other things, (i) the Company s failure to pay when due any +principal or interest payment under the 2024 Notes; (ii) the insolvency of the Company; (iii) delisting of the Common Stock; (iv) the +Company s breach of any material covenant or other material term or condition under the 2024 Notes; and (v) the Company s +breach of any representations or warranties under the 2024 Notes which cannot be cured within five days. Further, Events of Default under +the 2024 Notes also include (i) the unavailability of Rule 144 on or after six months from the Issue Date (as defined therein); (ii) +the Company s failure to deliver the shares of Common Stock to the 2024 Note holder upon exercise by such holder of its conversion +rights under the 2024 Note; (iii) the Company s loss of the bid price for its Common Stock and/or a market and such +loss is not cured during the specified cure periods; and (iv) the Company s failure to complete an uplist to a National Exchange +by June 30, 2024. + + + + -77- + + Table of Contents + + + + + +Upon +an Event of Default, the 2024 Notes shall become immediately due and payable and the Company shall pay to each 2024 Note holder an amount +equal to 125% (the Default Premium ) multiplied by the sum of the outstanding principal amount of the 2024 Notes +plus any accrued and unpaid interest on the unpaid principal amount of the 2024 Notes to the date of payment, plus any Default Interest +and any other amounts owed to the holder under the 2024 Notes SPA (the Default Amount ) provided that, +upon any subsequent Event of Default not in connection with the first Event of Default, such holder shall be entitled to an additional +five percent (5%) to the Default Premium for each subsequent Event of Default. At the election of each 2024 Note holder, the Default +Amount may be paid in cash or shares of Common Stock equal to the Default Amount divided by the 2024 Conversion Price at the time of +payment. + + + +Upon +the closing of this offering, 100% of the then outstanding principal amount of the 2024 Notes shall automatically convert (the 2024 +Notes Automatic Conversion ) into shares of Common Stock (the 2024 Notes Automatic Conversion Shares ), +with the conversion price for purposes of such 2024 Notes Automatic Conversion being $4.125. Upon the 2024 Notes Automatic Conversion +and to the extent that the beneficial ownership of a holder of 2024 Notes (a 2024 Notes Holder and, all holders +of 2024 Notes together, the 2024 Notes Holders ) would increase over the applicable 2024 Notes Ownership Limitation, +the 2024 Notes Holder will receive pre-funded warrants (the 2024 Note Conversion Pre-Funded Warrants , and the shares +issuable upon exercise thereof, the 2024 Note Conversion Pre-Funded Warrant Shares ) in lieu of shares of Common +Stock otherwise issuable to the 2024 Notes Holder in connection with the 2024 Notes Automatic Conversion, which 2024 Note Conversion +Pre-Funded Warrants shall have an exercise price of $0.001 per share, may be exercised on a cashless basis, shall be exercisable immediately +upon issuance and shall contain a customary beneficial ownership limitation provision. + + + +In +addition, upon the 2024 Notes Automatic Conversion, the 2024 Notes Holder shall receive a warrant (the 2024 Notes Uplist Conversion +Warrant , and the shares issuable upon exercise thereof, the 2024 Notes Uplist Conversion Warrant Shares ) +to purchase a number of shares of Common Stock equal to the number of shares of Common Stock (or shares of Common Stock underlying 2024 +Note Conversion Pre-Funded Warrants, if any) issued upon the 2024 Notes Automatic Conversion. The 2024 Notes Uplist Conversion Warrant +shall have an exercise price per share of $4.00 and shall otherwise be identical to the PIPE Investor Warrants. The Company also agreed +in the 2024 Notes to file no later than sixty (60) days after the closing of this offering a registration statement on Form S-4, or other +appropriate form, registering the offer by the Company to exchange, on a one-for-one basis, all outstanding PIPE Investor Warrants, 2024 +Notes Uplist Conversion Warrants and Exchange Investor Warrants for newly issued warrants identical to the Investor Warrants being sold +in this offering, which warrants are expected to be listed on Cboe under the symbol ARTHW. + + + +Registration +Rights Agreement + + + +On +the 2024 Notes Closing Date, the Company entered into a Registration Rights Agreement with the 2024 Notes Investors (the + 2024 Notes Registration Rights Agreement ), pursuant to which the Company is obligated, subject to certain +conditions, to file with the Securities and Exchange Commission within 60 days after the 2024 Notes Closing Date one or more +registration statements (any such registration statement, a 2024 Notes Resale Registration Statement ) to +register the 2024 Conversion Shares for resale under the Securities Act. The Company s failure to satisfy certain filing and +effectiveness deadlines with respect to a 2024 Notes Resale Registration Statement and certain other requirements set forth in the +2024 Notes Registration Rights Agreement may subject the Company to payment of monetary penalties. + + + + -78- + + Table of Contents + + + + + +Security +Agreement + + + +In +connection with the issuance of the 2024 Notes, the Company entered into a Security Agreement with the Collateral Agent (as defined therein) +on behalf of the 2024 Notes Investors on the 2024 Notes Closing Date (the 2024 Notes Security Agreement ), pursuant +to which the Company and each of its subsidiaries (together with any persons who execute a joinder to the 2024 Notes Security Agreement, +the 2024 Notes Debtors ) provided as collateral to the 2024 Notes holders a security interest in, and a lien on, +substantially all of the 2024 Notes Debtors. Upon an Event of Default under the 2024 Notes, each 2024 Notes holder may exercise its +rights to the collateral pursuant to the terms of the 2024 Notes Security Agreement. + + + +Accordingly, +it is currently anticipated that at the closing of this offering: (i) (A) 2024 Note Conversion Pre-Funded Warrants with an exercise +price of $0.001 to purchase an aggregate of 538,182 shares of Common Stock and (B) 43,637 2024 Notes Automatic Conversion Shares +will be issued upon the 2024 Note Automatic Conversion of the $2,400,000 of principal amount outstanding under the 2024 Notes; and +(ii) the 2024 Note Holders will be issued 2024 Note Uplist Conversion Warrants to purchase an aggregate of 581,819 shares of Common +Stock. The expected allocation between shares of Common Stock and 2024 Note Conversion Pre-Funded Warrants in the previous +sentence is only an initial estimate based on indications of interest and is subject to change based on the ultimate ownership of +the 2024 Note Holders after the Uplist PIPE and this offering. The maximum number of shares of Common Stock and 2024 Note Conversion +Pre-Funded Warrants that may be issued, individually and in the aggregate is 581,819. + + + +Bridge +Offering + + + +Between +July 7, 2023 and September 11, 2023, pursuant to a Securities Purchase Agreement dated July 7, 2023, as subsequently amended (the Bridge +SPA ), among the Company and certain institutional and accredited individual investors (collectively, the Bridge +Investors ) the Company issued and sold to the Bridge Investors an aggregate of (i) 418,051 shares (the Bridge Shares ) +of Common Stock; (ii) warrants (the Bridge Pre-Funded Warrants ) to purchase an aggregate of 756,871 shares of Common +Stock (the Bridge Pre-Funded Warrant Shares ); and (iii) warrants (the Common Warrants and together +with the Bridge Pre-Funded Warrants, the Bridge Warrants ) to purchase an aggregate 2,349,826 shares of Common Stock +(the Common Warrant Shares and together with the Bridge Pre-Funded Warrant Share, the Bridge Warrant Shares ), +at a purchase price of $2.20 per Bridge Share and accompanying Common Warrant to purchase two shares of Common Stock, and $2.192 per +Bridge Pre-Funded Warrant to purchase one share of Common Stock and accompanying Common Warrant to purchase two shares of Common Stock. +The Bridge Shares, Bridge Pre-Funded Warrants, and Common Warrants were issued as part of a private placement offering authorized by +the Company s board of directors (the Bridge Offering ). + + + +Pursuant +to the Bridge SPA, the Bridge Investors agreed not to sell or otherwise transfer any of the Bridge Shares or Bridge Warrant Shares prior +to the one-year anniversary of the Bridge Closing Date. In the event that a Bridge Investor purchases securities in connection with an +Uplist Transaction, which this offering is intended to be, and/or in the Uplist PIPE, with an aggregate purchase price equal to at least +4.3 multiplied by the aggregate purchase price paid by the Bridge Investor for the Bridge Shares and Bridge Warrants under the Bridge +SPA, the one-year lock-up period will no longer apply to the Bridge Shares and Bridge Warrants. The aggregate gross proceeds for the +sale of the Bridge Shares, Bridge Pre-Funded Warrants, and Common Warrants was approximately $2.6 million, before deducting the placement +agent s fees and other estimated fees and offering expenses payable by the Company. The first closing of the sales of these securities +under the Bridge SPA occurred on July 7, 2023 (the Bridge Closing Date ). + + + + -79- + + Table of Contents + + + + + +Under +the Bridge SPA, the Company also agreed that upon the closing of the next underwritten public offering of Common Stock (a Qualifying +Offering ), which the Company agreed is this offering, if the effective offering price to the public per share of Common Stock +(the Qualifying Offering Price ) is lower than $32.00 per share, then the Company shall issue additional Bridge Pre-Funded +Warrants (the True-Up Pre-Funded Warrants , and the shares issuable upon exercise thereof, the True-Up +Pre-Funded Warrant Shares ), or shares of Common Stock (the True-Up Shares ) in lieu thereof to the extent +necessary to cause the Company to meet the listing requirements of the Company s proposed trading market in the Uplist Transaction, +in an amount reflecting a reduction in the purchase price paid for the Bridge Shares and Bridge Pre-Funded Warrants that equals the proportion +by which the Qualifying Offering Price is less than $32.00. The Company also agreed that the Qualifying Offering Price as a result of +this offering is $4.00. Accordingly, at the closing of this offering, based on the sale of the Units and Pre-Funded Units at an assumed +public offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit, which represents the minimum bid price of $4.00 per share under +the initial listing requirements of Cboe in Cboe Listing Rule 14.9(b) plus a value of $0.125 attributed to the accompanying Investor +Warrant, the Company expects to issue (i) True-Up Pre-Funded Warrants with an exercise price of $0.001 to purchase an aggregate of 6,330,422 +shares of Common Stock and (ii) an aggregate of 1,893,919 True-Up Shares to the Bridge Investors. The expected allocation between +True-Up Shares and True-Up Pre-Funded Warrants in the previous sentence is only an initial estimate based on indications of interest +and is subject to change based on the ultimate ownership of the Bridge Investors after the Uplist PIPE and this offering. The maximum +amount of True-Up Pre-Funded Warrants and True-Up Shares that may be issued, individually and in the aggregate is 8,224,341. The Resale +Prospectus currently covers the resale of the True-Up Pre-Funded Warrant Shares and True-Up Shares. + + + +The +Company retained DJ as placement agent in connection with the Bridge Offering. The Company paid DJ a cash fee equal to 8.0% of the aggregate +gross proceeds of the Bridge Offering and reimbursement of expenses of $50,000. Additionally, on September 7, 2023 the Company issued +to DJ, or its designees, warrants, as subsequently amended (the Placement Agent Warrants ) to purchase an aggregate +of 55,242 shares of Common Stock. The Placement Agent Warrants are exercisable at any time and from time to time, in whole or in part, +until September 7, 2028, at a price per share equal to $2.20 (which will increase to $5.15625 at the closing of the Uplist Transaction, +representing 125% of the assumed price per share of Common Stock in the Uplist Transaction, as required by FINRA). + + + +Bridge +Pre-Funded Warrants + + + +The +Bridge Pre-Funded Warrants (i) have a nominal exercise price of $0.008 per share; (ii) are exercisable after the earlier of (A) the six-month +anniversary after the date of issuance, (B) 120 days after the closing date of an Uplist Transaction, and (C) the date that a registration +statement registering the Bridge Pre-Funded Warrant Shares is declared effective; (iii) are exercisable until all of the Bridge Pre-Funded +Warrants are exercised in full; and (iv) have a provision preventing the exercisability of such Bridge Pre-Funded Warrants if, as a result +of the exercise of the Bridge Pre-Funded Warrants, the holder, 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 the Ownership Limitation immediately +after giving effect to the exercise of the Bridge Pre-Funded Warrants. + + + +Common +Warrants + + + +The +Common Warrants (i) have an exercise price of $8.00 per share; (ii) have a term of exercise equal to 5 years after their issuance date; +(iii) are exercisable after the earlier of (A) the six-month anniversary after the date of issuance and (B) the date that a registration +statement registering the Common Warrant Shares is declared effective; (iv) have a provision permitting voluntary adjustments to the +exercise price by the Company, subject to the prior written consent of the Common Warrant holder; (v) are automatically exchanged upon +the closing of an Uplist Transaction for a new warrant that is identical to the warrants (other than any pre-funded warrants), if any, +being issued to investors in such Uplist Transaction, with the number of shares underlying such new warrant being equal to the number +of Common Warrant Shares then underlying the Common Warrant multiplied by three and (vi) have a provision preventing the exercisability +of such Common Warrants if, as a result of the exercise of the Common Warrants, 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 the Ownership Limitation immediately after giving effect to the exercise of the Common Warrants. Accordingly, at the +closing of this offering, the Common Warrants will be cancelled and exchanged for newly issued warrants identical to the Investor Warrants +to purchase an aggregate of 7,049,478 shares of Common Stock at an exercise price per share equal to the exercise price per share of +the Investor Warrants (the Exchange Investor Warrants ). + + + +In +addition, as noted above, pursuant to the PIPE SPA, the Company has agreed to file no later than sixty (60) days after the closing date +of the Uplist Transaction, a registration statement on Form S-4, or other appropriate form, registering the offer by the Company to exchange, +on a one-for-one basis, all outstanding Exchange Investor Warrants for newly issued warrants identical to the Investor Warrants being +sold in this offering, which warrants are expected to be listed on Cboe under the symbol ARTHW. + + + +Registration +Rights Agreement + + + +The +Company also entered into a registration rights agreement with the Bridge Investors dated July 7, 2023, as subsequently amended (the + Registration Rights Agreement ), pursuant to which the Company is obligated, subject to certain conditions, to file +with the SEC within the earlier of (i) 30 days following the closing date of the Uplist Transaction and (ii) January 31, 2024 one or +more registration statements (any such registration statement, a Resale Registration Statement ) to register the +Bridge Shares, the Bridge Warrant Shares and the shares of Common Stock issuable upon exercise in full of the Exchange Investor Warrants +(the Exchange Investor 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. The Resale Prospectus currently covers the resale of the Bridge Shares and the Bridge Warrant Shares. + + + + -80- + + Table of Contents + + + + + +Note +Modification Agreements + + + +On +April 30, 2024, the Company entered into an amendment ( Amendment No. 16 to the First Notes ) with the holders of +the Company s outstanding Senior Secured Convertible Promissory Notes, as separately amended on February 14, 2023, March 10, 2023, +March 15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023, July 7, 2023, July 31, 2023, August 30, 2023, September 30, +2023, November 8, 2023, November 15, 2023, January 5, 2024 and March 15, 2024 (as amended, the First Notes ), issued +in connection with a private placement financing the Company completed on July 6, 2022 (the First Closing ). On April +30, 2024, the Company also entered into an amendment ( Amendment No. 16 to the Second Notes ) with the holders of +the Company s outstanding Unsecured Convertible Promissory Notes, as separately amended on February 14, 2023, March 10, 2023, March +15, 2023, April 15, 2023, May 15, 2023, June 15, 2023, July 1, 2023, July 7, 2023, July 31, 2023, August 30, 2023, September 30, 2023, +November 8, 2023, November 15, 2023, January 5, 2024 and March 15, 2024 (as amended, the Second Notes ), issued in +connection with a private placement financing the Company completed on January 18, 2023 (the Second Closing ). On +April 30, 2024, the Company also entered into an amendment ( Amendment No. 11 to the Third Notes ) with the holders +of the Company s outstanding Unsecured Convertible Promissory Notes, as separately amended on June 15, 2023, July 1, 2023, July +7, 2023, July 31, 2023, August 30, 2023, September 30, 2023, November 8, 2023, November 15, 2023, January 5, 2024 and March 15, 2024 +(as amended, the Third Notes ), issued in connection with a private placement financing the Company completed on +May 15, 2023 (the Third Closing ). On April 30, 2024, the Company also entered into an amendment ( Amendment +No. 2 to the Fourth Notes and, together with Amendment No. 16 to the First Notes, Amendment No. 16 to the Second Notes and +Amendment No. 11 to the Third Notes, the Amendments to the 2022 Notes ) with the holders of the Company s outstanding +Unsecured Convertible Promissory Notes, as separately amended on March 15, 2024 (the Fourth Notes and, together +with the First Notes, the Second Notes and the Third Notes, the 2022 Notes ), issued in connection with a private +placement financing the Company completed on March 12, 2024 (the Fourth Closing ). + + + +Under +the Amendments to the 2022 Notes, the following amendments to the 2022 Notes will be simultaneously effective upon the closing of the +Uplist Transaction. 95% of the then outstanding principal amount of the 2022 Notes shall automatically convert (the Automatic +Conversion ) into shares of Common Stock (the Automatic Conversion Shares ), with the conversion price +for purposes of such Automatic Conversion being $4.00. Upon the Automatic Conversion and to the extent that the beneficial ownership +of a holder of 2022 Notes (a Holder and, all holders of 2022 Notes together, the Holders ) would +increase over the applicable Ownership Limitation, the Holder will receive pre-funded warrants (the 2022 Note Conversion Pre-Funded +Warrants , and the shares issuable upon exercise thereof, the 2022 Note Conversion Pre-Funded Warrant Shares ) +in lieu of shares of Common Stock otherwise issuable to the Holder in connection with the Automatic Conversion, which 2022 Note Conversion +Pre-Funded Warrants shall have an exercise price of $0.001 per share, may be exercised on a cashless basis, shall be exercisable immediately +upon issuance and shall contain a customary beneficial ownership limitation provision. + + + +In +addition, upon the Automatic Conversion, the Holder shall receive a warrant (the Uplist Conversion Warrant , and +the shares issuable upon exercise thereof, the Uplist Conversion Warrant Shares ) to purchase a number of shares +of Common Stock equal to 10 times the dollar amount under the 2022 Notes that was converted in the Automatic Conversion. The Uplist Conversion +Warrant shall have an exercise price per share of $4.00 and shall otherwise be identical to the PIPE Investor Warrants. The Company also +agreed in the Amendments to the 2022 Notes to file no later than sixty (60) days after the closing of this offering a registration statement +on Form S-4, or other appropriate form, registering the offer by the Company to exchange, on a one-for-one basis, all outstanding PIPE +Investor Warrants, 2022 Warrants, Uplist Conversion Warrants and Exchange Investor Warrants for newly issued warrants identical to the +Investor Warrants being sold in this offering, which warrants are expected to be listed on Cboe under the symbol ARTHW +(the Uplist Conversion Warrants Exchange Offer Obligation ). + + + +The +Amendments to the 2022 Notes also prohibit the Company from engaging in any capital raising transactions, subject to certain exceptions, +until the earlier of (A) July 7, 2027, and (B) the first date on which all Holders hold less than 20% of the original amount of the Uplist +Conversion Warrants received by each Holder, respectively, in connection with the Automatic Conversion. + + + + -81- + + Table of Contents + + + + + +Accordingly, +it is currently anticipated that at the closing of this offering: (i) an aggregate of (A) 1,454,034 shares of Common Stock and (B) 2022 +Note Conversion Pre-Funded Warrants with an exercise price of $0.001 to purchase an aggregate of 184,296 shares of Common Stock will +be issued upon the Automatic Conversion of an aggregate of $6,553,310 of principal amount under the 2022 Notes, representing 95% of the +$6,898,221 in principal amount currently outstanding under the 2022 Notes, based on the assumed exercise price of the Investor Warrants +being offered as part of the Units and Pre-Funded Units in this offering of $4.00 per share; and (ii) the Holders will be issued Uplist +Conversion Warrants to purchase an aggregate of 65,533,100 shares of Common Stock, representing 10 multiplied by the $6,553,310 of principal +amount converted in the Automatic Conversion. The expected allocation between shares of Common Stock and 2022 Note Conversion Pre-Funded +Warrants in the previous sentence is only an initial estimate based on indications of interest and is subject to change based on the +ultimate ownership of the Holders after the Uplist PIPE and this offering. The maximum number of shares of Common Stock and 2022 Note +Conversion Pre-Funded Warrants that may be issued, individually and in the aggregate is 1,638,330. + + + +Additionally, +on July 7, 2023, the Company entered into an amendment (the Omnibus Amendment to Notes and Warrants ) with the Holders +of the 2022 Notes, amending the 2022 Notes and related warrants issued at each of the First Closing, Second Closing, and Third Closing +(the First Warrants , Second Warrants and Third Warrants , respectively, +and collectively with the related warrants issued at the Fourth Closing, the 2022 Warrants ). Under the Omnibus Amendment +to Notes and Warrants, the 2022 Notes and 2022 Warrants were amended to modify the Most Favored Nation provisions therein to exclude +the Bridge Offering. + + + +2022 +Notes + + + +The +2022 Notes bear interest on the unpaid principal balance at a rate equal to ten percent (10%) (computed on the basis of the actual number +of days elapsed in a 360-day year) per annum accruing from the issuance date until the 2022 Notes become due and payable at maturity +or upon their conversion, acceleration or by prepayment, and may become due and payable upon the occurrence of an event of default under +the 2022 Notes. The 2022 Notes mature June 30, 2024. Any amount of principal or interest on the 2022 Notes which is not paid when due +shall bear interest at the rate of the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum amount allowed by law from +the due date thereof until payment in full. As of June 19, 2024, the outstanding unpaid principal balance including all accrued +interest under the 2022 Notes totaled $8,015,282. + + + +The +2022 Notes are convertible into shares of Common Stock at the option of each Holder from the date of issuance at $73.12 (which will automatically +change to $4.00 as of the closing of the Uplist PIPE through the operation of the Most Favored Nation Provision (as defined below)), +subject to adjustment, through the later of (i) June 30, 2024 (the Maturity Date ) or (ii) the date of payment of +the Default Amount (as defined in the 2022 Notes). + + + +The +2022 Notes contain events of default, which include, among other things, (i) the Company s failure to pay when due any principal +or interest payment under the 2022 Notes; (ii) our failure to complete an Uplist Transaction by June 30, 2024 and (iii) our default on +the Uplist Conversion Warrant Exchange Offer Obligation. + + + +The +2022 Warrants (i) have an exercise price of $79.52 (which will automatically change to $4.00 as of the closing of the Uplist PIPE through +the operation of the Most Favored Nation Provision) per share; (ii) have a term of exercise equal to 5 years after their issuance date; +(iii) became exercisable immediately after their issuance; and (iv) have a provision preventing the exercisability of such 2022 Warrants +if, as a result of the exercise of the 2022 Warrants, the holder, together with its affiliates and any other persons whose beneficial +ownership of our Common Stock would be aggregated with the holder s, would be deemed to beneficially own more than the Ownership +Limitation. Pursuant to the Most Favored Nation Provision contained in the 2022 Notes and the 2022 Warrants, as +long as the 2022 Notes and 2022 Warrants remaining outstanding, upon the issuance of any security in connection with any potential future +financing activity on terms more favorable than the existing terms, the Company has an obligation to notify the holders of the 2022 Notes +and 2022 Warrants of such more favorable terms, and to use best efforts to effect such terms in the 2022 Notes and 2022 Warrants. + + + +As +discussed above, it is currently anticipated that 95% of the $6,898,221 unpaid principal balance currently outstanding under the 2022 +Notes will convert into (A) 1,454,034 shares of Common Stock and (B) 2022 Note Conversion Pre-Funded Warrants with an exercise price +of $0.001 to purchase an aggregate of 184,296 shares of Common Stock in connection with the Automatic Conversion, such allocation between +shares and 2022 Note Conversion Pre-Funded Warrants being subject to change, as described above. + + + + -82- + + Table of Contents + + + + + +Under +the Third Amended and Restated Registration Rights Agreement, dated as of March 12, 2024, as amended, the Company is required to file +a registration statement registering the securities issued in the Second Closing, Third Closing and Fourth Closing, including the applicable +2022 Notes and 2022 Warrants, no later than 45 days following the closing of the Uplist Transaction. The Resale Prospectus currently +covers the resale of the shares of Common Stock issuable upon the Automatic Conversion, the shares of Common Stock issuable upon conversion +of the 2022 Notes at their regular conversion price and the shares of Common Stock issuable upon exercise of the 2022 Warrants. + + + +Series +1 and 2 Convertible Notes + + + +On +June 4, 2020 and November 6, 2020, the Company issued unsecured 10% Series 1 Convertible Notes ( Series 1 Notes ) +and Series 2 Convertible Notes, as amended ( Series 2 Notes , and collectively with the Series 1 Notes, the Series +Convertible Notes ). The maturity dates of the Series 1 Notes and Series 2 Notes are June 30, 2023 and November 30, 2023, respectively. +On July 12, 2023, the Company secured countersigned notices of conversion from all remaining holders of the Series 1 Convertible Notes +and provided instructions to its transfer agent to issue a total of 7,489 shares of Common Stock in full satisfaction of all previously +outstanding Series 1 Convertible Notes, which had an aggregate of $718,918 of principal and interest outstanding at the time of conversion. + + + +On +November 30, 2023, the Series 2 Notes of $450,000 principal and outstanding accrued interest of $137,946 were converted into 6,615 shares +of Common Stock. + + + +Insurance +Financing + + + +On +July 11, 2023, the Company entered into a finance agreement with First Insurance Funding in order to fund a portion of its insurance +policies. The amount financed is approximately $310,000 and incurs interest at a rate of 7.49%. Per the terms of its agreement with First +Insurance Funding, the Company is required to make monthly payments of approximately $32,000 through April 2024. + + + +Warrant +Exchange Agreement + + + +On +March 10, 2023, the Company entered into exchange agreements (the Exchange Agreements ) with each holder (the Warrantholders ) +of the Company s outstanding Series G Warrants to purchase shares of the Company s Common Stock at an exercise price of $1,120.00 +per share and the Company s outstanding Series H Warrants to purchase shares of Common Stock at an exercise price of $640.00 per +share. Pursuant to the Exchange Agreements, the Warrantholders exchanged 4,252 Series G Warrants for 426 shares of Common Stock and 5,385 +Series H Warrants for 1,078 shares of Common Stock. + + + +Reimbursements +and Support Program + + + +During +the month of September 2022, the Company launched and announced a reimbursement support program designed to help drive increased commercial +use of the company s FDA-approved AC5 Advanced Wound System. During the fiscal year ended September 30, 2022, the Company invoiced +and shipped a total of 33 units, of which 23 units were shipped in connection with the launch of the Company s reimbursement support +program. Under the terms of the program, the invoice amount may be adjusted through full or partial write-offs based on actual reimbursement +amounts paid by CMS for AC5 units applied and billed by doctors. As such, revenue, if any, for the units shipped in connection with the +Company s reimbursement support program will be booked in future periods when all conditions have been satisfied. + + + + -83- + + Table of Contents + + + + + +Results +of Operations + + + +The +following discussion of our results of operations should be read together with the consolidated financial statements included in this +prospectus and the notes thereto. Our historical results of operations and the period-to-period comparisons of our results of operations +that follow are not necessarily indicative of future results. + + + +Six +Months Ended March 31, 2024 Compared to Six Months Ended March 31, 2023 + + + + + + + + Increase + + + + March 31, 2024 + March 31, 2023 + (Decrease) $ + + + Revenue + $77,733 + $22,914 + 54,819 + + + Operating expenses: + + + + + + Cost of revenues + 45,161 + 36,353 + 8,808 + + + Selling, general and administrative + 1,994,534 + 2,355,701 + (361,167) + + + Research and development + 409,449 + 332,087 + 77,362 + + + Loss from operations + (2,371,411) + (2,701,227) + 329,816 + + + Other Expense + (1,779,380) + (1,306) + (1,778,074) + + + Net loss + $(4,150,791) + $(2,702,533) + (1,448,258) + + + + + +Revenue + + + +Revenue +for the six months ended March 31, 2024 was $77,733 an increase of $54,819 compared to revenue of $22,914 for the six months ended March +31, 2023. Revenue for the six months ended March 31, 2024 was the result of several transactions into a single hospital, transactions +into VA Hospitals through LGS, and transactions leveraging the dedicated HCPCS code (A2020) that went effective April 1, 2023 through +a growing number of providers and offices working with the Company to submit reimbursement claims with numerous payors. + + + +Cost +of Revenues + + + +Cost +of revenue during the six months ended March 31, 2024 was $45,161, an increase of $8,808, compared to cost of revenue of $36,353 for +the six months ended March 31, 2023. The increase in cost of revenues corresponds to the increase in revenues. Cost of revenue includes +product costs, third party warehousing, overhead allocation, royalty and shipping costs. An increase in revenue for the six months ended +March 31, 2024 led to higher cost of revenues as a result. + + + +Selling, +General and Administrative Expense + + + +Selling, +general and administrative expense during the six months ended March 31, 2024 was $1,994,534, a decrease of $361,167, compared to $2,355,701 +for the six months ended March 31, 2023. The decrease in selling, general and administrative expense for the six months ended March 31, +2024 is primarily attributable to a decrease in professional service costs, most notably legal costs related to financing activities. + + + + -84- + + Table of Contents + + + + + +Research +and Development Expense + + + +Research +and development expense during the six months ended March 31, 2024 was $409,449, an increase of $77,362, compared to $332,087 for the +six months ended March 31, 2023. The increase in research and development expense is primarily attributable to an increase in payroll +costs. + + + +Other +(Expense) Income + + + +Other +expense during the six months ended March 31, 2024 was $1,779,380, an increase of $1,778,074, compared to other expense of $1,306 for +the six months ended March 31, 2023. The increase in other expense is primarily attributed to an increase in interest expense related +to the amortization of debt discount and debt issuance costs for 2022 Notes, Second Notes, Third, and Fourth Notes as well as increase +in related interest expense. Additionally, the increase in other expense is primarily attributable to the gain on extinguishment of derivative +liabilities that was recognized during the six months ended March 31, 2023 of approximately $1,200,000 income and did not occur during +the six months ended March 31, 2024. + + + +Year +Ended September 30, 2023 Compared to Year Ended September 30, 2022 + + + + + + + + Increase + + + + September 30, 2023 + September 30, 2022 + (Decrease) + + + + ($) + ($) + ($) + + + Revenue + 75,724 + 15,652 + 60,072 + + + Operating Expenses + + + + + + Cost of revenues + 78,163 + 51,489 + 26,674 + + + Selling, general and administrative + 4,371,164 + 4,519,636 + 148,472 + + + Research and development + 670,880 + 1,153,333 + (482,453) + + + Loss from Operations + (5,044,483) + (5,708,806) + (664,323) + + + Other (expense) income + (1,938,353) + 432,952 + (2,371,305) + + + Net loss + (6,982,836) + (5,275,854) + (1,706,982) + + + + + +Revenue + + + +Revenue +for the year ended September 30, 2023 was $75,724, an increase of $60,072 compared to $15,652 for the year ended September 30, 2022. +Revenue for the year ended September 30, 2023 was the of result multiple transactions into a single hospital as well as transactions +into multiple Veterans Administration Hospitals (the VA ) consisting of twenty (20) total units through our +distribution partner, Lovell Government Services ( LGS ). Revenue for the year ended September 30, 2022 was +the result of four transactions into multiple VA Hospitals consisting of ten (10) total units through our distribution partner, LGS. + + + +Cost +of revenues + + + +Cost +of revenues during the year ended September 30, 2023 was $78,163, an increase of $26,674 compared to $51,489 for the year ended September +30, 2022. Cost of revenue includes product costs, third party warehousing, overhead allocation, royalty, and shipping costs. + + + +Selling, +General and Administrative Expense + + + +General +and administrative expense during the year ended September 30, 2023 was $4,371,164 a decrease of $148,472 compared to $4,519,636 for +the year ended September 30, 2022. The decrease in selling, general and administrative expense for the year ended September 30, 2023 +is primarily attributable to an increase in legal and consulting costs, which were more than offset by a decrease in compensation costs +and patent costs. + + + +Research +and Development Expense + + + +Research +and development expense during the year ended September 30, 2023 was $670,880, a decrease of $482,453 compared to $1,153,333 for +the year ended September 30, 2022. The decrease in research and development expense is primarily attributable to a decrease in compensation +costs and consulting costs. + + + +Other +(Expense) Income + + + +Other +expense during the year ended September 30, 2023 was $1,938,353, an increase of $2,371,305 compared to total other income of $432,952 +for the year ended September 30, 2022. The increase in other (expense) income is attributable to interest expense partially offset by +gain for the extinguishment of derivative liabilities. + + + +Liquidity +and Capital Resources + + + +In +the first quarter of 2021, the Company commenced commercial sales of our first product, AC5 Advanced Wound System. 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. We have principally raised capital through borrowings and the issuance of convertible +debt and units consisting of Common Stock and warrants to fund our operations. + + + + -85- + + Table of Contents + + + + + +Working +Capital + + + +At +March 31, 2024, we had total current assets of $1,533,177 (including cash of $26,426) and a working capital deficit of $10,844,374. Our +working capital as of March 31, 2024 and September 30, 2023 are summarized as follows: + + + + + + March 31, 2024 + September 30, 2023 + + + Total Current Assets + $1,533,177 + $1,950,090 + + + Total Current Liabilities + 12,417,551 + 9,465,921 + + + Working Capital Deficit + $(10,884,374) + $(7,515,831) + + + + + +Total +current assets as of March 31, 2024 were $1,533,177, a decrease of $416,913, compared to $1,950,090, as of September 30, 2023. The decrease +in current assets is primarily attributable to a decrease in cash and prepaid expenses. Our total current assets as of March 31, 2024 +and September 30, 2023 were comprised primarily of cash, inventory and prepaid expenses and other current assets. + + + +Total +current liabilities as of March 31, 2024 were $12,417,551, an increase of $2,951,630, compared to $9,465,921 as of September 30, 2023. +The increase is primarily due to an increase in shareholder advances and accounts payable, new notes issued during the period, and amortization +of the debt discount and debt issuance costs for the notes partially offset by a decrease to the amount owed in connection with the financing +of certain insurance premiums and the conversion of the Series 2 and certain Senior Secured convertible note into shares. + + + +Cash +Flow for the Six Months Ended March 31, 2024 Compared to the Six Months Ended March 31, 2023 + + + + + + March 31, 2024 + March 31, 2023 + + + Cash Used in Operating Activities + $(1,562,764) + $(1,249,931) + + + Cash Provided by Financing Activities + 1,366,470 + 532,486 + + + Net decrease in Cash + $(196,294) + $(717,445) + + + + + +Cash +Used in Operating Activities + + + +Cash +used in operating activities increased by $312,833 to $1,562,764 during the six months ended March 31, 2024, compared to $1,249,931 during +the six months ended March 31, 2023. The increase in cash used in operating activities is primarily attributable to an increase in net +loss partially offset by an increase in non-cash accretion of debt discounts and issuance costs on convertible notes payable. + + + + -86- + + Table of Contents + + + + + +Cash +Provided by Financing Activities + + + +Cash +provided by financing activities increased by $833,984 to $1,366,470 during the six months ended March 31, 2024, compared to $532,486 +cash used in financing activities during the six months ended March 31, 2023. For the six months ended March 31, 2024, the increase in +cash provided by financing activities was attributable to an increase in Shareholder and third-party advances related to bridge financing. + + + +Cash +Flow for the Year Ended September 30, 2023 Compared to the Year Ended September 30, 2022 + + + + + + September 30, 2023 + September 30, 2022 + + + Cash Used in Operating Activities + $(3,374,216) + $(4,456,075) + + + Cash Used in Investing Activities + (4,521) + - + + + Cash Provided by Financing Activities + 2,854,517 + 2,936,376 + + + Net decrease in cash + $(524,220) + $(1,519,699) + + + + + +Cash +Used in Operating Activities + + + +Cash +used in operating activities decreased $1,081,859 to $3,374,216 during the fiscal year ended September 30, 2023 compared to $4,456,075 +for the fiscal year ended September 30, 2022. The decrease in cash used in operating activities is primarily attributable to the accretion +of the debt discount, partially offset by a reduction in inventory. + + + +Cash +Used in Investing Activities + + + +Cash +used in investing activities increased $4,521 to $4,521 during the fiscal year ended September 30, 2023, compared to $0 during the fiscal +year ended September 30, 2022. For the fiscal year ended September 30, 2023, cash used in investing activities increased due to the purchase +of computer hardware. + + + +Cash +Provided by Financing Activities + + + +Cash +provided by financing activities decreased $81,859, to $2,854,517 for the fiscal year ended September 30, 2023, compared to $2,936,376 +for the fiscal year ended September 30, 2022. For the year ended September 30, 2023, the cash provided by financing activities increased +as a result from net proceeds of $2,209,839 raised from bridge equity financing and proceeds of $995,000 received from the issuance of +unsecured convertible notes partially offset by repayment of financed insurance premium of $350,332. For the year ended September 30, +2022, the cash provided by financing activities resulted from net proceeds of $2,936,376 raised from the issuance of senior secured convertible +notes, warrants and inducement shares partially offset by repayment of financed insurance premium. + + + +Cash +Requirements + + + +We +anticipate that our operating expenses, interest expense and other expenses will increase significantly as we continue to implement our +business plan and pursue our operational goals. Depending upon additional input from EU and US regulatory authorities, however, we do +not expect to generate sufficient revenues from operations before we will 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 described in our Annual Report, in which case our current funds may not be sufficient +to operate our business for the period we expect. + + + + -87- + + Table of Contents + + + + + +In +the first quarter of 2021, the Company commenced commercial sales of our first product, AC5 Advanced Wound System. 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 potential new product candidates, +seeking regulatory approval of any other product candidates we may choose to develop, commercializing any product candidates 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 2022 SPA (see Note 8) +and 2023 SPA (see Notes 2 and 12) 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. 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. + + + +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. + + + +Going +Concern + + + +We +have commenced commercial sales of our first product, AC5 Advanced Wound System. From inception, we have had recurring losses +from operations. The continuation of our business as a going concern is dependent upon raising additional capital and eventually +attaining and maintaining profitable operations. As of March 31, 2024, there is substantial doubt about the Company s ability +to continue as a going concern. In addition, the Company s Independent registered public accounting firm, in their report on the +Company s September 30, 2023 audited financial statements, raised substantial doubt about the Company s ability to continue as a +going concern. The financial statements included in this registration statement 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. We do not believe the company has any accounts +or circumstances that carry a significant level of estimation uncertainty. Our critical accounting policies that we anticipate will require +the application of our most difficult, subjective or complex judgments are as follows: + + + +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 the Financial Accounting Standards Board ( FASB ) Accounting +Standards Codification ( 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. + + + + -88- + + Table of Contents + + + + + +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. + + + +Complex +Financial Instruments + + + +The +Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates +its financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded +derivatives. The Company values its derivatives using the Black-Scholes option-pricing model or other acceptable valuation models, including +Monte-Carlo simulations. Derivative instruments are valued at inception, upon events such as an exercise of the underlying financial +instrument, and at subsequent reporting periods. The classification of derivative instruments, including whether such instruments should +be recorded as liabilities, is re-assessed at the end of each reporting period. + + + +The +Company reviews the terms of debt instruments, equity instruments, and other financing arrangements to determine whether there are embedded +derivative features, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative +financial instrument. Additionally, in connection with the issuance of financing instruments, the Company may issue freestanding options +and warrants, including options or warrants to non-employees in exchange for consulting or other services performed. + + + +The +Company accounts for its common stock warrants in accordance with ASC 815, Derivatives and Hedging ( ASC 815 ). Based +upon the provisions of ASC 815, the Company accounts for common stock warrants as liabilities if the warrant requires net cash settlement +or gives the holder the option of net cash settlement, or it fails the equity classification criteria. The Company accounts for common +stock warrants as equity if the contract requires physical settlement or net physical settlement or if the Company has the option of +physical settlement or net physical settlement and the warrants meet the requirements to be classified as equity. Common stock warrants +classified as liabilities are initially recorded at fair value on the grant date and remeasured at fair value each balance sheet date +with the offset adjustments recorded in change in fair value of warrant liability within the consolidated statements of operations. Common +stock warrants classified as equity are initially measured at fair value on the grant date and are not subsequently remeasured. + + + +Recent +Accounting Guidance + + + +In +August 2020, the FASB issued ASU 2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and +Hedging-Contracts in Entity s Own Equity (Subtopic 815-40) ( ASU 2020-06 ). The purpose +of ASU 2020-06 is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles +( GAAP ) for certain financial instruments with characteristics of liabilities and equity. The amendments in ASU 2020-06 +are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December +15, 2023. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 +during our first quarter of fiscal year 2022, and the impact was considered immaterial on our consolidated financial statements. + + + +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. + + + + -89- + + Table of Contents + + + + + +OUR +BUSINESS + + + +Corporate +Overview + + + +Arch +Therapeutics, Inc. (together with its subsidiary, the Company or Arch ) is a biotechnology company +developing and marketing products based on our innovative AC5 self-assembling technology platform. Arch arose from the June 26, +2013 merger (the Merger ) of three entities previously known as Arch Biosurgery, Inc., Almah, Inc., and Arch Acquisition +Corporation, respectively. + + + +Arch +Biosurgery, Inc. ( ABS ) is a biotechnology company that was incorporated under the laws of the Commonwealth of Massachusetts +on March 6, 2006 as Clear Nano Solutions, Inc., changed its name from Clear Nano Solutions, Inc. to Arch Therapeutics, Inc. on April +7, 2008, and, as part of the Merger transaction, changed its name from Arch Therapeutics, Inc. to Arch Biosurgery. + + + +Almah, +Inc., was incorporated under the laws of the State of Nevada on September 16, 2009 and, as part of the Merger transaction, changed its +name to Arch Therapeutics, Inc. and abandoned both its prior business plan and operations in order to adopt those of ABS. + + + +Arch +Acquisition Corporation (the Merger Sub ), was a wholly owned subsidiary of Almah, Inc., formed for the purpose of the Merger +transaction, pursuant to which the Merger Sub merged with and into ABS, and ABS thereafter became the wholly owned subsidiary of the +Company. + + + +The +Company s principal offices are located in Framingham, Massachusetts. + + + +The +Company has recently devoted a substantial part of its operational effort to the market adoption and commercial sales of AC5 +Advanced Wound System, its first product. 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 to purchase Common Stock. + + + +The +Company expects to incur substantial expenses for the foreseeable future relating to research, development and commercialization of current +and potential products. However, there can be no assurance that the Company will be successful in securing additional capital 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 for one year past the issuance of the financial statements. The consolidated financial statements do not include any +adjustments related to the recoverability of assets that might be necessary despite this uncertainty. + + + +Our Company + + + +We +are a biotechnology company marketing and 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 managing wounds created +during surgery, trauma or interventional care, or from disease; stopping bleeding (hemostasis); and controlling leaking (sealant). We +have recently devoted a substantial part of our operational effort to the market adoption and commercial sales of AC5 Advanced Wound +System, our first product. Our goal is to make care faster and safer for patients by providing products for use on external wounds, which +we refer to as Dermal Sciences applications, and products for use inside the body, which we refer to as BioSurgery applications. + + + + -90- + + Table of Contents + + + + + +Core +Technology + + + +Our +flagship product 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 (US) and the European Union (EU), respectively, and which are intended +for skin applications, such as management of complicated chronic wounds and acute surgical wounds. Marketing for AC5 Topical Hemostat +in the EU has not initiated. Other products are in development for use in minimally invasive or open surgical procedures and include, +for example, AC5-G 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 proprietary biocompatible peptide that is synthesized from proteinogenic, 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 tissue and self-assemble (i.e., self-build) 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 semi-solid physical-mechanical barrier that interacts with the extracellular matrix, + is responsible for sealant, hemostatic and/or other properties that may be observed even in the presence of antithrombotic agents + (i.e., blood thinners), 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. Furthermore, we believe that AC5 SAP technology permits cell +and tissue growth and is self-healing, in that it can dynamically self-repair around migrating cells. 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, +self-assembles into a wound care matrix that can provide clinicians with multi-modal support, 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 for wounds inside or on the body, including those for which +a hemostatic agent or sealant is needed. 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. AC5 Topical +Hemostat has not yet been marketed in Europe but has received marketing authorization. + + + + -91- + + Table of Contents + + + + + +Sales +and marketing efforts for our AC5 Advanced Wound System, which has received 510(k) marketing clearance from the United States Food and Drug Administration ( FDA ), address the demand +for improved solutions to treat challenging chronic and acute surgical wounds, with a particular early focus on diabetic foot ulcers, +venous leg ulcers and pressure ulcers. Chronic wounds are typically defined as wounds that have not healed after four weeks of standard +care. Approximately 4 million to 6.5 million new onset chronic wounds are estimated to occur in the US annually, including approximately +700,000 to 2 million diabetic foot ulcers, 2.5 million pressure ulcers, and 1.2 million venous leg ulcers. If untreated, improperly treated +or unresponsive to treatment, these wounds can ultimately lead to amputation. The 5-year mortality rate among patients with chronic wounds, +especially after an amputation, is significant. + + + +Published +data on AC5 Advanced Wound System shows encouraging outcomes, including limb salvage (avoided limb loss), among patients with multiple +co-morbidities and challenging chronic wounds that failed to heal despite treatment with either traditional or other advanced wound care +modalities over prolonged periods of time. + + + +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; supporting surgeons performing clinical case studies; obtaining post-marketing +clinical data; 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: + + + + + + growing + revenues and building upon recent commercial momentum by driving product awareness, continued adoption and favorable payment policies + for AC5 Advanced Wound System with the now-effective CMS Level II HCPCS code dedicated to AC5; + + + + + + conducting + biocompatibility, pre-clinical, and clinical studies on our products and product candidates; + + + + + -92- + + Table of Contents + + + + + + + + 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 third party 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. + + + + +To +support our long-term business goals, we expect to focus on the following activities during the next twelve months: + + + + + + further + develop our product clinical profile; + + + + + + enhance + product packaging features; + + + + + + identify + and address opportunities for supply chain efficiencies; + + + + + + assess + our technology platform in order to identify and select product candidates for potential advancement into development; + + + + + + seek + additional funding as required to support the previously described milestones necessary to support our operations; + + + + + + 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, maintaining granted patents in desired jurisdictions, and/or adding to our trade secrets in self-assembly, + manufacturing, analytical methods and formulation, as appropriate. + + + + +In +addition to capital required for operating expenses, depending upon input from regulatory authorities, authorized representatives, patent +and trademark offices, or other agencies in the US, EU or elsewhere, as well as for potential additional regulatory filings and approvals +during the approximately next two years, additional capital will be required. + + + +We +have no commitments for future capital. We will require significant additional financing to fund our planned +operations, including, but not limited to, further research and development relating to AC5; seeking regulatory approval for any product we may +choose to develop, launch or license; commercializing any product for which we are able to obtain regulatory approval or certification; seeking to license +or acquire new assets or business; supporting our intellectual property rights; pursuing new technologies; and financing the +investor relations and incremental administrative costs associated with being a public corporation. We do not presently have, nor do +we expect in the near future to have, sufficient revenue to fund our business from operations, and we will need to obtain substantially +all of our necessary funding from external sources for the foreseeable future. We may not be able to obtain additional financing on commercially +reasonable or acceptable terms when needed, or at all. 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. + + + + -93- + + Table of Contents + + + + + +The estimated capital requirements could potentially +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 . We anticipate that our operating and other expenses will continue +to increase as we continue to implement our business plan and pursue and achieve these goals. After giving effect to the funds received +in past equity and debt financings and assuming our use of that funding at the rate we presently anticipate, we do not believe that our +current cash on hand as of June 19, 2024 is sufficient to meet our anticipated cash requirements through the end of June + 2024, and we must obtain additional financing in order to continue to operate our business. Even if this offering is successful, +we could spend our financial resources much faster than we expect, in which case we would +need to raise additional capital. + + + +Research +and Development + + + +Preclinical +and clinical testing is required in order to receive regulatory marketing authorizations for our products and to support those products +upon and after commercialization, and we anticipate continuing such testing as appropriate. + + + +Preclinical +Testing + + + +We +have engaged and continue to engage third parties in the United States and abroad to advise on and/or perform certain preclinical and +related activities, typically with assistance from our team. These third parties can include contract research organizations, academic +institutions, consultants, advisors, scientists, clinicians, and other collaborators. + + + +We +have conducted, and anticipate continuing to conduct, in vivo and in vitro research and development studies on our products and product +candidates. A co-founding inventor of certain of our technology, Dr. Rutledge Ellis-Behnke, performed a significant portion of the early +preclinical animal experiments conducted with our technology. Some of the most significant findings from Dr. Ellis-Behnke s studies +have been published. Additionally, through collaborations with the National University of Ireland system and related parties, preclinical +bench-top and animal research and development studies were performed in Dublin, Cork and Galway, Ireland over an approximately eight-year +period that concluded in the third quarter of fiscal 2018. + + + +Before +initiating our clinical trials and submitting marketing applications for a given product in most jurisdictions, we complete a biocompatibility +assessment using a battery of standard in vitro and in vivo tests. Examples of such tests may include the following, as set forth in +ISO 10993 issued by the International Organization for Standardization: + + + + + + in + vitro cytotoxicity; + + + + + + in + vitro blood compatibility; + + + + + + irritation/intracutaneous + reactivity; + + + + + -94- + + Table of Contents + + + + + + + + sensitization + (allergenic reaction); + + + + + + implantation + (performed on devices that contact the body s interior); + + + + + + pyrogenicity + (causing fever or inflammation); and + + + + + + systemic + toxicity. + + + + +We +completed the biocompatibility studies required to receive marketing authorizations for AC5 Advanced Wound System in the United States +and AC5 Topical Hemostat in Europe, and such test results support that the products are biocompatible. We plan to perform further biocompatibility +testing that we deem necessary for additional indications, classifications, jurisdictions, and/or as required by regulatory authorities. + + + +Acute +and survival animal studies assessing the safety and performance of our technology have also demonstrated favorable outcomes in Dermal +Sciences and BioSurgery applications. + + + +Porcine +studies, also known as swine or pig studies, are often selected due to the morphological, physiological, and biochemical similarities +between porcine skin and human skin and are very useful to assess the performance of AC5 Advanced Wound System or AC5 Topical Hemostat +as a barrier and advanced wound dressing, as well as their safety and effects on healing. + + + +In +an assessment versus saline in a porcine partial thickness excision wound model, tissue response to AC5 Advanced Wound System over a +28-day follow-up period was consistent with normal wound healing and included complete re-epithelialization, normal collagen organization +and minimal inflammation, and TTH was faster. + + + +In +an assessment versus both a market leading skin substitute and saline in a porcine full thickness 10 mm punch biopsy wound model, AC5 +Advanced Wound System was solely associated with complete epithelialization by the end of the 11-day study. + + + +In +an assessment versus both a market leading antimicrobial burn dressing, a hydrogel, and saline in a porcine second degree burn wound +model, AC5 Advanced Wound System was associated with less progression of thermal damage and less inflammation over three days. + + + +Arch +Therapeutics AC5 technology has also demonstrated hemostasis in liver and other organs in in vivo surgical models, including rapid +hemostasis within 15 seconds. In a range of small and large animal models, our compositions have been shown to stop bleeding, seal leaking, +allow for normal healing, and mitigate inflammation while being biocompatible. + + + +The +AC5 technology has also demonstrated rapid average TTH when applied to a range of animal tissues. Certain surgical procedure studies +have assessed TTH when using AC5 Surgical Hemostat as well as using an active control, a saline control, a peptide control, and a cautery +control. The results of those tests have shown a TTH of approximately 10 - 30 seconds when AC5 Surgical Hemostat was applied, compared +to 80 seconds to significantly more than 300 seconds when various control substances were applied, depending on the nature of the control +substance and procedure performed. In several studies comparing AC5 Surgical Hemostat to popular commercially available branded hemostatic +agents (absorbable cellulose, flowable gelatin with and without thrombin, and fibrin) applied to stop the bleeding from full thickness +penetrating wounds surgically created in rat livers, AC5 Surgical Hemostat achieved hemostasis in significantly less than 30 seconds, +whereas control products took from over 50% - 400% longer to achieve hemostasis. + + + +The +AC5 technology was also demonstrated in preclinical tests to stop surgically induced liver bleeding in animals that had been treated +with therapeutic amounts of anticoagulant and antiplatelet medications, collectively known as antithrombotic medications and commonly +called blood thinners. In one preclinical study, an independent third-party research group obtained positive data assessing +the use of AC5 Surgical Hemostat in animals that had been treated with therapeutic doses of the antiplatelet medications Plavix +(clopidogrel) and aspirin, alone and in combination. The results of the study were consistent with data obtained from two prior preclinical +studies, in which AC5 Surgical Hemostat quickly stopped bleeding from surgical wounds created in rats following treatment with clinically +relevant doses of the anticoagulant medication heparin. In these studies, the average TTH after AC5 Surgical Hemostat was applied to +bleeding liver wounds in animals that had received anticoagulant medication was comparable to the average TTH as measured in their non-anticoagulated +counterparts. + + + + -95- + + Table of Contents + + + + + +AC5-V +was assessed for its ability to provide hemostasis after bleeding was intentionally created at vascular reconstruction sites in preclinical +studies. In an acute study in swine that had been premedicated with therapeutic doses of heparin before undergoing end-to-end femoral +artery anastomosis and synthetic graft to vessel anastomosis in carotid and femoral arteries, AC5-V promoted effective hemostasis at +the vascular anastomotic site and allowed for clear visualization of the surgical site. + + + +In +a 14-day survival study in sheep that had been premedicated with therapeutic doses of heparin before undergoing end-to-side anastomosis +between synthetic vascular grafts and carotid arteries, AC5-V promoted effective hemostasis at the vascular anastomotic site, the graft +remained patent during the study as assessed by angiography and ultrasound, clinical observations were normal during the study, and tissue +response as assessed by histopathological examination at the end of the study was consistent with expectations for a biodegrading implant. + + + +AC5-G +was studied in swine to assess visualization, submucosal lift generation and durability, and hemostatic and sealant performance when +used during endoscopic mucosal resections and endoscopic submucosal dissections as well as hemostatic performance during endoscopic management +of gastrointestinal bleeding. AC5-G was easily delivered through a 25G endoscopic injection needle into the tissue and provided a durable +submucosal lift in the gastric antrum that lasted beyond 2 hours. When delivered with the visualizing agent prior to tissue dissection, +AC5-G allowed for easy visualization with both snare and electrosurgical knives, and no visible bleeding was observed following polyp +removal. AC5-G was also shown to provide hemostasis in actively bleeding lesions when applied with or without the visualizing agent either +topically to a bleeding site or when injected into the nearby mucosa. AC5-G was found to be useful in conjunction with clips as a potential +sealant when applied following application of clips to a post-polypectomy site for the purpose of mitigating leaks and potentially enabling +healing. + + + +The +AC5 self-assembling peptide was studied in an experimental intraocular inflammation model of injected Lipopolysaccharide (LPS), +in which an intraocular application of the peptide with LPS was associated with a marked reduction in retinal inflammation. The density +of activated retinal microglial cells was significantly lower in the eyes of the study animals with LPS and AC5 than in the eyes of the +LPS-only control group. The results suggest that the AC5 self-assembling peptide may reduce inflammation and may represent a new class +of devices that act as anti-inflammatory agents to control ocular inflammation. + + + +Clinical +Testing + + + +We +have engaged and continue to engage third parties in the United States and abroad to advise on and/or perform certain clinical studies +and related activities, typically with assistance from our team. These third parties can include contract research organizations, academic +institutions, consultants, advisors, scientists, clinicians, and other collaborators. + + + +In +order to enroll patients in a clinical trial, we are required to obtain each patient s informed consent in a form and substance +that complies with the FDA and/or other regulatory authority requirements as well as state and federal privacy and human subject protection +regulations. + + + +We +have completed two randomized controlled clinical studies to date. The first study, which met its primary and secondary endpoints, assessed +the safety and performance of AC5 in 46 patients with bleeding skin wounds, including a group of patients taking anti-platelet medications +(i.e., a blood thinner) that resulted from excision of skin lesions and followed for 30 days. The second study assessed AC5 on skin, +determining that it was neither an irritant nor a sensitizer, and no immunogenic response or other adverse events attributable to this +product were reported in any of the approximately 50 enrolled volunteers. The AC5 product candidate in these studies subsequently received +marketing authorization and is presently known as AC5 Advanced Wound System in the US and AC5 Topical Hemostat in the EU. + + + + -96- + + Table of Contents + + + + + +Post-marketing +clinical case reports have been published demonstrating both efficacy and safety in a range of challenging acute surgical or chronic +wounds on patients. + + + +Many +factors could lead to delays or inefficiencies in conducting clinical trials, some of which are discussed under the heading RISK +FACTORS in this prospectus. Further, we, the FDA or an institutional review board (IRB could suspend a clinical trial at any +time for various reasons, including a belief that the risks to the subjects of the trial outweigh the anticipated benefits. Even if a +trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the device or may otherwise +not be sufficient to obtain FDA clearance or approval to market the product in the US. + + + +Regulatory + + + +We +have engaged and continue to engage third parties in the US and abroad to advise on and/or perform certain regulatory activities, typically +with assistance from our team. These third parties can include contract research organizations, academic institutions, consultants, advisors, +scientists, clinicians, and other collaborators. + + + +The +research, development and clinical programs, as well as manufacturing and marketing operations that may be performed by us or third-parties +on our behalf, are subject to extensive regulation in the US and other countries. Notably, for example, AC5 Advanced Wound System is +subject to regulation as a medical device under the US Food Drug and Cosmetic Act (FDCA) as implemented and enforced by the FDA and equivalent +regulations that are enforced by foreign agencies in any other countries in which we pursue commercialization. The FDA and its foreign +counterparts generally govern the following activities that we, or others on our behalf, do or will perform, as well as potentially additional +activities, to ensure that products we may manufacture, promote and distribute domestically or export internationally are safe and effective +for their intended uses: + + + + + + product + design, preclinical and clinical development and manufacturing; + + + + + + product + premarket clearance and approval; + + + + + + product + safety, testing, labeling and storage; + + + + + + certain + supply chain changes; + + + + + + record + keeping procedures; + + + + + + product + marketing, sales and distribution; and + + + + + + post-marketing + surveillance, complaint handling, medical device reporting, reporting of deaths, serious injuries or device malfunctions and repair + or recall of products. + + + + +Medical +Device Classification in the United States and Europe + + + +AC5 +Advanced Wound System in the US and AC5 Topical Hemostat in EU are classified as medical devices. Generally, a product is a medical device +if it requires neither metabolic nor chemical activity to achieve the desired effect. AC5 self-assembly, which is the desired effect, +is consistent with the medical device definition. + + + +Medical +devices in the US and EU are classified along a spectrum on the basis of the amount of risk to the patient associated with the medical +device and the controls deemed necessary to reasonably ensure their safety and effectiveness. Class III status, which is the higher-level +classification for devices compared to Classes II and I, involves additional procedures and regulatory scrutiny of the product candidate +to obtain approvals. Class III devices are those that are deemed to pose the greatest risks, such as life-sustaining, life-supporting +or implantable devices, or those that have a new intended use or that use advanced technology not substantially equivalent to that of +a legally marketed device. + + + + -97- + + Table of Contents + + + + + +As +a result of the intended use of and the novel technology on which our products and product candidates are based, in general, we anticipate +that they would typically be regulated as either Class II or Class III medical devices in these jurisdictions, depending upon the intended +use. Specifically, AC5 Advanced Wound System is a Class II medical device in the US, and AC5 Topical Hemostat is a Class IIb medical +device in EU. + + + +In +the US, the FDA recognizes these classes of medical devices: + + + + + + Class + I, requiring general controls, including labeling, device listing, reporting and, for some products, adherence to good manufacturing + practices through the FDA s quality system regulations and pre-market notification; + + + + + + Class + II, requiring general controls and special controls, which may include performance standards and post-market surveillance; and + + + + + + Class + III, requiring general controls and approval of a premarket approval application (PMA), which may include post-market approval conditions + and post-market surveillance. + + + + +European +regulatory authorities, likewise, recognize several classes of medical devices. Classification involves rules found in the European Union +Medical Device Directive or European Union Medical Device Regulation and is driven in part by the device s degree of contact with +the patient, invasiveness, active nature, and indications for use. The medical device classes recognized in the EU are: + + + + + + Class + IIa, which are considered low-medium risk devices and require certification by a Notified Body (defined below under the section entitled + European Union Marketing Authorization (CE Mark) Process ); + + + + + + Class + IIb, which are considered medium-high risk devices and require certification by a Notified Body; and + + + + + + Class + III, which are considered high-risk devices and require certification by a Notified Body. + + + + +US +Class III and certain Class II medical device approvals and EU Class III and certain Class IIa and IIb medical device approvals may require +the successful completion of human clinical trials. + + + +US +Regulatory Marketing Authorization Process + + + +Products +that are regulated as medical devices and that require review by the FDA are subject to either a premarket notification (510(k)), which +must be submitted to the FDA for clearance, or a PMA application, which the FDA must approve prior to marketing in the US. The FDA ultimately +determines the appropriate regulatory path. For purposes herein, references to regulatory approval and marketing authorization may be +used interchangeably. + + + +AC5 +Advanced Wound System, which is intended for external use, received marketing authorization through the 510(k) process. To obtain 510(k) +clearance for a medical device, an applicant must submit a premarket notification to the FDA demonstrating that the device is substantially +equivalent to a predicate device or devices, which is typically a legally marketed Class II device in the US. A device is substantially +equivalent to a predicate device if it has the same intended use and (i) the same technological characteristics, or (ii) has different +technological characteristics and the information submitted demonstrates that the device is as safe and effective as a legally marketed +device and does not raise different questions of safety or effectiveness. In some cases, the submission must include data from human +clinical studies. Marketing may commence when the FDA issues a clearance letter. Depending upon a product s underlying technology +and intended use, as well as on FDA processes and procedures, seeking and obtaining a 510(k) can be a lengthy process. + + + +We +believe that our product candidates for internal use will require a PMA approval prior to commercialization. A PMA, which is required +for most Class III medical devices, must be submitted to the FDA if a device cannot be cleared through another approval process or is +not otherwise exempt from the FDA s premarket clearance requirements. The PMA approval process can be lengthy and expensive. A +PMA must generally be supported by extensive data, including without limitation, technical, preclinical, clinical trial, manufacturing, +and labeling data, to demonstrate to the FDA s satisfaction the safety and efficacy of the device for its intended use. Clinical +trials for a Class III medical device typically require an application for an investigational device exemption (IDE), which would need +to be approved in advance by the FDA for a specified number of patients and study sites. Clinical trials are subject to extensive monitoring, +recordkeeping, and reporting requirements, and must be conducted under the oversight of an IRB for the relevant clinical trial sites +and comply with applicable FDA regulations, including those relating to good clinical practices (GCP). + + + + -98- + + Table of Contents + + + + + +The +PMA process is estimated to take from one to three years or longer, from the time the PMA application is submitted to the FDA until an +approval is obtained. During the review period, the FDA will typically request additional information or clarification of the information +previously provided. Also, experts from outside the FDA may be convened to review and evaluate the PMA and provide recommendations to +the FDA as to the approvability of the device, although the FDA may or may not accept any such recommendations. In addition, the FDA +will generally conduct a pre-approval inspection of the manufacturing facility or facilities involved with producing the device to ensure +compliance with the appropriate regulations. Upon approval of a PMA, the FDA may require that certain conditions of approval, such as +conducting a post-market approval clinical trial, be met. + + + +Further, +if post-approval modifications are made, including, for example, certain types of modifications to the device s indication for +use, manufacturing process, labeling or design, then new PMAs or PMA supplements would be required. PMA supplements often require submission +of the same type of information as a PMA, except that the supplement is typically limited to information needed to support the changes +from the device covered by the original PMA and accordingly may not require as extensive clinical and other data. + + + +We +have not submitted to the FDA a PMA or commenced the required clinical trials for an internal use product. Even if we conduct successful +preclinical and clinical studies and submit a PMA for an approval or premarket application for clearance, the FDA may not permit commercialization +of our product candidate for the desired internal use indications, on a timely basis, or at all. Our inability to achieve regulatory +approval for AC5 in the United States for an internal use product, a large market for hemostatic products, would materially adversely +affect our ability to grow our business. + + + +European +Union Marketing Authorization (CE Mark) Process + + + +A +notified body is a private commercial entity designated by the national government of an EU member state as being competent to make independent +judgments about whether a medical device complies with applicable regulatory requirements in the EU (a Notified Body or + Notified Bodies ). Our Notified Body is The British Standards Institution (BSI). + + + +The +EU has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling, and adverse event reporting +for medical devices, and it has further revised its rules and regulations with increasingly stringent requirements. Each EU member state +has implemented legislation applying these directives and standards at a national level. Many countries outside of the EU have also voluntarily +adopted laws and regulations that mirror those of the EU with respect to medical devices, potentially increasing the time and cost necessary +to potentially achieve an approval in different jurisdictions. + + + +Devices +that comply with the requirements of the laws of the selected member state applying the applicable EU directive are entitled to bear +a Conformit Europ enne mark (CE mark) and can be distributed throughout the member states of the +EU, as well as in other countries that have mutual recognition agreements with the EU or have adopted the EU s regulatory standards. + + + +Under +applicable European Medical Device Directives or newer European Medical Device Regulations, a CE mark symbol that is placed on a product +declares that the product is compliant with the essential requirements of applicable EU health, safety and environmental protection legislation. +In order to receive a CE mark for a product candidate, the company producing the product candidate must select a country in which to +apply. Each country in the EU has one competent authority (CA) that implements the national regulations by interpreting the EU directives. +CAs also designate and regulate Notified Bodies. An assessment by a Notified Body in the selected country within the EU is required in +order to commercially distribute the device. In addition, compliance with ISO 13485 issued by the International Organization for Standardization, +among other standards, establishes the presumption of conformity with the essential requirements for CE mark. Certification to the ISO +13485 standard demonstrates the presence of a quality management system that can be used by a manufacturer for design and development, +production, installation and servicing of medical devices and the design, development and provision of related services. + + + + -99- + + Table of Contents + + + + + +While +there are many similarities between the processes required to obtain marketing authorization in the US and EU, there are several key +differences between the jurisdictions, as well. Obtaining a CE mark is not equivalent to obtaining FDA clearance or approval. For instance, +FDA requirements for products typically vary based on whether the submission is for a 510(k) or a PMA, whereas EU requirements for product +submissions are primarily based on class. Furthermore, EU submissions must meet precise essential requirements, although the data demonstrating +such compliance can vary by class of device. Additionally, a CE mark affixed to a product serves as a declaration by the responsible +party that the product conforms to applicable provisions and that relevant conformity assessment procedures have been completed with +respect to the product. + + + +In +2017, the EU regulatory bodies implemented a Medical Device Regulation, which revises several aspects of the existing regulatory framework, +such as clinical data requirements, and introduces new ones, such as Unique Device Identification. We, and the Notified Bodies who will +oversee compliance to the new Medical Device Regulation, face uncertainties in the upcoming years as it is rolled out and enforced, creating +risks in several areas, including the CE mark process, data transparency and application review timetables. The Medical Device Regulation +became effective on May 26, 2021, although the European Commission has allowed an implementation period to facilitate transition from +the Medical Device Directives. This transition period extends until the end of 2027 for high-risk devices and until the end of 2028 for +medium and low risk devices. + + + +Post-Approval +Regulation + + + +After +a medical device obtains approval from the applicable regulatory agency and is launched in the market, numerous post-approval regulatory +requirements would apply. Many of those requirements are similar among the US and EU member states and include: + + + + + + product + listing and establishment registration; + + + + + + compliance + by us and/or third-parties upon whom we depend with stringent design, testing, control, documentation and other quality assurance + processes and procedures related to product design, manufacturing and commercialization; + + + + + + labeling + and other advertising regulations, including prohibitions against the promotion of products for uncleared, unapproved or off-label + use or indication; + + + + + + approval + of product modifications that affect the safety or effectiveness of any of our devices that may achieve approval; + + + + + + post-approval + restrictions or conditions, including post-approval study commitments; + + + + + + post-market + surveillance regulations, which apply, when necessary, to protect the public health or to provide additional safety and effectiveness + data for the device; + + + + + + the + recall authority of the applicable government agency and regulations pertaining to voluntary recalls; and + + + + + + reporting + requirements, including reports of incidents in which a product may have caused or contributed to a death or serious injury or in + which a product malfunctioned, and notices of corrections or removals. + + + + +Failure +by us, our third-party manufacturers or our other suppliers to comply with applicable regulatory requirements could result in enforcement +action by various regulatory authorities, which may result in monetary fines, the imposition of operating restrictions, product recalls, +revocation of certificates, criminal prosecution or other sanctions. + + + + -100- + + Table of Contents + + + + + +Regulation +by Other Foreign Agencies + + + +International +sales of medical devices outside the EU may be subject to government regulations in each country in which the device is marketed and +sold, which vary substantially from country to country. The time required to obtain approval by a non-EU foreign country may be longer +or shorter than that required for FDA or CE mark clearance or approval, and the requirements may substantially differ. + + + +Marketing +Authorization (510)k for AC5 Advanced Wound System in the United States + + + +On +July 25, 2017, we announced that we had made a 510(k) submission to the FDA for AC5 Topical Gel. On December 18, 2017, we voluntarily +withdrew the application 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. On October 1, 2018, we announced that we both completed the necessary +steps required to file a new 510(k) submission to the FDA for AC5 Topical Gel and filed that 510(k) submission during the third calendar +quarter. As previously disclosed, these steps included developing a required study protocol and submitting it to the FDA in a pre-submission +letter in the first calendar quarter, completing the pre-submission process, initiating the study in the second calendar quarter of 2018 +and completing the study. On December 17, 2018, we announced that the 510(k) premarket notification had been reviewed and cleared by +the FDA, allowing for the product to be marketed. In line with plans to better harmonize our US and EU product supply chains by +using an additional supplier and additional manufacturing processes in the production of AC5 Topical Gel, Arch filed documentation with +the FDA seeking such clearance in the US for these additions, each of which had been incorporated into the technical documentation for +the European CE mark filing. On March 23, 2020, we announced that the 510(k) premarket notification had been reviewed +and cleared by the FDA, allowing for the product to be marketed in the US with the aforementioned additions. AC5 Topical Gel was subsequently +renamed AC5 Advanced Wound System in the US. + + + +Marketing +Authorization (CE mark) for AC5 Topical Hemostat in Europe + + + +During +November 2018, we submitted the required documents for AC5 Topical Hemostat to the Notified Body seeking a CE mark. + + + +During +April 2020, we received the CE mark for AC5 Topical Hemostat, allowing for commercialization in Europe as a dressing and to control bleeding +in external skin wounds in both outpatient and in-patient settings. + + + +Commercialization + + + +Our +Dermal Sciences products are AC5 Advanced Wound System in the United States and AC5 Topical Hemostat in Europe, and the indication for +use, or purpose, for each product follows, respectively: + + + + + + Under + the supervision of a health care professional, AC5 Advanced Wound System is a topical dressing used for the management of partial + and full-thickness wounds, such as pressure sores, leg ulcers, diabetic ulcers, and surgical wounds. + + + + + + AC5 + Topical Hemostat is intended for use locally 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. + + + + +Our +commercialization efforts are currently focused on Dermal Sciences. Our BioSurgery products for internal use will require additional +preclinical and clinical testing before we seek marketing authorization to commercialize them. + + + +For +at least the near term future, in order to maximize operational efficiencies and to account for changing landscapes since the COVID-19 +pandemic during which both marketing authorizations were received, we have prioritized the launch of AC5 Advanced Wound System in the +United States over that of AC5 Topical Hemostat in Europe, where we have not launched. + + + + -101- + + Table of Contents + + + + + +We expect the commercialization ramp to be gradual +through 2024 and into 2025, while we encourage product use among key opinion leaders and early adopters in developing market channels, +and then moderately accelerate. + + + +We +recently started to commercialize AC5 Advanced Wound System. We rely on both an internal commercial team and independent sales distributors +to drive awareness and adoption of AC5 Advanced Wound System in several targeted channels with a particular focus on physician offices +and government channels, such as Veterans Health Administration (VA) hospitals and military treatment facilities. These settings tend +to have many patients whose needs we believe can be addressed by AC5 Advanced Wound System because it is a synthetic self-assembling +wound care product that provides clinicians with multi-modal support and utility across all phases of wound healing. Numerous published +case studies and accolades highlight the efficacy and safety of AC5 in the treatment of challenging chronic and acute surgical wounds, +including limb salvage and healing after other modalities have failed. + + + +We +anticipate that material growth in the physician office setting will require product reimbursement. To that end, we applied to the Centers +for Medicare and Medicaid Services (CMS) for a dedicated Healthcare Common Procedure Coding System (HCPCS) Level II reimbursement code +specific to AC5 Advanced Wound System to better enable providers to bill third party payors for AC5 that is used in doctors offices. +The unique HCPCS code, A2020, was granted and made effective on April 1, 2023. A dedicated HCPCS code is an important step toward, although +not a guarantee of, coverage and reimbursement, and we intend it to enhance our ability to work directly with payors as we expand access +in outpatient settings and continue to advocate for clinically appropriate usage of our technology for patients. + + + +In +support of the government market, we partnered with Lovell Government Services (LGS), a service-disabled veteran-owned small +business, to be our government channel distributor. As a direct result of our relationship with LGS, AC5 Advanced Wound System has +been added to the four major government contracting vehicles: Federal Supply Schedule (FSS), General Services Administration (GSA) +schedule, Defense Logistics Agency s Medical Electronic Catalog Program (ECAT), and Distribution and Pricing Agreement (DAPA). +This listing enables purchase by federal government agencies, including the Department of Veterans Affairs (VA), Indian Health +Services (IHS), and Department of Defense (DOD) Medical Treatment Facilities, and it allows doctors in government channels to order +AC5 Advanced Wound System. + + + +Our +internal core team oversees AC5 Advanced Wound System sales, marketing, and inventory distribution from the warehouse to the customer. +We envision hiring additional internal sales representatives to support commercialization. + + + +We +have partnerships with reputable, value-added independent sales representatives and distributors, and we expect to add more collaborative +agreements on a case-by-case basis to expand the overall reach and footprint of the sales organization. Such collaborations may include +strategic partners. We anticipate that we will also periodically terminate certain agreements based on performance or other business +criteria. + + + +We +are committed to continuous improvement processes. We collect feedback and data when feasible and appropriate to both develop and +commercialize products that serve patients and doctors; to develop marketing messages; to learn about product use; to evaluate +product performance in different settings; to improve our products; to address reimbursement needs; and to support collaborations +that we may have or may establish. Data has been and will continue to be collected by informal feedback, observational case reports +and/or clinical trials. + + + +The +COVID-19 Pandemic Impact on Commercialization + + + +The +COVID-19 pandemic environment introduced significant challenges related to product launch, marketing and sales. While the overall environment +has improved, negative direct and indirect effects may variously wax and wane. Some effects that we periodically observe include curtailed +access to non-US surgeons, facilities, and potential strategic partners, as well as to some US medical facilities. + + + + -102- + + Table of Contents + + + + + +The pandemic brought additional attention to the +tendency for interventions for wounds to be too often considered elective procedures instead of essential or emergent, as National Pressure +Ulcer Advisory Panel guidelines and others recommend, resulting in a projected increased risk to limb and life. Furthermore, the implications +of these delays are a growing backlog of chronic wounds awaiting care and a worsening of such wounds, leading to greater morbidity, such +as infection, necrosis, and amputation, and potentially mortality. + + + +We believe that these challenges reveal an underlying +problem in the healthcare system clinicians and other providers are being asked to accomplish more in less time with fewer resources. +These resources may include higher acuity settings, such as operating rooms; expensive wound care products that may not work as well +as desired; nursing time to change wound dressings; and surgeon time for managing wounds during debridement; repeat patient visits over +months and often years, and others. Our discussions with surgeons, economic stakeholders and other decision-making personnel often include +whether AC5 Advanced Wound System may enable them to accomplish more for their patients while deploying overall fewer resources and achieving +desired outcomes. + + + +We believe that these challenges may present an +opportunity for new technology, such as ours, to address poorly met needs and limited healthcare overall resources. + + + +Manufacturing + + + +We +work with contract manufacturing and related organizations, including those operating under cGMP, as is required by applicable regulatory +agencies for production of products that can be used for preclinical and human testing as well as for commercial use. We also have engaged +and continue to engage other third parties in the United States and abroad to advise on and perform certain manufacturing and related +activities, typically with assistance from our team. The activities include development of our primary product candidates, as well as +generation of appropriate analytical methods, scale-up, and other procedures for use by manufacturers and/or other members of our supply +chain to produce or process our products at current and/or larger scale quantities for research, development, and commercialization. + + + +Our +products are regulated as medical devices, and as such, many of our activities have focused on optimizing traditional parameters to target +specifications, biocompatibility, physical appearance, stability, and handling characteristics, among other metrics, to achieve the desired +product. We and our partners intend to continue to monitor manufacturing processes and formulation methods closely, as success or failure +in establishing and maintaining appropriate specifications may directly impact our ability to conduct additional preclinical and clinical +trials, and/or deliver commercial products. + + + +We +believe that the manufacturing methods used for a product, including the type and source of ingredients and the burden of waste byproduct +elimination, are important determinants of its opportunity for profitability. Industry participants are keenly aware of the downsides +of products that rely on expensive biotechnology techniques and facilities for manufacture, onerous and expensive programs to eliminate +complex materials, or ingredients that are sourced from the complicated process of human or other animal plasma separation, since those +products typically are expensive, burdensome to produce, and at greater risk for failing regulatory oversight. + + + + -103- + + Table of Contents + + + + + +The +manufacturing methods that we use to produce our current products rely on detailed, complex and difficult to manage synthetic organic +chemistry processes. Although use of those methods requires that we engage manufacturers that possess the expertise, skill and know-how +involved with those methods, the required equipment to use those methods is widely available. Our current products are synthesized from +naturally occurring [ingredients amino acids] that, while not sourced from humans or other animals, do exist in their natural state in +humans. That type of ingredient may be more likely to be categorized as generally recognized as safe , or GRAS , +by the FDA. + + + +Industry +and Competition + + + +Arch +is developing technology for Dermal Sciences and BioSurgery applications. We seek to provide a product set with broad utility in external +and internal applications. Features of the technology highlight its potential utility in a range of settings, including traditional open +procedures and the often more challenging minimally invasive surgeries. + + + +Common +features of our current and planned products, as described herein, are driven by the mechanism of action, which itself is derived from +the underlying physicochemical properties or our AC5 self-assembling peptide technology and Arch s product safety and performance +specifications. Those features, which include, among others, that they possess barrier properties and can create an environment permissive +to healing, can deliver a benefit in the treatment of external and internal wounds that are open, exposed, bleeding, leaking, and/or +at risk for excessive inflammation or contamination. + + + +Dermal +Sciences + + + +We +have received marketing authorizations for AC5 Advanced Wound System in the United States and AC5 Topical Hemostat in Europe. Compared +to many other advanced wound dressings on the market, ours can be used throughout all phases of wound healing (i.e., inflammatory, proliferative, +and remodeling). + + + +Wounds +can vary widely in terms of degree of bleeding and oozing, chronicity, acuity, complications, anatomic location, biochemistry, micromilieu, +bioburden and other factors that may inhibit an ideal response. Patients can also vary widely in terms of co-morbidities, compliance, +setting of their care, ability to contribute to their own care, and other risk factors. And the approach by surgeons to clinical practice +can vary widely in terms of debridement strategy, timing and/or use of advanced modalities, choice and use of consumables, follow-up, +and dressing change frequency, and more. Our products are designed to self-assemble on the wound site in response to locally present +stimuli (ions), despite these diverse situations, with the objective of providing greater utility to clinicians and enabling better outcomes +for patients. + + + +The +incidence and prevalence of both acute surgical and chronic wounds is noteworthy. According to a 2020 report by Steiner et al for The +Healthcare Cost and Utilization Project (www.ncbi.nlm.nih.gov/books/NBK442035), approximately 17 million hospital visits (inpatient and +ambulatory) in 2014 resulted in almost 22 million invasive therapeutic surgeries. While more acute surgical wounds occur per year versus +chronic wounds, the nature of chronic wounds provides greater challenges due to the prolonged duration of the healing period, the frequency +of interventions needed to help the wound heal, and the often-underlying medical problem that placed the patient at risk for the wound +in the first place, which is itself a hindrance to the healing process. + + + +Chronic +wounds affect approximately 2% of the United States Population, accounting for an estimated 6-7 million people (https://www.facs.org/media/buthal55/nonhealing_wounds.pdf; +www.doi.org/10.1111/wrr.12994; www.doi.org/10.1186/s13643-016-0400-8; www.doi.org/10.19080/ARR.2020.06.555678). + + + +Diabetic +foot ulcers develop in approximately 2 million Americans each year, according to The Health Innovation Program, University of Wisconsin +(https://hip.wisc.edu/DiabeticFootUlcers), while the annual incidence across developed countries is estimated to be 2-4%, according to +Woods et al in 2020 (www.doi.org/10.1371/journal.pone.0232395). Pressure ulcers develop in over 2.5 million Americans each year, according +to the United States Agency for Healthcare Research & Quality (www.ahrq.gov/topics/pressure-ulcers.html). + + + + -104- + + Table of Contents + + + + + +Venous +leg ulcers, representing the most common chronic wounds, occur in approximately 2.2% of Americans over age 65 each year, according to +Rice et al in 2014, which equates to roughly 1.2 million new wounds per year among just that population (www.doi.org/10.3111/13696998.2014.903258), +while Qiu et al in 2021 provided an estimated prevalence of 2-4% (www.doi.org/10.3389/fmed.2021.614059). The Centers for Disease Control +and Prevention estimates that approximately 56 million Americans are over age 65. Additional chronic wounds not accounted for above can +include, among others, surgical wounds that become chronic wounds, typically in patients with co-morbidities. + + + +The +morbidity and mortality associated with wounds, and particularly chronic wounds, is problematic. A 2017 article by J rbrink et al +noted that chronic wounds may not heal for several years or, in some cases, decades, during which time the patient may suffer from severe +pain, emotional and physical distress, less mobility and greater social isolation, while the family may suffer from other stresses and +challenges (www.doi.org/10.1186/s13643-016-0400-8). Woods et al in 2020 stated that only 2/3 of diabetic foot ulcers heal within 12 months +(www.doi.org/10.1371/journal.pone.0232395). Some wounds just do not heal, remaining stagnant or progressing to limb loss or worse. J rbrink +et al noted in 2017 that ulcers precede 85% of all amputations (www.doi.org/10.1186/s13643-016-0400-8). + + + +The +Health Innovation Program, University of Washington, cited that of patients with diabetic foot ulcers in the United States, more than +50% will die within five years and 5% will have an amputation (https://hip.wisc.edu/DiabeticFootUlcers). A common phrase in medicine, +which we often cite, is, Save a limb, save a life. Even the amputations that are required to save a patient from a non-healing, +progressing chronic wound are associated with additional significant morbidity and mortality. In an examination of mortality rates after +amputations from a chronic wound, Meshkin et al performed a systematic literature review and found that of the sixty-one studies yielding +approximately 36,000 patients who previously received a nontraumatic major lower extremity amputation, approximately 34% died by year +one, 55% died by year two, and 64% died by year five (http://www.doi.org/10.1053/j.jfas.2020.06.027). Stern et al in 2017 reported an +even higher mortality rate one year after amputation of approximately 48% (www.doi.org/10.1016/j.avsg.2016.12.015). + + + +According +to the US Market Report for Wound and Tissue Management, 2018, by iData Research, advanced wound dressings account for approximately +$2 billion in annual revenues while the overall wound care market is projected to surpass $10 billion in the United States, yet this +represents a relatively small percentage of the overall cost to care for wounds, including chronic wounds, such as venous leg ulcers, +diabetic foot ulcers, and pressure ulcers. + + + +As +such, the total expenditure required to treat wounds is an important consideration in assessing market opportunity, product need, industry +dynamics, and needs of insurers. Several wound related phenomenon influence the overall cost and challenge of wound care. For instance, +many surgeons believe that a chronic wound is essentially a chronic infection, which raises costs and complicates treatment plans, and +that healing requires aggressive debridement (surgical removal of damaged, dead, lacerated, devitalized, or contaminated tissue), which +narrows the scope of which wound care products can be used at the time of the procedure as a useful tool to support healing. + + + +According +to a 2018 report by Nussbaum et al., data from calendar year 2014 estimated that Medicare alone spent between $28.1 to $96.8 billion +for all wound care types, and that nearly 15% ($8.2 million) of Medicare beneficiaries were diagnosed with at least one type of wound +or wound-related infection (https://www.doi.org/10.1016/j.jval.2017.07.007). Furthermore, a 2017 report by Chan et al indicated that +the mean one-year cost of care from the perspective of a health-care public payer was $44,200 for a diabetic foot ulcer, $15,400 for +a pressure ulcer and $11,000 for a leg ulcer (https://www.doi.org/10.12968/jowc.2017.26.sup4.s4). Woods et al in 2020 estimated that +the cost per admission among patients with diabetic foot ulcers was $8,145 if the wound was not infected and $11,290 if the wound was +infected (www.doi.org/10.1371/journal.pone.0232395). Han et al noted in 2017 that lessening a hospital admission by just one day represents +an enormous cost savings and is separately beneficial to the patient (https://www.doi.org/10.1007/s12325-017-0478-y). + + + +A +common wound care topic, which has been further highlighted during the COVID-19 pandemic, is how to provide high quality care in lower +acuity settings. It is less expensive, more convenient, and potentially better for the patient if a wound care procedure, such as debridement, +can be safely performed in a doctor s office or wound clinic in lieu of a hospital operating room. For example, a report by Rogers +et al in 2020 discussed changing sites of service to the lowest acuity setting in which care could be safely delivered (https://www.researchgate.net/publication/340950761). +As such, we believe that wound care products should be designed to enable clinicians to do more with less , such as debride +in a clinic or office a wound that otherwise may have required an operating room visit. + + + + -105- + + Table of Contents + + + + + +While +the wound care opportunity is large for safe, efficacious, and novel products, the competitive landscape is also crowded and challenging. +For instance, while many of the commercially marketed advanced wound care dressings or other products, may provide utility in certain +situations, and possess some novel features, surgeons often describe an inability to differentiate one from the other. In addition, many +advanced products are expensive when accounting for wound surface area coverage, are not user friendly, and/or may need to rely on the +passage of several weeks of time for the wound bed to adequately be prepared before they can be used, which itself adds burden to their +use. + + + +We +believe that the aforementioned elevated wound incidence and prevalence, consequential morbidity and mortality, prolonged healing times +and exorbitant cost of overall care underscores the potential opportunity for the overall market and for our products. We believe that +the addressable market opportunity for advanced wound care products in the US alone can exceed $20 billion if improvements enable the +best products to increase penetration at the expense of less effective wound care products and categories, lessen expensive non-product-related +treatment costs for insurers (e.g., skin grafts, dressing changes, etc.), and deliver improved outcomes more quickly and in lower acuity +settings. + + + +We +believe that AC5 Advanced Wound System is sufficiently differentiated to replace certain competitive products, will complement other +products and procedures by potentially enabling the wound bed to be ready sooner, and will enable more procedures to be done sooner and/or +in settings where they could not be performed easily before. + + + +Features +and benefits of AC5 Advanced Wound System may include that it: + + + + + + is + a self-assembling wound care matrix and may provide better outcomes across all phases of wounds; + + + conforms + to irregularly shaped wound geometry; + + + may + be used in either lower acuity (e.g., doctor s offices) or higher acuity (e.g., operating rooms) settings; + + + can + be used in conjunction with aggressive surgical debridement; + + + can + be used on a wound whether or not it is bleeding; + + + is + agnostic to the presence of anti-thrombotic therapy (aka, blood thinners); + + + can + be used on a chronic, stalled wound that has been previously unresponsive to or failed treatment regimens; + + + provides + a protective barrier to mitigate contamination and modulating inflammation; + + + donates + moisture to the wound; + + + can + create wound microenvironment conducive to healing; + + + aids + in epithelial cell migration; + + + creates + an extracellular matrix-like structure to enable cell and tissue growth; + + + is + self-healing, in that it can dynamically self-repair around migrating cells; + + + may + reduce healing time and patient burden; + + + is + user-friendly, easy to prepare, and easy to apply; + + + may + be stored at ambient temperature; and + + + may + reduce treatment costs while improving outcomes in certain patients. + + + + +BioSurgery + + + +We +are developing BioSurgery products for internal use, including for hemostasis and sealant applications, and gastrointestinal endoscopic +surgical procedures, and we believe that our technology will be useful in addressing the constant demand for better performance and safety +in minimally invasive surgery (MIS), traditional surgery, Natural Orifice Translumenal Endoscopic Surgery (NOTES), and other procedures. + + + +While +developing our products, we engaged commercial strategy and marketing consultants and communicated directly with care providers to understand +the needs of potential customers and to assess product feature preferences. Surgeons, operating room managers, sales representatives +and hospital decision-makers identified several characteristics deemed desirable, including that a product is: + + + + + + reliable; + + + + + -106- + + Table of Contents + + + + + + + + able + to protect the wounds in tissues and organs where used; + + + laparoscopic + friendly; + + + easily + handled and applied; + + + able + to promote a clear field of vision and not obstruct view; + + + sufficiently + flowable; + + + non-sticky + (to tissue or equipment); + + + permits + normal healing; + + + agnostic + to the presence of antithrombotic medications ( blood thinners ) to whether the patient has bleeding abnormalities; + + + non-toxic; + and + + + not + sourced from human or other animal blood or tissue components. + + + + +We +believe that long-term trends, which support a need for products to better support clinicians in surgical procedures, include: + + + + + + a + persistent drive to migrate the site of surgical care from inpatient hospital operating room to progressively lower acuity same-day + ambulatory settings due to cost and other potential negative impacts of unnecessary hospitalizations, such as infection risk or occupying + scarce resources that may be more usefully deployed elsewhere; + + + + + + increased + use of anticoagulants and other anti-thrombotic agents (blood thinners) due to co-morbidities, but which predispose patients to bleeding; + + + + + + the + increasingly difficult nature of procedures expected to be performed by surgeons with the least invasive method feasible in the less + expensive settings accessible; and + + + + + + the + desire to lower procedure time to increase operating room through-put, increase shift volume, and lessen in-procedure time for patient s + well-being; + + + + +We +believe that a motivating factor for some of these trends may be the increased costs associated with procedures performed in hospital +operating rooms, which have been estimated to cost between $2,000 and $10,000 per hour, according to MedMarket Diligence and others. + + + +These +costs likely drive the desire for increased operating room [throughput] and increased volume of procedures performed in outpatient settings. +Both of those trends highlight the need for highly effective products that can decrease operating room time for inpatient procedures +and help to increase the safety in performing more types of procedures in less expensive outpatient settings. + + + +Since +the early days of modern MIS in the 1990s, the percent of minimally invasive surgeries has increased significantly, such that it is now +widespread and common. Laparoscopic surgery is among the most recognized types of MIS, although there are many additional types. Advantages +of MIS tend to include less scarring, less post-operative pain, less need for pain medications, shorter recovery times, and faster discharge +times. However, such procedures often present the surgeon with less margin for error and less capacity to deal with certain risks, such +as excessive bleeding, without having to convert the surgery to a traditional open procedure. + + + + -107- + + Table of Contents + + + + + +In +a trend to make traditional minimally invasive surgery even less invasive, known as NOTES, a procedure is performed through an endoscope +that is passed through a natural orifice, such as the mouth, urethra, anus, or vagina, and then through an internal incision in the stomach, +vagina, bladder or colon. NOTES advantages include those of MIS to a potentially even greater degree, as well as the lack of external +incisions and external scars, improved visibility, and the possibility to avoid managing potential obstacles to surgery, such as extensive +adhesions from prior procedures. However, compared to MIS, margin for error in NOTES is even less. NOTES may be performed by surgeons +or endoscopists, yet the techniques can be challenging to learn and are in their early stages of development. Practitioners may seek +additional tools, including BioSurgery products where relevant, to enable them to operate efficiently, effectively, and safely. + + + +We +consider these items while developing our BioSurgery products with the objective of meeting these needs. + + + +We +are developing products for hemostasis and sealant applications. Many of the hemostasis products currently available do not possess certain +features and handling characteristics that are ideal for use in a laparoscopic setting. For instance, many available products are difficult +to use in MIS or NOTES because they tend to be sticky, powdery, fabric-based or are otherwise difficult to insert into and control through +the small gauge, yet long, catheters used during these procedures. We believe that the novel features and differentiating characteristics +of our BioSurgery products will make them more suitable for such surgeries compared to many or most of the presently available alternatives. + + + +According +to a 2015 MedMarket Diligence, LLC report, the market for hemostatic agents and sealants achieved approximately $4.2 billion in worldwide +sales in 2015 and was projected to reach $4.8 billion in 2017 and surpass $7.5 billion in 2022. While the majority of those sales are +for hemostats, we believe that the projected growth rate for sealants in multiple applications, such as the gastrointestinal track, could +become greater as additional products become available. + + + +In +spite of the large size of the market for these products, many available hemostatic agents and sealants possess a combination of limitations, +including slow onset of action, general unreliability, user-unfriendliness, and risk for adverse effects, such as healing problems, adhesion +formation, infection and other safety concerns. Many of the deficiencies of currently available hemostatic agents and sealants are comparable +to those of their earlier-generation counterparts, as revolutionary advances in underlying technologies have been elusive. + + + +Participants +in the hemostatic and sealant market include large medical device and biopharmaceutical companies, as well as various smaller companies. +Commercially available hemostatic agents can cost between $50 and $500 per procedure, with the higher value-added products generally +priced at the upper end of that range. We believe, however, that approaches to many surgical problems have evolved and will continue +to do so, such that what may have recently appeared to be an interesting market may be less so in the future if the required tools also +evolve. For instance, the endovascular approach to vascular reconstruction may lessen the need for hemostatic agents in certain procedures. + + + +We +are also developing products for gastrointestinal and NOTES procedures, endoscopic mucosal resections (EMR) and endoscopic submucosal +dissections (ESD). Surgical endoscopists are removing more complicated tumors and lesions from the gastrointestinal tract via EMR and +ESD, which are endoscopic techniques to remove early-stage cancer and precancerous growths from the lining of the digestive tract through +long and narrow equipment, which consist of ports, catheters, lights, monitors, and video cameras. This represents the least invasive +interventional approach known. + + + +The +EMR/ESD market is immature and growing, we believe, because of an increasing elderly population and incidence of gastrointestinal malignancies. +The opportunity is noteworthy in North America, Europe, and Asia, where a higher prevalence of certain gastrointestinal malignancies +and lower screening rates leads to later discovery and removal of tumors than would be desired. We believe that overall costs of care +associated with these procedures, when compared to that of more invasive alternatives, and potentially faster recovery times will encourage +a growth trend. It should be noted that these procedures do require that the doctor possess additional non-routine skill and equipment, +thereby tempering potential adoption curves. + + + + -108- + + Table of Contents + + + + + +A +particular need for which we are developing AC5-G is a product that provides both a durable and safe lift while being inherently hemostatic. +The concept is to inject AC5-G beneath a polyp or tumor to be resected or dissected, thus creating separation between the lesion and +the underlying healthy tissue. + + + +Incomplete +lesion removal, bleeding and perforation are known challenges and risks of EMR/ESD. The objective of a lift is to minimize the risk for +perforation into the peritoneum, which can cause significant morbidity and mortality, and increase the probability of visualizing and +removing the entire desired lesion. The lift should also be durable, potentially lasting at least two hours, such that the frequency +of repeat injections and perforation risk is minimized. Normal and abnormal tissues can also bleed during these procedures, and it can +be challenging and time consuming to stop. Surgeons have expressed a desire for an improved agent that can prophylactically or actively +address such bleeding. Surgeons have further expressed interest in sealant properties in the event that a perforation occurs during the +procedure. + + + +Several +companies have products that provide either a lift or are hemostatic. Based on early indicators, we believe that AC5-G provides properties +for both lift and hemostasis. AC5-G was featured in a video presentation during the Emerging Technology Session of the Society of American +Gastrointestinal and Endoscopic Surgeons (SAGES) 2020 Annual Meeting. + + + +Potential +Disadvantages of our Current and Planned Products Compared to the Competition + + + +Some +potential disadvantages of our products compared to currently marketed products follow: + + + + + + + The + favorable handling characteristics of AC5 Devices result, in part, from their non-sticky and non-glue-like nature. However, if a + surgeon or healthcare provider requires a product to adhere tissues together, or provide similar glue-like action, then AC5 Devices + in their current form would not achieve that effect. + + + + + + + + + + While + we project that our products will be sufficiently economical to manufacture at scale, they may not be able to compete from a price + perspective with inexpensive products. + + + + + + + + + + We + have generated less data in humans compared to many successful products in the Dermal Sciences or BioSurgery categories. + + + + + + + + + + While + we believe that the flowable nature of our products before they assemble into a dense nanofiber network can provide a meaningful + advantage, some surgeons may prefer a solid product in certain applications. + + + + + + + + + + Reimbursement for some competing products and product categories may be +more established, and reimbursement for advanced wound care products, in general, is being re-evaluated by payers, raising potential barriers +to use. + + + + +Other +Governmental Regulations and Environmental Matters + + + +We +are or may become subject to various laws and regulations regarding laboratory practices and the use of animals in testing, as well +as environmental laws and regulations governing, among other things, any use and disposal by us of hazardous or potentially +hazardous substances in connection with our research. At this time, costs attributable to environmental compliance are not material. +In each of these areas, applicable US and foreign government agencies have broad regulatory and enforcement powers, including, among +other things, the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and +withdraw approvals, any one or more of which could have a material adverse effect on our business. Additionally, if we are able to +successfully obtain approvals for, and commercialize our product candidates, then the Company and our products may become subject to various federal, state and local laws targeting fraud, abuse, privacy and security in the healthcare industry. + + + +Intellectual +Property + + + +We +are focused on the development of self-assembling compositions, particularly self-assembling peptide compositions, and methods of making +and using such compositions primarily in healthcare applications. Suitable applications of these compositions include limiting or preventing +the movement of bodily fluids and contaminants within or on the human body, preventing adhesions, treatment of leaky or damaged tight +junctions, and reinforcement of weak or damaged vessels, such as aneurysms. Our strategy to date has been to develop an intellectual +property portfolio in high-value jurisdictions that tend to uphold intellectual property rights and apply business judgment rules to +determine which patent applications to pursue and, if granted, which patents to maintain. The information provided is subject to change +if pending patent applications are abandoned, issued patents are allowed to lapse, or new applications are filed. + + + + -109- + + Table of Contents + + + + + +As +of March 31, 2024, we either own or license from others a number of US patents, US patent applications, foreign patents and foreign +patent applications. + + + +Six +patent portfolios assigned to Arch Biosurgery, Inc. include approximately 50 patents and pending applications in approximately 20 jurisdictions, +including approximately 10 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 approximately 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 any potential patent term extension), as well as approximately 30 patents that have been either allowed, issued +or granted in foreign jurisdictions. + + + +We +have also 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. + + + +The +two portfolios exclusively licensed from MIT include approximately 30 patents and pending applications drawn to self-assembling peptides, +formulations and methods of use thereof and self-assembling peptidomimetics and methods of use thereof in a total of nine jurisdictions. +The portfolios include five issued US patents (US 9,511,113; US 9,084,837; US 10,137,166; US 9,327,010; and US 9,364,513) that expire +between 2026 and 2027 (absent any potential patent term extension), as well as additional patents that have been either allowed, issued +or granted in foreign jurisdictions. + + + +The +portfolios non-exclusively licensed from MIT include a number of US and foreign applications, including three issued US patents (US 7,846,891; +US 7,713,923; and US 8,901,084) that expire between 2024 and 2026 (absent any potential patent term extension), as well as additional +patents that have been either allowed, issued or granted in foreign jurisdictions. + + + +Our +license agreement with MIT imposes or imposed certain diligence, capital raising, and other obligations on us, including obligations +to raise certain amounts of capital by specific dates. Additionally, we are responsible for all patent prosecution and maintenance fees +under that agreement. Our breach of any material terms of our license agreement with MIT could permit the counterparty to terminate the +agreement, which could result in our loss of some or all of our rights to use certain intellectual property that is material to our business +and our lead product candidate. Our loss of any of the rights granted to us under our license agreement with MIT could materially harm +our product development efforts and could cause our business to fail. + + + +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 of Arch Biosurgery, Inc. + + + +Employees + + + +We +presently have eight full-time employees, and we make extensive use of third-party contractors, consultants, and advisors to perform +many of our present activities. We expect to increase the number of our employees as we increase our operations. + + + +On +December 5, 2023, Daniel Yrigoyen resigned, effective as of such date, from his position as an executive officer and as Vice President +of Sales of the Company. Effective December 5, 2023 Shawn Carlson was appointed to serve as the Company s Vice President of Sales. + + + + -110- + + Table of Contents + + + + + +Properties + + + +We +do not own any real property. In April 2015, we moved our corporate offices to a property in Framingham, Massachusetts. In July 2017, +we entered into a three-year operating lease commencing October 1, 2017 and ending on September 30, 2020 at our current location. During +August 2020, we extended the lease through September 30, 2021 at our current location. During October 2021, we extended the lease through +March 31, 2022 at our current location. Effective April 1, 2022, our lease is month to month at our current location. + + + +Legal +Proceedings + + + +In +the ordinary course of business, we may become a party to legal proceedings involving various matters. We are unaware of any such legal +proceedings presently pending to which we or our subsidiary is a party or of which any of our property is the subject that management +deems to be, individually or in the aggregate, material to our financial condition or results of operations. + + + +Dr. +Avtar Dhillon served as our Chairman of the Board from April 2013 through July 2018, and as an advisor to us from July 2018 until his +termination on August 6, 2021. Dr. Avtar Dhillon was not a director, officer, or control person at the time of his termination. +As previously disclosed, in August 2021, the U.S. Department of Justice (the DOJ ) filed a criminal complaint against +Dr. Avtar Dhillon, alleging, among other things, his participation in a securities fraud scheme whereby he concealed his ownership of +millions of shares of two microcap companies (including the Company) and then secretly directed the shares sale, generating approximately +$2.19 million in proceeds. On December 7, 2022, Dr. Avtar Dhillon pleaded guilty to one count of conspiracy to commit securities fraud, +one count of securities fraud, and two counts of obstructing a proceeding of the SEC. Sentencing was scheduled for May 23, 2024. +At the same time, the SEC charged Dr. Avtar Dhillon with violations of the antifraud and certain other provisions of federal securities +laws in connection with the sales of securities of certain public companies, including his sale of shares of the Company. On October +20, 2022, the United States District Court for the Central District of California entered a final judgment as to Dr. Avtar Dhillon, in +favor of the SEC, pursuant to which he is (1) prohibited from acting as an officer or director of any issuer that has a class of securities +registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the Exchange Act ) or that +is required to file reports pursuant to Section 15(d) of the Exchange Act and (2) permanently restrained and enjoined from violating, +directly or indirectly, (i) Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, (ii) Section 17(a) of the Securities +Act, and (iii) Section 17(b) of the Securities Act. The Company has fully cooperated with the DOJ and the SEC and has not been implicated +in or charged with any wrongdoing. + + + + -111- + + Table of Contents + + + + + +DIRECTORS, +EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE + + + +Set +forth below is certain information regarding our current directors and executive officers: + + + + + Name + + Position + + Age + + Director/Officer + Since + + + Dr. + Terrence W. Norchi + + President, + Chief Executive Officer and Chairman of the Board of Directors + + 58 + + April + 2013 + + + Michael + S. Abrams + + Chief + Financial Officer + + 52 + + May + 2021 + + + Punit + Dhillon + + Director + + 42 + + July + 2018 + + + Laurence + Hicks + + Director + + 57 + + September + 2021 + + + Dr. + Guy L. Fish + + Director + + 63 + + December + 2021 + + + + +Dr. +Terrence W. Norchi. Terrence W. Norchi, MD, our co-founder, serves as our President and Chief Executive Officer, and Chairman of +the Board. Dr. Norchi also served as our Interim Chief Financial Officer through June 26, 2013. Dr. Norchi has served in similar positions +since co-founding ABS, our predecessor company in 2006. Prior to ABS, Dr. Norchi was a portfolio manager of one of the world s +largest healthcare mutual funds and a pharmaceutical analyst at Putnam Investments from April 2002 to September 2004. Prior to that, +he served as the senior global biotech and international pharmaceutical equity analyst at Citigroup Asset Management, and as a sell-side +analyst covering non-U.S. pharmaceutical equities at Sanford C. Bernstein in New York City. Dr. Norchi earned an M.B.A. from the Massachusetts +Institute of Technology, Sloan School of Management in 1996. Dr. Norchi earned an M.D. degree in 1990 from Northeast Ohio Medical University +and completed his internal medicine residency in 1994 at Baystate Medical Center, Tufts University School of Medicine, where he was selected +to serve as the Chief Medical Resident. Dr. Norchi brings to our Board and management team invaluable experience and knowledge of our +core technology and proposed product candidates as a result of his first-hand experience with the development of that technology, having +ushered it from the research laboratory to its current stage of development. His investing experience as a former public company analyst +and a portfolio manager provides further insights and value as the company advances toward commercialization. Dr. Norchi serves on the +Board of Advisors of the Boston Museum of Science. + + + +Michael +S. Abrams. Mr. Abrams has served as the Chief Financial Officer of the Company since May 2021. Prior to joining the Company, Mr. +Abrams was the turnaround Chief Financial Officer for RiseIT Solutions, Inc. from February 2019 to April 2021, where he helped return +the business to profitability. Prior to RiseIT Solutions, from August 2009 to February 2019, Mr. Abrams served as the Chief Financial +Officer and director of FitLife Brands, Inc., a publicly traded entity focused on the development of functional nutritional supplements +that promote an active, healthy lifestyle. From August 2004 to December 2016, Mr. Abrams served as Partner and Managing Director of Burnham +Hill Capital Group, a private privately held financial services holding company. Mr. Abrams graduated with an MBA with Honors from the +Booth School of Business at the University of Chicago and received his BBA with Honors from the University of Massachusetts at Amherst +as a William F. Field Alumni scholar, an award given annually to the top finance student in the class. + + + +Punit +Dhillon. Mr. Dhillon joined our Board of Directors in July 2018. Mr. Dhillon was appointed CEO and Chair of Skye Bioscience, Inc. +(OTCQB: SKYE) in August 2020 and brings over 20 years of global industry experience to Arch s Board. He is the co-founder and former +President & CEO of OncoSec Medical Incorporated (NASDAQ: ONCS), a leading biopharmaceutical company developing cancer immunotherapies +for the treatment of solid tumors, where he served as an executive until March 2018 and a director until February 2020. Prior to that, +Mr. Dhillon served as the Vice President of Finance and Operations at Inovio Pharmaceuticals, Inc. (NASDAQ: INO), a DNA vaccine development +company, from September 2003 until March 2011. Mr. Dhillon is also a director and Audit Committee Chair of Emerald Health Therapeutics, +Inc. (CSE: EMH). Mr. Dhillon also co-founded and is the director of YELL Canada, a registered Canadian charity that partners with schools +to support entrepreneurial learning. Mr. Dhillon has a Bachelor of Arts with honors in Political Science and a minor in Business Administration +from Simon Fraser University. Mr. Dhillon s experience in the medical device and life sciences industry provides value to his role +as a member of the Board. + + + + -112- + + Table of Contents + + + + + +Laurence +Hicks. Mr. Hicks joined our Board of Directors in September 2021. He has been the chief executive officer of Healthcare Components +Group, a global manufacturer of OEM and replacement parts used for the manufacture and repair of medical devices, since 2021. From 2016 +until 2021, when it merged into Healthcare Components Group, Mr. Hicks was chief executive officer of 2506052 Ontario Inc., a holding +company for American Optics, Endoscopy Replacement Parts and Micro Optics Europe, which sell components used in the manufacturing and +repair of endoscopes worldwide. He has held medical device leadership roles at ACMI, Karl Storz Endoscopy and NeuroTherm. Mr. Hicks +experience in the medical device industry provides value to his role as a member of the Board. + + + +Dr. +Guy L. Fish. Dr. Fish joined our Board of Directors in December 2021. He is currently employed by the Greater Lawrence Family Health +Centers, a nationally recognized Federally Qualified Health Center, where he has served as the Chief Executive Officer since 2021. Dr. +Fish is also the President and Co-Founder of Ivy Consulting Partners, Inc., a boutique consultancy focused on healthcare, corporate and +leadership development, and business strategy, a role he has held since 1999. Dr. Fish served as the Chief Executive Officer at Cellanyx +LLC, a cancer diagnostic company, from 2019 to 2020. From 2002 to 2021, Dr. Fish served in various executive positions at Fletcher Spaght, +Inc., a strategy management firm focused on health care innovator companies. From 2006 to 2019, Dr. Fish served as an investor and Senior +Vice President at Fletcher Spaght Ventures. Dr. Fish has served as a member of the board of directors of Etiometry, Inc. since 2019, +PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS) from 2009 to 2018, and Metabolon, Inc. from 2010 to 2017. Dr. Fish holds an MBA degree from +Yale University School of Management and a M.D. degree from Yale University School of Medicine. Dr. Fish holds a bachelor s degree +in biochemistry from Harvard University. The Company believes that Dr. Fish is qualified to serve on the Board as a result of his extensive +leadership experience in the medical field, as well as his record of accomplishment in business strategy and operations. + + + +Board +of Director Composition + + + +Our +Board currently consists of four members. We have no formal policy regarding board diversity. Our priority in selection of board members +is identification of members who will further the interests of our stockholders through his or her established record of professional +accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business and +understanding of the competitive landscape. + + + +Term +of Office of Directors + + + +Our +directors are appointed and serve until their successor has been duly elected and qualified, or until the earlier of their death, resignation +or removal. + + + +Involvement +in Certain Legal Proceedings + + + +No +director, executive officer or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation +S-K in the past 10 years. + + + +Director +Independence + + + +Our +Board of Directors has determined that Mr. Punit Dhillon, Mr. Laurence Hicks and Dr. Guy Fish would qualify as independent +as that term is defined by Cboe Listing Rule 14.10(c)(1)(B). On August 15, 2022, we have established separately designated +audit, corporate governance and nominating, and compensation board committees. Mr. Dhillon, Mr. Hicks, and Dr. Fish all qualify as independent +under Cboe Listing Rules applicable to all such board committees. Dr. Terrence W. Norchi would not qualify as independent +under Cboe Listing Rules applicable to the Board of Directors generally or to separately designated board committees because he +currently serves as our President and Chief Executive Officer. + + + +Subject +to some exceptions, Cboe Listing Rule 14.10(c)(1)(B) provides that an independent director is a person other than an executive +officer or other employee of the Company or any other individual having a relationship which, in the opinion of our Board of Directors, +would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Under Cboe Listing +Rule 14.10(c)(1)(B) and subject to certain exceptions, a director will not be deemed to be independent if (a) the director is, +or at any time during the past three years was, an employee of ours; (b) the director or a member of the director s immediate family +or a person living with such director (collectively, a Related Party ) has received more than $120,000 in compensation +from us during any twelve-month period within the preceding three years, other than compensation for service as a director or as a non-executive +employee (in the case of Related Party), benefits under a tax-qualified retirement plan or non-discretionary compensation; (c) a Related +Party is, or in the past three years has been, an executive officer of ours; (d) the director or a Related Party is an executive officer, +partner or controlling shareholder of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month +period during our past three fiscal years, exceeds the greater of 5% of the recipient s consolidated gross revenues for that year +or $200,000 (except for payments arising solely from investments in our securities or payments under non-discretionary charitable contribution +matching programs); (e) the director or a Related Party is employed as an executive officer of another company where at any time during +the preceding three years one of our executive officers served on the compensation committee of such company; and (f) the director or +a Related Party is a current partner of our independent public accounting firm, or has worked for such firm in any capacity on our audit +at any time during the past three years. + + + + -113- + + Table of Contents + + + + + +Committees +of the Board of Directors + + + +Our +Board has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. Our Board may +establish other committees to facilitate the management of our business. The composition and functions of each committee are described +below. Members serve on these committees until their resignation or until otherwise determined by our Board. Each of these committees +operate under a charter that has been approved by our Board, which will be available on our website. + + + +Audit +Committee + + + +On +August 15, 2022, our Board of Directors established a separate standing audit committee within the meaning of Section 3(a)(58)(A) of +the Exchange Act. The Audit Committee consists of Mr. Punit Dhillon, serving as the Chairman of the Audit Committee, Mr. Laurence Hicks, +and Dr. Guy Fish. Our Board has determined that the three directors currently serving on our Audit Committee are independent within the +meaning of the Cboe Listing Rules and Rule 10A-3 under the Exchange Act. Our Board of Directors has determined that Mr. Dhillon +is an audit committee financial expert as defined by applicable SEC rules. + + + +The +Audit Committee oversees and monitors our financial reporting process and internal control system, reviews and evaluates the audit performed +by our registered independent public accountants and reports to our Board any substantive issues found during the audit. The Audit Committee +is directly responsible for the appointment, compensation and oversight of the work of our registered independent public accountants. +The Audit Committee reviews and approves all transactions with affiliated parties. + + + +Compensation +Committee + + + +Our +Compensation Committee consists of Dr. Fish, Mr. Hicks and Mr. Dhillon, with Mr. Hicks serving as the Chairman of the Compensation Committee. +Our Board has determined that the three directors currently serving on our Compensation Committee are independent under the listing standards, +are non-employee directors as defined in rule 16b-3 promulgated under the Exchange Act and are outside directors +as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended. + + + +The +Compensation Committee provides advice and makes recommendations to the Board in the areas of employee salaries, benefit programs and +director compensation. The Compensation Committee also reviews and approves corporate goals and objectives relevant to the compensation +of our Chief Executive Officer and other officers and makes recommendations in that regard to the Board as a whole. + + + +Nominating +and Corporate Governance Committee + + + +Our +Nominating and Corporate Governance Committee consists of Dr. Fish, Mr. Hicks and Mr. Dhillon, with Dr. Fish serving as the Chairman +of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee nominates individuals to be elected +to the Board by our stockholders. The Nominating and Corporate Governance Committee considers recommendations from stockholders if submitted +in a timely manner in accordance with the procedures set forth in our bylaws and will apply the same criteria to all persons being considered. +All members of the Nominating and Corporate Governance Committee are independent directors as defined under the Cboe listing standards. + + + +Board +Leadership Structure and Role in Risk Oversight + + + +Currently, +Dr. Norchi serves as the Company s Chief Executive Officer and Chairman of the Board. Periodically, our Board will assess the roles +of Chairman and Chief Executive Officer and the Board leadership structure to ensure the interests of the Company and our stockholders +are best served. Our Board believes the current combination of the two roles is satisfactory at present. Dr. Norchi, as our Chief Executive +Officer and Chairman, has extensive knowledge of all aspects of the Company and its business. We have no policy requiring the combination +or separation of leadership roles and our governing documents do not mandate a particular structure. This has allowed, and will continue +to allow, our Board the flexibility to establish the most appropriate structure for the Company at any given time. + + + +While +management is responsible for assessing and managing risks for the Company, our Board is responsible for overseeing management s +efforts to assess and manage risk. This oversight is conducted primarily by our full Board, which has responsibility for general oversight +of risks. Our Board satisfies this responsibility through regular reports directly from officers responsible for oversight of particular +risks within the Company. Our Board believes that full and open communication between management and the Board is essential for effective +risk management and oversight. + + + + -114- + + Table of Contents + + + + + +Code +of Ethics + + + +We +have adopted a written code of business conduct and ethics that applies to our directors, principal executive officer, principal financial +officer, principal accounting officer and all of our other officers and employees and can be found on our website, http://www.archtherapeutics.com +on our Corporate Governance webpage, which can be accessed from the Investors tab of our website. We will +also provide a copy of our code of business conduct and ethics to any person without charge upon his or her request. Any such request +should be directed to our Chief Financial Officer at 235 Walnut Street, Suite 6, Framingham, Massachusetts 01702. We intend to make all +required disclosures concerning any amendments to or waivers from our code of business conduct and ethics on our website. + + + +Liability +and Indemnification of Directors and Officers + + + +The +NRS empower us to indemnify our directors and officers against expenses relating to certain actions, suits or proceedings as provided +for therein. In order for such indemnification to be available, the applicable director or officer must not have acted in a manner that +constituted a breach of his or her fiduciary duties and involved intentional misconduct, fraud or a knowing violation of law, or must +have acted in good faith and reasonably believed that his or her conduct was in, or not opposed to, our best interests. In the event +of a criminal action, the applicable director or officer must not have had reasonable cause to believe his or her conduct was unlawful. + + + +We +have not entered into separate indemnification agreements with our directors and officers. Our amended and restated bylaws provide that +we shall indemnify any director or officer to the fullest extent authorized by the laws of the State of Nevada. Our amended and restated +bylaws further provide that we shall pay the expenses incurred by an officer or director (acting in his capacity as such) in defending +any action, suit or proceeding in advance of the final disposition of such action, suit or proceeding, subject to the delivery to us +by or on behalf of such director or officer of an undertaking to repay the amount of such expenses if it shall ultimately be determined +that he or she is not entitled to be indemnified by us as authorized in our bylaws or otherwise. + + + +The +NRS further provide that a corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person +who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a +director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability +asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising +out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses. We +have secured a directors and officers liability insurance policy. We expect that we will continue to maintain such a policy. + + + +Insofar +as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons +pursuant to the foregoing provisions, or otherwise, we have been informed that in the opinion of the SEC such indemnification is against +public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against +such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person +of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person +in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled +by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public +policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. + + + + -115- + + Table of Contents + + + + + +EXECUTIVE +COMPENSATION + + + +The +following table summarizes all compensation recorded by us in each of the fiscal years ended September 30, 2023, and September 30, 2022 +for (i) our principal executive officer; (ii) our two next most highly compensated executive officers whose total compensation exceeded +$100,000 during our last completed fiscal year; and (iii) certain of our other executive officers, whose compensation is voluntarily +provided. + + + +Summary +Compensation Table + + + + + Name + Fiscal + Year + + Salary + ($) + + Bonus + ($) + + Stock Awards + ($) + + Option Awards + ($)(1) + + All other Compensation + ($) + + Total + ($) + + + + Dr. Terrence W. Norchi, + 2023 + 450,500 + - + - + 40,500 + - + 491,000 + + + President and Chief Executive Officer + 2022 + 450,500 + - + - + - + - + 450,500 + + + Michael S. Abrams + 2023 + 325,000 + - + - + 29,160 + - + 354,160 + + + Chief Financial Officer + 2022 + 325,000 + - + - + - + - + 325,000 + + + Daniel Yrigoyen(2) + 2023 + 325,000 + - + - + 16,200 + - + 341,200 + + + VP of Sales + 2022 + 316,667 + - + - + 9,075 + - + 325,742 + + + + + + + (1) + Represents + the aggregate grant date fair values of awards granted during the fiscal year ended September 30, 2023 and 2022 under ASC Topic 718, + which is calculated as of the grant date using a Black-Scholes option-pricing model. Accordingly, the dollar amounts listed do not + necessarily reflect the dollar amount of compensation that may be realized by our executive officers. For information on the valuation + assumptions with respect to option grants made during the fiscal year ended September 30, 2022 refer to Note 14 Stock-Based + Compensation in our consolidated financial statements in this prospectus. + + + (2) + On + December 5, 2023, Daniel Yrigoyen resigned, effective as of such date, from his position as an executive officer and as Vice President + of Sales. + + + + +Employment +Agreements with Named Executive Officers + + + +Terrence +W. Norchi + + + +On +June 25, 2013, we entered into an executive employment agreement with Dr. Terrence W. Norchi, our President and Chief Executive Officer +and a member of our Board, which became effective as of June 26, 2013. Dr. Norchi s employment agreement continues until terminated +by Dr. Norchi, or us and provided for an initial annual base salary of $275,000, and eligibility to receive an annual cash bonus in an +amount up to 30% of Dr. Norchi s then-current annual base salary. In addition, Dr. Norchi s employment agreement provides +that his annual base salary will be reviewed from time to time in accordance with the established procedures of the Company for adjusting +salaries for similarly situated employees. Annual bonuses are awarded at the sole discretion of our Board. If Dr. Norchi s employment +is terminated by us (unless such termination is For Cause (as defined in his employment agreement)), or by Dr. Norchi for + Good Reason (as defined in his employment agreement), then Dr. Norchi, upon signing a release in favor of the Company, +will be entitled to severance in an amount equal to 12 months of Dr. Norchi s then-current annual base salary, payable in the form +of salary continuation, plus, if Dr. Norchi elects and subject to certain other conditions, payment of Dr. Norchi s premiums to +continue his group health coverage under COBRA until the earlier of (i) 12 months following the date of such termination; or (ii) the +date Dr. Norchi becomes covered under another employer s health plan. In addition, Dr. Norchi s employment agreement provides +that, in the event of a change of control of the Company, termination by Dr. Norchi for Good Reason, termination by the Company for any +reason other than For Cause, or termination as a result of Dr. Norchi s death, all unvested shares under outstanding equity grants +to Dr. Norchi, if any, shall automatically accelerate and become fully vested. On March 13, 2014, Dr. Norchi s employment agreement +was amended to increase his annual base salary to $325,000, retroactively effective as of February 1, 2014, and increase his cash bonus +eligibility from 30% of his annual base salary to 35% of his annual base salary. In connection with the Board s annual review of +Dr. Norchi s base salary, Dr. Norchi s annual base salary was increased to $425,000 effective July 1, 2017. In connection +with the Board s annual review of Dr. Norchi s base salary, Dr. Norchi s annual base salary was increased to $450,500 +effective August 1, 2019. + + + + -116- + + Table of Contents + + + + + +Dr. +Norchi s employment agreement provides the following definitions of For Cause and Good Reason : (a) + For Cause is (i) the commission by the executive of a crime involving dishonesty, breach of trust, or physical harm to +any person, (ii) executive s engagement by the executive in conduct that is in bad faith and materially injurious to the Company, +(iii) commission by the executive of a material breach of the employment agreement which is not cured within 20 days after the executive +receives written notice of such breach, (iv) willful refusal by the executive to implement or follow a lawful policy or directive of +the Company, which breach is not cured by the executive within 20 days after receiving written notice from the Company, (v) or executive s +engagement in misfeasance or malfeasance demonstrated by a pattern of failure to perform job duties diligently and professionally (other +than any such failure resulting from Executive s incapacity due to physical or mental illness); and (b) Good Reason +is, without the executive s written consent, (1) a material reduction in executive s annual base salary, except for reductions +that are comparable to reductions generally applicable to similarly situated executives of the Company, (2) the relocation of executive +to a facility or location that is more than 50 miles from his primary place of employment and such relocation results in an increase +in executive s one-way driving distance by more than 50 miles, or (3) a material and adverse change in executive s authority, +duties, or responsibilities with the Company or a material and adverse change in executive s reporting relationship within the +Company. + + + +In +connection with our entry into the executive employment agreement with Dr. Norchi, effective on June 26, 2013, Dr. Norchi s former +employment agreement with ABS was terminated pursuant to a termination agreement and release between Dr. Norchi and ABS. + + + +Michael +S. Abrams + + + +On +March 31, 2021, we entered into an executive employment agreement with Mr. Abrams, our Chief Financial Officer and Treasurer. The agreement +continues until terminated by us or by Mr. Abrams. Pursuant to the terms of the agreement, Mr. Abrams is entitled to an initial annual +base salary of $325,000 and is eligible to receive an annual cash bonus in an amount of up to 30% of Mr. Abrams then-current annual +base salary. Annual bonuses are awarded at the sole discretion of our Board of Directors. In addition, Mr. Abrams employment agreement +provides that his annual base salary will be reviewed by the Board (or any committee thereof), with such input as it may request from +the Company s Chief Executive Officer, from time to time but at least on an annual basis, in accordance with the established procedures +of the Company for adjusting salaries for similarly situated employees. If Mr. Abrams employment is terminated by us at any time +after 30 days after the start date (unless such termination is For Cause (as defined in his employment agreement)), or +by Mr. Abrams for Good Reason (as defined in his employment agreement), then Mr. Abrams, upon signing a release in favor +of the Company, would be entitled to severance in an amount equal to six months of Mr. Abrams then-current annual base salary, +payable in the form of salary continuation, plus, if Mr. Abrams elects and subject to certain other conditions, payment of Mr. Abrams +premiums to continue his group health coverage under COBRA until the earlier of (i) 12 months following the date of such termination; +or (ii) the date Mr. Abrams becomes covered under another employer s health plan. In addition, Mr. Abrams employment agreement +provides that, in the event of a change of control of the Company or his employment is terminated by the Company for any reason other +than For Cause, all unvested shares under outstanding equity grants to Mr. Abrams, if any, shall automatically accelerate and become +fully vested. + + + +The +agreement provides the following definitions of For Cause and Good Reason : (a) For Cause is +(i) Mr. Abrams commits a crime involving dishonesty, breach of trust, or physical harm to any person; (ii) Mr. Abrams willfully engages +in conduct that is in bad faith and materially injurious to the Company, including without limitation misappropriation of trade secrets, +fraud or embezzlement; (iii) Mr. Abrams commits a material breach of this Agreement or the Proprietary Information Agreement, which breach +is not cured within twenty calendar days after written notice to Executive from the Company (to the extent curable); (iv) Mr. Abrams +willfully refuses to implement or follow a lawful policy or directive of the Company, which breach is not cured within twenty calendar +days after written notice to Executive from the Company; or (v) Mr. Abrams engages in misfeasance or malfeasance demonstrated by a pattern +of failure to perform job duties diligently and professionally. The Company may terminate Mr. Abrams employment For Cause at any +time, without any advance notice. The Company shall pay Mr. Abrams all compensation to which Mr. Abrams is entitled up through the date +of termination, subject to any other rights or remedies of the Company under law, and thereafter all obligations of the Company under +this Agreement shall cease. + + + + -117- + + Table of Contents + + + + + +Daniel +M. Yrigoyen + + + +On +July 12, 2021, we entered into an executive employment agreement with Mr. Yrigoyen, our former Vice President of Sales. The agreement +continues until terminated by us or by Mr. Yrigoyen. Pursuant to the terms of the agreement, Mr. Yrigoyen is entitled to an initial annual +base salary of $225,000 and is eligible to receive regular commission payments of up to $8,333.33 per month, depending on the achievement +of established objectives; provided, however, that for the first nine (9) months of employment, Mr. Yrigoyen shall be entitled +to receive the full commission of $8,333.33 per month regardless of whether the applicable performance objectives are met; this provision +was subsequently extended indefinitely pending review from time to time in connection with the Company s ongoing commercialization +effort. + + + +In +addition, Mr. Yrigoyen s employment agreement provides that his annual base salary will be reviewed by the Board (or any committee +thereof), with such input as it may request from the Company s Chief Executive Officer, from time to time but at least on an annual +basis, in accordance with the established procedures of the Company for adjusting salaries for similarly situated employees. If Mr. Yrigoyen s +employment is terminated by us at any time after 30 days after the start date (unless such termination is For Cause (as +defined in his employment agreement)), or by Mr. Yrigoyen for Good Reason (as defined in his employment agreement), then +Mr. Yrigoyen, upon signing a release in favor of the Company, would be entitled to severance in an amount equal to six months of Mr. +Yrigoyen s then-current annual base salary, payable in the form of salary continuation, plus, if Mr. Yrigoyen elects and subject +to certain other conditions, payment of Mr. Yrigoyen s premiums to continue his group health coverage under COBRA until the earlier +of (i) 12 months following the date of such termination; or (ii) the date Mr. Yrigoyen becomes covered under another employer s +health plan. In addition, Mr. Yrigoyen s employment agreement provides that, in the event of a change of control of the Company +or his employment is terminated by the Company for any reason other than For Cause, all unvested shares under outstanding equity grants +to Mr. Yrigoyen, if any, shall automatically accelerate and become fully vested. + + + +The +agreement provides the following definitions of For Cause and Good Reason : (a) For Cause is +(i) Mr. Yrigoyen commits a crime involving dishonesty, breach of trust, or physical harm to any person; (ii) Mr. Yrigoyen willfully engages +in conduct that is in bad faith and materially injurious to the Company, including without limitation misappropriation of trade secrets, +fraud or embezzlement; (iii) Mr. Yrigoyen commits a material breach of this Agreement or the Proprietary Information Agreement, which +breach is not cured within twenty calendar days after written notice to Executive from the Company (to the extent curable); (iv) Mr. +Yrigoyen willfully refuses to implement or follow a lawful policy or directive of the Company, which breach is not cured within twenty +calendar days after written notice to Mr. Yrigoyen from the Company; or (v) Mr. Yrigoyen engages in misfeasance or malfeasance demonstrated +by a pattern of failure to perform job duties diligently and professionally. The Company may terminate Mr. Yrigoyen s employment +For Cause at any time, without any advance notice. The Company shall pay Mr. Yrigoyen all compensation to which Mr. Yrigoyen is entitled +up through the date of termination, subject to any other rights or remedies of the Company under law, and thereafter all obligations +of the Company under this Agreement shall cease. + + + +On December 5, 2023, Daniel Yrigoyen resigned, effective as of such +date, from his position as an executive officer and as Vice President of Sales of the Company. + + + + -118- + + Table of Contents + + + + + +Outstanding +Equity Awards At Fiscal Year-End + + + +The +following table summarizes the aggregate number of option and stock awards held by our named executive officers at September 30, 2023: + + + + + + Option Awards + Stock Awards + + + Name + Number of + Securities + Underlying + Unexercised + Options + (#) + Exercisable + Number of + Securities + Underlying + Unexercised + Options + (#) + Unexercisable + Option + Exercise + Price + ($) + Option + Expiration + Date + Number of + Shares or + Units of + Stock That + Have Not + Vested + (#) + Market + Value + of Shares + or Units of + Stock That + Have Not + Vested + ($) + + + Dr. Terrence W. Norchi + 312 + -(1) + 560.00 + 03/23/2024 + + + + + + 250 + -(2) + 304.00 + 01/21/2025 + + + + + + 221 + -(3) + 448.00 + 08/17/2025 + + + + + + 781 + -(4) + 624.00 + 05/02/2026 + + + + + + 406 + -(5) + 1,040.00 + 02/02/2027 + + + + + + 225 + -(6) + 680.00 + 07/18/2028 + + + + + + 625 + -(7) + 366.72 + 12/19/2029 + + + + + + 625 + -(8) + 164.48 + 09/26/2031 + + + + + + 417 + 208 (9) + 164.48 + 09/26/2031 + + + + + + 217 + 564(10) + 64.16 + 11/9/2032 + + + + + + + + + + + + + + Michael S. Abrams + 260 + 52(11) + 212.64 + 05/02/2031 + + + + + + 145 + 72(12) + 164.48 + 09/26/2031 + + + + + + 156 + 406(13) + 64.16 + 11/9/2032 + + + + + + + + + + + + + + Daniel M. Yrigoyen + 67 + 26(14) + 144.00 + 06/29/2031 + + + + + + 83 + 41(15) + 164.48 + 09/26/2031 + 93(16) + 19,500 + + + + 41 + 52(17) + 96.8 + 05/23/2032 + + + + + + 86 + 225(18) + 64.16 + 11/9/2032 + + + + + + + + + (1) + Represents + an option to purchase 312 shares of Common Stock with a grant date of March 23, 2014. The vesting period of the shares underlying + the option commenced on the date of grant, with 25% of the shares vested immediately on the date of grant, 25% of the shares shall + vest 12 months following the date of grant and 1/24th of the remaining shares shall vest on each of the monthly anniversaries of + the grant date, commencing April 23, 2015. + + + + + -119- + + Table of Contents + + + + + + + (2) + Represents + an option to purchase 250 shares of Common Stock with a grant date of January 22, 2015. The vesting period of the shares underlying + the option commenced on the date of grant, with 25% of the shares vested immediately on the date of grant, 25% of the shares shall + vest 12 months following the date of grant and 1/24th of the remaining shares shall vest on each of the monthly anniversaries of + the grant date, commencing February 22, 2016. + + + + + + + (3) + Represents + an option to purchase 221 shares of Common Stock with a grant date of August 18, 2015. The vesting period of the shares underlying + the option commenced on the date of grant, with 25% of the shares vested immediately on the date of grant, and 1/36th of the remaining + shares shall vest on each of the monthly anniversaries of the grant date, commencing September 18, 2015. + + + + + + + (4) + Represents + an option to purchase 781 shares of Common Stock granted on May 3, 2016. The vesting period of the shares underlying the option commenced + on the date of grant, with 25% of the shares vesting immediately, the remaining unvested Shares subject to the Option shall vest + on each of the next thirty-six (36) monthly anniversaries of the date of grant. + + + + + + + (5) + Represents + an option to purchase 406 shares of Common Stock granted on February 3, 2017. The vesting period of the shares underlying the option + commenced on the date of grant, with 25% of the shares vesting immediately, the remaining unvested Shares subject to the Option shall + vest on each of the next thirty-six (36) monthly anniversaries of the date of grant. + + + + + + + (6) + Represents + an option to purchase 225 shares of Common Stock with a grant date of July 19, 2018. The vesting period of the shares underlying + the option commenced on the date of grant, with 25% of the shares vested immediately on the date of grant, and 1/36th of the remaining + shares shall vest on each of the monthly anniversaries of the grant date, commencing August 19, 2018. + + + + + + + (7) + Represents + an option to purchase 625 shares of Common Stock with a grant date of December 20, 2019. The vesting period of the shares underlying + the option commenced on the date of grant, with 25% of the shares vested immediately on the date of grant, and 1/36th of the remaining + shares shall vest on each of the monthly anniversaries of the grant date, commencing January 20, 2019. + + + + + + + (8) + Represents + an option to purchase 625 shares of Common Stock with a grant date of September 27, 2021. The vesting period of the shares underlying + the option commenced on the date of grant, with 33% of the shares vested immediately on the date of grant and the remaining shares + to vest in 24 equal installments commencing on the first anniversary on the date of grant. + + + + + + + (9) + Represents + an option to purchase 625 shares of Common Stock with a grant date of September 27, 2021. The vesting period of the shares underlying + the option commenced on the date of grant, with shares to vest in 36 equal installments commencing on the first anniversary on the + date of grant. + + + + + + + (10) + Represents + an option to purchase 781 shares of Common Stock with a grant date of November 10, 2022. The vesting period of the shares underlying + the option commenced on the date of grant, with shares to vest in 36 equal installments commencing on the first anniversary on the + date of grant. + + + + + + + (11) + Represents + an option to purchase 312 shares of Common Stock with a grant date of May 3, 2021. The vesting period of the shares underlying the + option commenced on the date of grant, with 30% of the shares vested immediately on the date of grant and the remaining shares to + vest in 24 equal installments commencing on the first anniversary on the date of grant. + + + + + + + (12) + Represents + an option to purchase 218 shares of Common Stock with a grant date of September 27, 2021. The vesting period of the shares underlying + the option commenced on the date of grant, with shares to vest in 36 equal installments commencing on the first anniversary on the + date of grant. + + + + + + + (13) + Represents + an option to purchase 562 shares of Common Stock with a grant date of November 10, 2022. The vesting period of the shares underlying + the option commenced on the date of grant, with shares to vest in 36 equal installments commencing on the first anniversary on the + date of grant. + + + + + + + (14) + Represents + an option to purchase 93 shares of Common Stock with a grant date of July 30,2021. The vesting period of the shares underlying the + option commenced on the date of grant, with 25% of the shares vested immediately on the date of grant and the remaining shares to + vest in 24 equal installments commencing on the first anniversary on the date of grant. + + + + + + + (15) + Represents + an option to purchase 125 shares of Common Stock with a grant date of September 27, 2021. The vesting period of the shares underlying + the option commenced on the date of grant, with shares to vest in 36 equal installments commencing on the first anniversary on the + date of grant. + + + + + + + (16) + Represents + an option to purchase 93 shares of Common Stock with a grant date of July 30, 2021. The vesting period of the shares underlying the + option commenced on the date of grant, with 25% of the shares vested immediately on the date of grant and the remaining shares to + vest in 24 equal installments commencing on the first anniversary on the date of grant. + + + + + + + (17) + Represents + an option to purchase 93 shares of Common Stock with a grant date of May 24, 2022. The vesting period of the shares underlying the + option commenced on the date of grant, with shares to vest in 36 equal installments commencing on the first anniversary on the date + of grant. + + + + + + + (18) + Represents + an option to purchase 312 shares of Common Stock with a grant date of November 10, 2022. The vesting period of the shares underlying + the option commenced on the date of grant, with shares to vest in 36 equal installments commencing on the first anniversary on the + date of grant + + + + + -120- + + Table of Contents + + + + + +Compensation +of Directors + + + +On +March 23, 2014, our Board adopted a director compensation policy for non-employee directors. That policy provides that effective the +first calendar quarter of 2014, the person serving as the Chairman of our Board receives an aggregate annual cash fee of $190,000 for +that chairperson role, and all other non-employee directors receive an annual cash fee of $50,000. + + + +The +following table summarizes all compensation paid to our non-employee directors during the fiscal year ended September 30, 2023: + + + +Director +Compensation Table + + + + + + Fees + Earned or + Paid In + Stock + Option + All other + + + + + Cash + Awards + Awards + Compensation + Total + + + + ($) + ($) + ($) + ($) + ($) + + + Punit Dhillon (1) + 12,500 + - + 8,100 + - + 20,600 + + + + + + + + + + + Laurence Hicks (2) + - + - + 8,100 + - + 8,100 + + + + + + + + + + + Guy L. Fish (3) + - + - + 8,100 + - + 8,100 + + + + + + + (1) + Mr. + Dhillon was appointed as a member of the Board on July 19, 2018. The aggregate number of shares of Common Stock underlying option + awards outstanding as of September 30, 2023 held by Mr. Dhillon was 781. + + + + + + + (2) + Mr. + Hicks was appointed as a member of the Board on September 27, 2021. The aggregate number of shares of Common Stock underlying option + awards outstanding as of September 30, 2023 held by Mr. Hicks was 312. + + + + + + + (3) + Dr. + Fish was appointed as a member of the Board on December 31, 2021. The aggregate number of shares of Common Stock underlying option + awards outstanding as of September 30, 2023 held by Dr. Fish was 312. + + + + + -121- + + Table of Contents + + + + + +CERTAIN +RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE + + + +Related +Party Transactions + + + +During +fiscal years 2023 and 2022, other than with respect to matters relating to the Company s compensation arrangements with its executive +officers, there were no transactions between the Company or any of its subsidiaries and any Related Person (as that term +is defined in Item 404 of Regulation S-K) that would be required to be reported pursuant to Item 404 of Regulation S-K other than the +following: + + + +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 Series D Warrants. Under the terms of the Keyes Sulat Agreement, +in exchange for fully exercising the Trust s remaining Series D Warrants for 284 shares of Common Stock on June 22, 2020, the Trust +was issued Series J Warrants to purchase 213 shares of Common Stock at an exercise price of $400.00 over a 1 year term. James R. Sulat, +a former 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. As of October 25, 2023, no Series J Warrants remain outstanding. + + + +On +July 6, 2022 a Board member, Laurence Hicks, and executive officers, Terrence W. Norchi and Michael S. Abrams, invested in the First +Closing. The investment made in the First Closing made by the Board member and executive officers totaled $80,000. + + + +On +August 30, 2023 a Board member, Laurence Hicks, and executive officers, Terrence W. Norchi and Michael S. Abrams, invested in the Bridge +Offering. The investment made in the Bridge Offering made by the Board member and executive officers totaled approximately $7,500. + + + +Review, +Approval or Ratification of Transactions with Related Persons + + + +Due +to the small size of our Company, at this time we have determined to rely on our full Board to review related party transactions and +identify and prevent conflicts of interest. Our Board reviews a transaction in light of the affiliations of the director, officer, employee +or stockholder and the affiliations of such person s immediate family. Transactions are presented to our Board for approval before +they are entered into or, if that is not possible, for ratification after the transaction has occurred. If our Board finds that a conflict +of interest exists, then it will determine the appropriate remedial action, if any. Our Board approves or ratifies a transaction if it +determines that the transaction is consistent with the best interests of the Company and its stockholders. The procedures described above +have been approved by resolutions adopted by our Board. + + + +Subject +to some exceptions, Cboe Listing Rule 14.10(c)(1)(B) provides that an independent director is a person other than an executive +officer or other employee of the Company or any other individual having a relationship which, in the opinion of our Board, would interfere +with the exercise of independent judgment in carrying out the responsibilities of a director. Under Cboe Listing Rule 14.10(c)(1)(B) +and subject to certain exceptions, a director will not be deemed to be independent if (a) the director is, or at any time during +the past three years was, an employee of ours; (b) the director or a member of the director s immediate family or a person living +with such director (collectively, a Related Party ) has received more than $120,000 in compensation from us during +any twelve-month period within the preceding three years, other than compensation for service as a director or as a non-executive employee +(in the case of Related Party), benefits under a tax-qualified retirement plan or non-discretionary compensation; (c) a Related Party +is, or in the past three years has been, an executive officer of ours; (d) the director or a Related Party is an executive officer, partner +or controlling shareholder of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month +period during our past three fiscal years, exceeds the greater of 5% of the recipient s consolidated gross revenues for that year +or $200,000 (except for payments arising solely from investments in our securities or payments under non-discretionary charitable contribution +matching programs); (e) the director or a Related Party is employed as an executive officer of another company where at any time during +the preceding three years one of our executive officers served on the compensation committee of such company; and (f) the director or +a Related Party is a current partner of our independent public accounting firm, or has worked for such firm in any capacity on our audit +at any time during the past three years. + + + + -122- + + Table of Contents + + + + + +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT + + + +The +following table sets forth certain information regarding the beneficial ownership of our Common Stock by (i) each person who, to our +knowledge, beneficially owns more than 5% of our Common Stock; (ii) each of our directors and named executive officers; and (iii) all +of our directors and executive officers as a group. Unless otherwise indicated in the footnotes to the following table, the address of +each person named in the table is: c/o Arch Therapeutics, Inc., 235 Walnut St., Suite #6, Framingham, Massachusetts 01702. The information +set forth in the table below is based on 555,562 shares of our Common Stock outstanding on June 19, 2024. Shares +of our Common Stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of June 19, +2024 are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such +options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. + + + +The +number of shares beneficially owned after the offering assumes (i) the sale of 969,697 shares of Common Stock and 969,697 Investor +Warrants included in the Units in this offering at an assumed public offering price of $4.125 per Unit (assuming no sale of Pre-Funded +Units); (ii) the expected issuance immediately prior to the pricing of this offering of 982,056 PIPE Pre-Funded Warrants and +982,056 PIPE Investor Warrants in the Uplist PIPE, (iii) the expected issuance at the closing of this offering of 538,182 2024 +Note Conversion Pre-Funded Warrants, 43,637 2024 Notes Automatic Conversion Shares and 581,819 2024 Notes Uplist Conversion Warrants upon the 2024 Notes Automatic Conversion of an +aggregate of $2,400,000 of principal amount under the 2024 Notes, +(iv) the expected issuance at the closing of this offering of 1,893,919 True-Up Shares and True-Up Pre-Funded Warrants to +purchase an aggregate of 6,330,422 shares of Common Stock, based on the sale of the Units and Pre-Funded Units at an assumed public +offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit; (v) the expected issuance at the closing of this offering of an aggregate +of 1,638,330 shares of Common Stock and 65,533,100 Uplist Conversion Warrants upon the Automatic Conversion of an aggregate +of $6,553,310 of principal amount under the 2022 Notes, assuming no issuance of any 2022 Note Conversion Pre-Funded Warrants, +based on the assumed exercise price of the Investor Warrants being offered as part of the Units and Pre-Funded Units in this offering +of $4.00 per share; (vi) no exercise of the Investor Warrants, PIPE Investor Warrants, PIPE Pre-Funded Warrants, True-Up Pre-Funded +Warrants, Bridge Pre-Funded Warrants, Uplist Conversion Warrants, Exchange Investor Warrants, or 2024 Notes Uplist Conversion +Warrants; (vii) the exchange of the 2,349,826 Common Warrants for 7,049,478 Exchange Investor Warrants, at the closing of +this offering; and (viii) no issuance of any Funding Backstop Pre-Funded Warrants or Backstop Common Warrants. The expected allocation +between True-Up Shares and True-Up Pre-Funded Warrants in the previous sentence is only an initial estimate based on indications of interest +and is subject to change based on the ultimate ownership of the Bridge Investors after the Uplist PIPE and this offering. The maximum +amount of True-Up Pre-Funded Warrants and True-Up Shares that may be issued, individually and in the aggregate is 8,224,341. The percentage +of shares beneficially owned after the offering is based on an assumed 4,916,849 shares of Common Stock to be outstanding, based +on the assumptions set forth in this paragraph. + + + + -123- + + Table of Contents + + + + + +The +following table is presented after taking into account the applicable ownership limitation to which certain holders of our securities +are subject to. In general, the ownership limitation prevents holders from exercising the warrant to the extent such exercise would result +in the holder owning more shares than a certain ownership percentage, which is initially set below 5%, and such ownership limitation +may be waived at the holder s discretion, provided that such waiver will not become effective until the 61st day after delivery +of such waiver notice. + + + + + Name of Beneficial Owner + Number of + Shares + Beneficially + Owned + Percentage + of Shares + Beneficially + Owned + (1) + Number of + Shares + Beneficially + Owned after the Offering** + Percentage + of Shares + Beneficially + Owned + after the + Offering + + + 5%+ Stockholders: + + + + + + + + + + + + + + Tiburon Opportunity Fund LP (2) + 29,150 + 4.99% + 487,325 + 9.99% + + + + + + + + + + Bigger Capital Fund, LP & District 2 Capital Fund LP (3) + 37,500 + 6.75% + 459,453 + 9.43% + + + + + + + + + + Walleye Opportunities Master Fund Ltd (4) + 37,500 + 6.75% + 508,587 + 9.99% + + + + + + + + + + Cavalry Fund I LP (5) + 37,500 + 6.75% + 252,827 + 5.19% + + + + + + + + + + Brandt & Mona Wilson (6) + 37,500 + 6.75% + 508,587 + 9.99% + + + + + + + + + + Ana and Michael Parker (7) + 37,500 + 6.75% + 487,325 + 9.99% + + + + + + + + + + Andrew Stahl (8) + 37,500 + 6.75% + 508,587 + 9.99% + + + + + + + + + + Sixth Borough Capital Fund, LP (9) + 37,500 + 6.75% + 493,289 + 9.99% + + + + + + + + + + Named Executive Officers and Directors: + + + + + + + + + + + + + + Terrence Norchi (10) + 19,826 + 3.50% + 258,678 + 5.06% + + + + + + + + + + Punit Dhillon (11) + 773 + * + 773 + *% + + + + + + + + + + Laurence Hicks (12) + 11,129 + 1.97 + 369,403 + 7.07% + + + + + + + + + + Michael Abrams (13) + 11,327 + 2.00 + 369,601 + 7.08% + + + + + + + + + + Daniel Yrigoyen (14) + 94 + * + 94 + *% + + + + + + + + + + Guy Fish (15) + 291 + * + 291 + *% + + + + + + + + + + Named Officers and Directors as a Group + 43,744 + 7.45% + 999,144 + 17.19% + + + + + +* +Less than 1%. + +**Excluding +any shares and/or Investor Warrants issued in connection with the over-allotment option, if any. + + + +Shares +of our Common Stock subject to options, warrants, or other rights currently exercisable or convertible or exercisable or convertible +within 60 days of June 19, 2024, are deemed to be beneficially owned and outstanding for computing the share ownership +and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage +of any other person. + + + + + (1) + Except + as otherwise indicated, we believe that each of the beneficial owners of the Common Stock listed previously, based on information + furnished by such owners, has sole investment and voting power with respect to the shares listed as beneficially owned by such owner, + subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and + generally includes voting or investment power with respect to securities. + + + + + -124- + + Table of Contents + + + + + + + (2) + Represents +shares of Common Stock underlying warrants that have beneficial ownership blockers. Excludes (a) 700,180 Conversion Shares; (b) 55,352 +2022 Warrants; (c) 125,657 Bridge Pre-Funded Warrants with unsatisfied exercise restrictions; and (d) 319,096 Common Warrants +with unsatisfied exercise restrictions held in the aggregate by Tiburon Opportunity Fund LP, all of which are subject to conversion or +exercise restrictions that prohibit conversion or exercise until such time as the holder would not beneficially own, after such conversion +or exercise, more than 4.99% or 9.99% (as the case may be) of the outstanding shares of Common Stock; provided, however, that the holder +may waive such ownership limitation, in which case any waiver would become effective sixty-one (61) days after the holder s delivery +of such waiver notice. As of June 19, 2024, Tiburon Opportunity Fund LP has not waived such limitation. + + + + + + + (3) + Represents +37,500 shares of Common Stock owned by, and split evenly between, Bigger Capital Fund, LP and District 2 Capital Fund LP with a common +control person. Excludes (a) 362,500 Conversion Shares; (b) 138,750 2024 Notes Conversion Shares; (c) 18,944 PIPE Advance Penalty Pre-Funded +Warrants; (d) 56,250 Execution Backstop Pre-Funded Warrants; (e) 18,944 PIPE Advance Penalty Common Warrants; (f) 21,379 2022 Warrants; +(g) 123,683 Bridge Pre-Funded Warrants with unsatisfied exercise restrictions; and (h) 319,082 Common Warrants with unsatisfied +exercise restrictions held in the aggregate by Bigger Capital Fund, LP and District 2 Capital Fund LP, all of which are subject to conversion +or exercise restrictions that prohibit conversion or exercise until such time as the holder would not beneficially own, after such conversion +or exercise, more than 4.99% or 9.99% (as the case may be) of the outstanding shares of Common Stock; provided, however, that the holder +may waive such ownership limitation, in which case any waiver would become effective sixty-one (61) days after the holder s delivery +of such waiver notice. As of June 19, 2024, neither Bigger Capital Fund, LP, nor District 2 Capital Fund LP has waived such limitation. + + + + + + + (4) + Represents +37,500 shares of Common Stock owned by Walleye Opportunities Master Fund Ltd. Excludes (a) 122,035 Bridge Pre-Funded Warrants +with unsatisfied exercise restrictions; and (b) 319,070 Common Warrants with unsatisfied exercise restrictions, all of which are subject +to exercise restrictions that prohibit exercise until such time as the holder would not beneficially own, after such exercise, more than +4.99% or 9.99% (as the case may be) of the outstanding shares of Common Stock; provided, however, that the holder may waive such ownership +limitation, in which case any waiver would become effective sixty-one (61) days after the holder s delivery of such waiver notice. +As of June 19, 2024, Walleye Opportunities Master Fund Ltd has not waived such limitation. + + + + + -125- + + Table of Contents + + + + + + + (5) + Represents +37,500 shares of Common Stock owned by Cavalry Fund I LP. Excludes (a) 145,000 Conversion Shares; (b) 138,750 2024 Notes Conversion Shares; +(c) 18,944 PIPE Advance Penalty Pre-Funded Warrants; (d) 56,250 Execution Backstop Pre-Funded Warrants; (e) 18,944 PIPE Advance Penalty +Common Warrants; (f) 8,552 2022 Warrants; (e) 123,133 Bridge Pre-Funded Warrants with unsatisfied exercise restrictions; and (f) +319,078 Common Warrants with unsatisfied exercise restrictions, all of which are subject to conversion or exercise restrictions that +prohibit conversion or exercise until such time as the holder would not beneficially own, after such conversion or exercise, more than +4.99% or 9.99% (as the case may be) of the outstanding shares of Common Stock; provided, however, that the holder may waive such ownership +limitation, in which case any waiver would become effective sixty-one (61) days after the holder s delivery of such waiver notice. +As of June 19, 2024, Cavalry Fund I LP has not waived such limitation. + + + + + + + (6) + Represents +37,500 shares of Common Stock owned individually by Brandt and Mona Wilson. Excludes (a) 138,750 2024 Notes Conversion Shares; (b) 18,944 +PIPE Advance Penalty Pre-Funded Warrants; (c) 56,250 Execution Backstop Pre-Funded Warrants; (d) 18,944 PIPE Advance Penalty Common Warrants; +(e) 122,035 Bridge Pre-Funded Warrants with unsatisfied exercise restrictions; and (f) 319,070 Common Warrants with unsatisfied +exercise restrictions, all of which are subject to exercise restrictions that prohibit exercise until such time as the holder would not +beneficially own, after such exercise, more than 4.99% or 9.99% (as the case may be) of the outstanding shares of Common Stock; provided, +however, that the holder may waive such ownership limitation, in which case any waiver would become effective sixty-one (61) days after +the holder s delivery of such waiver notice. As of June 19, 2024, neither Brandt Wilson nor Mona Wilson had waived such limitation. + + + + + + + (7) + Represents +(i) 29,431 shares of Common Stock owned individually by Ana Parker, Michael A. Parker s spouse; (ii) 4,757 shares of Common Stock +owned individually by Mr. Parker; (iii) 3,125 shares of Common Stock owned through Tungsten, of which Mr. Parker is the sole manager +and (iv) 188 shares of restricted stock granted to Mr. Parker on September 27, 2021. Excludes (a) 10,308 Bridge Pre-Funded Warrants with +unsatisfied exercise restrictions; (b) 68,686 Common Warrants with unsatisfied exercise restrictions; (c) 12,945 First Conversion Shares; +(d) 6,036 First Warrant Shares; (e) any of the 2,143 shares of Common Stock that may be acquired upon the exercise of Series I Warrants +(which expire October 18, 2024); or (f) any of the 2,930 shares that may be acquired upon the exercise of Series K Warrants (which expire +on August 11, 2026), since such warrants cannot be exercised until such time as the holder would not beneficially own, after such exercise, +more than 4.99% or 9.99% (as the case may be) of the outstanding shares of Common Stock; provided, however, that the holder may waive +such ownership limitation, in which case such waiver will become effective sixty-one (61) days after the holder s delivery of such +waiver notice. As of June 19, 2024, neither Ms. Parker nor Mr. Parker have waived such limitation. The number of shares beneficially +owned after the offering assumes, for illustrative purposes only, the above referenced stockholder s participation in the Uplist +Transaction in an amount equal to 4.3 times their participation in the Bridge Offering; however, no assurance can be given that the stockholder +will participate in such amount or at all, and no commitment has been made on their part. + + + + + -126- + + Table of Contents + + + + + + + (8) + Represents +37,500 shares of Common Stock owned individually by Andrew Stahl. Excludes (a) 138,750 2024 Notes Conversion Shares; (b) 18,944 PIPE +Advance Penalty Pre-Funded Warrants; (c) 56,250 Execution Backstop Pre-Funded Warrants; (d) 18,944 PIPE Advance Penalty Common Warrants; +(e) 122,035 Bridge Pre-Funded Warrants with unsatisfied exercise restrictions; and (f) 319,070 Common Warrants with unsatisfied +exercise restrictions, all of which are subject to exercise restrictions that prohibit exercise until such time as the holder would not +beneficially own, after such exercise, more than 4.99% or 9.99% (as the case may be) of the outstanding shares of Common Stock; provided, +however, that the holder may waive such ownership limitation, in which case any waiver would become effective sixty-one (61) days after +the holder s delivery of such waiver notice. As of June 19, 2024, Mr. Stahl had not waived such limitation. + + + + + + + (9) + Represents +37,500 shares of Common Stock owned by Sixth Borough Capital Fund, LP. Excludes (a) 7,984 Bridge Pre-Funded Warrants with unsatisfied +exercise restrictions; and (b) 90,967 Common Warrants with unsatisfied exercise restrictions, all of which are subject to exercise restrictions +that prohibit exercise until such time as the holder would not beneficially own, after such exercise, more than 4.99% or 9.99% (as the +case may be) of the outstanding shares of Common Stock; provided, however, that the holder may waive such ownership limitation, in which +case any waiver would become effective sixty-one (61) days after the holder s delivery of such waiver notice. As of June 19, +2024, Sixth Borough Capital Fund, LP has not waived such limitation. The number of shares beneficially owned after the offering assumes, +for illustrative purposes only, the above referenced stockholder s participation in the Uplist Transaction in an amount equal to +4.3 times their participation in the Bridge Offering; however, no assurance can be given that the stockholder will participate in such +amount or at all, and no commitment has been made on their part. + + + + + + + (10) + Represents +(a) 6,250 shares of Common Stock held by Twelve Pins Partners, LLC, with respect to which Dr. Norchi is the sole member and holds sole +voting and investment control; (b) 887 shares issued to Dr. Norchi upon the closing of the Merger in exchange for the cancellation of +shares of Common Stock and convertible notes of ABS owned by him immediately prior to the closing of the Merger; (c) 706 shares of restricted +stock granted to Dr. Norchi on May 3, 2016; (d) 406 shares of restricted stock granted to Dr. Norchi on February 3, 2017; (e) 225 shares +of restricted stock granted to Dr. Norchi on July 19, 2018; (f) 328 First Conversion Shares; (g) 302 First Warrants; and (h) 45 First +Inducement Shares; (i) 4,146 shares subject to options exercisable within 60 days after June 19, 2024; and (j) 858 shares +of common stock purchased. Excludes 1,716 Common Warrants with unsatisfied exercise restrictions. Dr. Norchi disclaims beneficial ownership +of the securities held by Twelve Pins Partners, LLC except to the extent of his pecuniary interest therein. The number of shares beneficially +owned after the offering assumes, for illustrative purposes only, the above referenced stockholder s participation in the Uplist +Transaction in an amount equal to 4.3 times their participation in the Bridge Offering; however, no assurance can be given that the stockholder +will participate in such amount or at all, and no commitment has been made on their part. + + + + + -127- + + Table of Contents + + + + + + + (11) + Represents 773 + shares of Common Stock subject to options exercisable within 60 days after June 19, 2024. + + + + + + + (12) + Represents +304 shares of Common Stock subject to options exercisable within 60 days after June 19, 2024. Includes (i) 17 shares of +Common Stock, (ii) 492 First Conversion Shares, (iii) 453 First Warrant Shares, (iv) 68 First Inducement Shares; and (v) 1,287 shares +of common stock held by Drake Partners Equity LLC, in which Mr. Hicks has an ownership interest. Excludes 2,573 Common Warrants with +unsatisfied exercise restrictions held by Drake Partners Equity LLC, in which Mr. Hicks has an ownership interest. The number of shares +beneficially owned after the offering assumes, for illustrative purposes only, the above referenced stockholder s participation +in the Uplist Transaction in an amount equal to 4.3 times their participation in the Bridge Offering; however, no assurance can be given +that the stockholder will participate in such amount or at all, and no commitment has been made on their part. + + + + + + + (13) + Represents +(i) 492 First Conversion Shares; (ii) 453 First Warrant Shares; (iii) 68 First Inducement Shares; (iv) 1,287 shares of common stock purchased, +and (v) 519 shares of Common Stock subject to options exercisable within 60 days after June 19, 2024. Excludes 2,573 Common +Warrants with unsatisfied exercise restrictions. The number of shares beneficially owned after the offering assumes, for illustrative +purposes only, the above referenced stockholder s participation in the Uplist Transaction in an amount equal to 4.3 times their +participation in the Bridge Offering; however, no assurance can be given that the stockholder will participate in such amount or at all, +and no commitment has been made on their part. + + + + + + + (14) + Represents +94 shares of restricted stock granted to Mr. Yrigoyen on July 30, 2021. + + + + + + + (15) + Represents + 291 shares of Common Stock subject to options exercisable within 60 days after June 19, 2024. + + + + + -128- + + Table of Contents + + + + + +SHARES +ELIGIBLE FOR FUTURE SALE + + + +Overview + + + +As +of the date of this offering our Common Stock has only been traded on the OTCQB Market. In connection with this offering, we have +applied to list our Common Stock on Cboe. No assurance can be given that our application will be approved. Sales of +substantial amounts of our Common Stock in the public market, including shares issued upon the exercise of outstanding options or +warrants, or the perception that such sales could occur, could adversely affect prevailing market prices of our Common Stock. Upon +completion of this offering, we will have an aggregate of 4,916,849 shares of Common Stock issued and outstanding, assuming +(i) the sale of 969,697 shares of Common Stock included in the Units in this offering at an assumed public offering price of +$4.125 per Unit (assuming no sale of Pre-Funded Units); (ii) the expected issuance immediately prior to the pricing of this offering +of 982,056 PIPE Pre-Funded Warrants in the Uplist PIPE, (iii) the expected issuance at the closing of this offering of 1,893,919 +True-Up Shares and True-Up Pre-Funded Warrants to purchase an aggregate of 6,330,422 shares of Common Stock, based on the +sale of the Units and Pre-Funded Units at an assumed public offering price of $4.125 per Unit and $4.124 per Pre-Funded Unit; (iv) +the expected issuance at the closing of this offering of an aggregate of 1,454,034 shares of Common Stock upon the Automatic +Conversion of an aggregate of $6,553,310 of principal amount under the 2022 Notes, aside from 2022 Note Conversion +Pre-Funded Warrants to be exercisable for an expected 184,296 shares of Common Stock, based on the assumed exercise price of the +Investor Warrants being offered as part of the Units and Pre-Funded Units in this offering of $4.00 per share; (v) no exercise of +the Investor Warrants, PIPE Investor Warrants, PIPE Pre-Funded Warrants, True-Up Pre-Funded Warrants, Bridge Pre-Funded Warrants, +Uplist Conversion Warrants, Exchange Investor Warrants, 2024 Note Conversion Pre-Funded Warrants, 2022 Note Conversion Pre-Funded +Warrants, Execution Backstop Pre-Funded Warrants and PIPE Advance Penalty Pre-Funded Warrants; and (vi) the expected issuance +at the closing of this offering of 2024 Note Conversion Pre-Funded Warrants to purchase an aggregate of 538,182 shares of Common +Stock and 43,637 2024 Notes Automatic Conversion shares (and related 2024 Note Uplist Conversion Warrants) upon the 2024 Notes +Automatic Conversion of the full principal amount under the 2024 Notes. The expected allocation between True-Up Shares and +True-Up Pre-Funded Warrants in the previous sentence is only an initial estimate based on indications of interest and is subject to +change based on the ultimate ownership of the Bridge Investors after the Uplist PIPE and this offering. The maximum amount of +True-Up Pre-Funded Warrants and True-Up Shares that may be issued, individually and in the aggregate is 8,224,341. Assuming the +exercise in full of the Bridge Pre-Funded Warrants, PIPE Pre-Funded Warrants, True-Up Pre-Funded Warrants and 2022 Note Conversion +Pre-Funded Warrants, Execution Backstop Pre-Funded Warrants, PIPE Advance Penalty Pre-Funded Warrants and 2024 Note Conversion +Pre-Funded Warrants, if any, (which have exercise prices of $0.001 or $0.008 and therefore function as common stock equivalents) +there would be 14,009,456 shares (14,154,910 shares if the underwriters exercise their option to purchase additional +shares in full) of Common Stock outstanding after this offering. All of the shares of Common Stock sold in this offering, including +the shares of Common Stock issuable upon exercise of the Investor Warrants included in the Units and Pre-Funded Units sold in this +offering, will be freely transferable without restriction or further registration under the Securities Act by persons other than by +our affiliates. In addition, for each Bridge Investor that purchases Units or Pre-Funded Units in this offering (or securities in +the Uplist PIPE) with an aggregate purchase price equal to at least 4.3 multiplied by the aggregate purchase price paid by the +Bridge Investor for the Bridge Shares and Bridge Warrants under the Bridge SPA, their Bridge Shares and the shares underlying their +Bridge Warrants will not be subject to the Bridge Lock-Up (defined below), and their Bridge Shares (but not their Common Warrants, +which are being cancelled and exchange for Exchange Investor Warrants, the shares underlying which are not included in the Resale +Prospectus) would be freely transferable without restriction or further registration due to their inclusion in the Resale +Prospectus. Further, all of the other securities registered under the Resale Prospectus will be freely transferable without +restriction upon the effectiveness of the registration statement of which this prospectus forms a part. Those securities are +comprised of an aggregate of (i) 2,691,266 shares of Common Stock and (ii) 87,188,215 shares of common stock +underlying warrants (such amounts assuming all of the Common Warrants are exchanged into the Exchange Investor Warrants at the +closing of this offering and no issuance of 2022 Note Conversion Pre-Funded Warrants, 2024 Note Conversion Pre-Funded +Warrants or True-Up Shares). + + + +In +addition, pursuant to the PIPE SPA, the Company has agreed to file no later than sixty (60) days after the closing date of the Uplist +Transaction, a registration statement on Form S-4, or other appropriate form, registering the offer by the Company to exchange, on a +one-for-one basis, all outstanding PIPE Investor Warrants, 2022 Warrants, Uplist Conversion Warrants and Exchange Investor Warrants for +newly issued warrants identical to the Investor Warrants being sold in this offering, which warrants are expected to be listed on Cboe +under the symbol ARTHW. + + + +Lock-Up +Agreements + + + +We, +our directors and executive officers have agreed, subject to limited exceptions, for a period of six months after the closing of this +offering, not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, any shares +of Common Stock or any securities convertible into or exchangeable for our Common Stock either owned as of the date of the underwriting +agreement or thereafter acquired without the prior written consent of Dawson James Securities, Inc. ( Dawson ). Dawson +may, in its sole discretion and at any time or from time to time before the termination of the lock-up period, without notice, release +all or any portion of the securities subject to lock-up agreements. + + + + -129- + + Table of Contents + + + + + +Bridge +Lock-Up + + + +Pursuant +to the Bridge SPA, the Bridge Investors agreed (the Bridge Lock-Up ) not to sell or otherwise transfer any of the +Bridge Shares or Bridge Warrant Shares prior to the one-year anniversary of the Bridge Closing Date. In the event that a Bridge Investor +purchases securities in connection with an offering conducted in conjunction with an uplist of the Common Stock to any of, and in compliance +with the rules of, the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American (the Uplist Transaction ), +which this offering is intended to be, and/or in the Uplist PIPE, with an aggregate purchase price equal to at least 4.3 multiplied by +the aggregate purchase price paid by the Bridge Investor for the Bridge Shares and Bridge Warrants under the Bridge SPA, the one-year +lock-up period will no longer apply to the Bridge Shares and Bridge Warrants. The PIPE Investors have agreed to purchase approximately +$5.9 million in the Uplist PIPE, and other Bridge Investors may purchase securities in this offering at a level that will result +in the early termination of the lock-up period specified in the Lock-Up Agreements. Investors in this offering should not assume that +any of the Bridge Investors will be subject to a lock-up after the completion of this offering. + + + +Rule +144 + + + +In +general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, +a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding +a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior +owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice +provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially +owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, +then that person would be entitled to sell those shares upon expiration of the lock-up agreements described above, without complying +with any of the requirements of Rule 144. + + + +In +general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to +sell upon expiration of the lock-up agreements described below, within any three-month period, a number of shares that does not exceed +the greater of: + + + + + + 1% + of the number of shares of our Common Stock then outstanding, which will equal an assumed approximately 48,605 shares immediately + after this offering; or + + + + + + + if + and when our Common Stock is listed on Cboe or Alternate Exchange, the average weekly trading volume of our Common Stock on + such market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. + + + + +Sales +under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions +and notice requirements and to the availability of current public information about us. + + + + -130- + + Table of Contents + + + + + +DESCRIPTION +OF SECURITIES + + + +Authorized +Capital Stock + + + +Pursuant +to our amended and restated articles of incorporation, as amended, as of September 21, 2023, our authorized capital stock consists of +350,000,000 shares of Common Stock. The following description summarizes the material terms of our capital stock. Because it is only +a summary, it may not contain all the information that is important to you. In connection with this offering, we intend to effect a reverse +stock split of our Common Stock at a ratio of 1-for-8 prior to the pricing of this offering. + + + +Preferred +Stock + + + +We +are authorized to issue up to 5,000,000 shares of preferred stock, par value $0.001 per share, from time to time in one or more series. +As of the date of this prospectus, there are no shares of our preferred stock outstanding. + + + +The +shares of preferred stock may be issued in series, and each such series shall have such voting powers, full or limited, or no voting +powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations +or restrictions thereof, as shall be stated and expressed in the certificate of designation relating to such series, as approved by the +board of directors and filed with the Nevada Secretary of State. Pursuant to our articles of incorporation, our Board of Directors is +expressly vested with the authority, without further action by the stockholders, to determine and fix in the resolution or resolutions +providing for the issuances of preferred stock the voting powers, designations, preferences and rights, and the qualifications, limitations +or restrictions thereof, of each such series to the full extent now or hereafter permitted by the laws of the State of Nevada. + + + +Prior +to the issuance of any series of preferred stock, we will further amend our articles of incorporation, as amended, by way of a certificate +of designation designating such series and its terms. We will file a copy of the certificate of designation that contains the terms of +each such series of preferred stock with the Nevada Secretary of State and the SEC each time we issue a new series of preferred stock. +Each certificate of designation will establish the number of shares included in a designated series and fix the designation, powers, +privileges, preferences and rights of the shares of each series as well as any applicable qualifications, limitations or restrictions, +including, as applicable: + + + + + + the + designation, stated value and liquidation preference of the series; + + + + the + number of shares authorized within the series; + + + + the + offering price; + + + + the + dividend rate or rates (or method of calculation), the date or dates from which dividends shall accrue, and whether such dividends + shall be cumulative or noncumulative and, if cumulative, the dates from which dividends shall commence to cumulate; + + + + any + redemption or sinking fund provisions; + + + + the + amount that shares of the series shall be entitled to receive in the event of our liquidation, dissolution or winding-up; + + + + the + terms and conditions, if any, on which shares of the series shall be convertible or exchangeable for shares of our stock of any other + class or classes, or other series of the same class; + + + + the + voting rights, if any, of shares of the series; the status as to reissuance or sale of shares of the series redeemed, purchased or + otherwise reacquired, or surrendered to us on conversion or exchange; + + + + the + conditions and restrictions, if any, on the payment of dividends or on the making of other distributions on, or the purchase, redemption + or other acquisition by us or any subsidiary, of the common stock or of any other class of our shares ranking junior to the shares + of the series as to dividends or upon liquidation; + + + + the + conditions and restrictions, if any, on the creation of indebtedness by us or by any subsidiary, or on the issuance of any additional + stock ranking on a parity with or prior to the shares of the series as to dividends or upon liquidation; and + + + + any + additional dividend, liquidation, redemption, sinking or retirement fund and other rights, preferences, privileges, limitations and + restrictions of the series. + + + + + -131- + + Table of Contents + + + + + +The +issuance of any preferred stock could adversely affect the rights of the holders of common stock and, therefore, reduce the value of +the common stock. The ability of our Board of Directors to issue preferred stock could discourage, delay or prevent a takeover or other +corporate action. + + + +Common +Stock Issued and Outstanding; Common Stock Registered Hereby + + + +As +of June 19, 2024, there were issued and outstanding 555,562 shares of Common Stock. Of our authorized and unissued +shares of Common Stock, we are registering under the registration statement of which this prospectus forms a part 969,697 shares +of Common Stock to be issued as part of the Units (or upon exercise of the Pre-Funded Warrants to be issued as part of the Pre-Funded +Units, in lieu thereof). + + + +The +holders of our Common Stock, par value $0.001 per share, are entitled to one vote per share on all matters submitted to a vote of our +stockholders, including the election of directors. Our articles of incorporation do not provide for cumulative voting in the election +of directors, and our amended and restated bylaws provide that directors are elected by a plurality vote of the votes cast and entitled +to vote on the election of directors at any meeting for the election of directors at which a quorum is present. Matters other than the +election of directors to be voted on by stockholders are generally approved if, at a duly convened stockholder meeting, the number of +votes cast in favor of the action exceeds the number of votes cast in opposition to the action, unless a different vote for the action +is required by applicable law, our articles of incorporation or our amended and restated bylaws. Applicable Nevada law requires any amendment +to our articles of incorporation to be approved by stockholders holding shares entitling them to exercise at least a majority of the +voting power of the Company. The holders of our Common Stock will be entitled to cash dividends as may be declared, if any, by our Board +from funds available. Upon liquidation, dissolution or winding up of our Company, the holders of our Common Stock will be entitled to +receive pro rata all assets available for distribution to the holders. All rights of our holders of Common Stock described in this paragraph +could be subject to any preferential voting, liquidation or other rights of any series of preferred stock that we may authorize and issue +in the future. Our amended and restated articles of incorporation do not currently authorize us to issue any class of preferred stock. +Our Common Stock is presently traded on the QB tier of the OTC Marketplace under the trading symbol ARTH . We have applied +to list our Common Stock on Cboe under the symbol ARTH. No assurance can be given that our application will be approved. +If our Common Stock is not approved for listing on Cboe or an Alternate Exchange, we will not complete this offering. + + + +Units +to be Issued in this Offering + + + +Each +of the Units we are offering (subject to adjustment) consists of one share of Common Stock and one Investor Warrant to purchase one share +of our Common Stock. Each Unit will be sold at a purchase price of $ per Unit. Units will not be issued or certificated. The shares of +Common Stock and the Investor Warrants comprising the Units are immediately separable and will be issued separately and uncertificated. + + + +Pre-Funded +Units to be Issued in this Offering + + + +We +are also offering to each purchaser whose purchase of Units in this offering would otherwise result in the purchaser, together with its +affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding Common Stock immediately following the +consummation of this offering, if the purchaser so chooses, Pre-Funded Units (each Pre-Funded Unit consisting of one Pre-Funded Warrant +to purchase one share of Common Stock and one Investor Warrant to purchase one share of Common Stock) in lieu of Units that would otherwise +result in the purchaser s beneficial ownership exceeding 4.99% of our outstanding Common Stock (or at the election of the purchaser, +9.99%). The purchase price of each Pre-Funded Unit will equal the price per Unit being sold to the public in this offering minus $0.001. + + + +Pre-Funded +Warrants to be Issued in this Offering + + + +The +following summary of certain terms and provisions of the Pre-Funded Warrants offered hereby is not complete and is subject to, and qualified +in its entirety by the provisions of the form of Pre-Funded Warrant, which will be filed as an exhibit to the registration statement +of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the form of Pre-Funded +Warrant. + + + + -132- + + Table of Contents + + + + + +Pre-Funded +Warrants provide any purchaser in this offering with the ability to purchase Pre-Funded Units (each Pre-Funded Unit consisting of one +Pre-Funded Warrant to purchase one share of Common Stock and one Investor Warrant to purchase one share of Common Stock) in lieu of Units +that would otherwise result in the purchaser s beneficial ownership exceeding 4.99% of our outstanding Common Stock (or, at the +election of the purchaser, 9.99%). This is accomplished through purchasing Pre-Funded Warrants at a price equal to the purchase price +for Units, less $0.001, which $0.001 is the exercise price for the Pre-Funded Warrants. Each Pre-Funded Warrant is exercisable into one +share of Common Stock as offered hereunder. Thus, the purchaser is paying essentially the purchase price for a Unit at closing of the +offering but is not deemed to beneficially own the shares of Common Stock included in the Units until the purchaser exercises the Pre-Funded +Warrant. Once purchased, the purchase price of the Pre-Funded Warrants is not refundable. While the Pre-Funded Warrants permit waiver +of provisions by us and the holder of the Pre-Funded Warrants, this would not affect the pre-funding as that is the purchase price of +the instrument which is paid at the time of closing and becomes part of our proceeds received from this offering. In addition, the Pre-Funded +Warrants are perpetual and do not have an expiration date. + + + +Duration +and Exercise Price + + + +Each +Pre-Funded Warrant will have an outstanding exercise price per share equal to $0.001. The Pre-Funded Warrants will be immediately exercisable +and may be exercised at any time until the Pre-Funded Warrants are exercised in full. The exercise price and number of shares of Common +Stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar +events affecting Common Stock and the exercise price. The Pre-Funded Warrants will be issued separately from the accompanying Investor +Warrants included in the Pre-Funded Units, and may be transferred separately immediately thereafter. + + + +Exercisability + + + +The +Pre-Funded Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise +notice accompanied by payment in full for the number of shares of Common Stock purchased upon such exercise (except in the case of a +cashless exercise as discussed below). A holder (together with its affiliates) may not exercise any portion of the Pre-Funded Warrant +to the extent that the holder would own more than 4.99% of the outstanding Common Stock immediately after exercise, except that upon +at least 61 days prior notice from the holder to us, the holder may increase the amount of ownership of outstanding Common Stock +after exercising the holder s Pre-Funded Warrants up to 9.99% of the number of shares of Common Stock outstanding immediately after +giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Pre-Funded Warrants. Purchasers +of Pre-Funded Units in this offering may also elect prior to the issuance of the Pre-Funded Warrants to have the initial exercise limitation +set at 9.99% of our outstanding Common Stock. + + + +Cashless +Exercise + + + +In +lieu of making the cash payment otherwise contemplated to be made to us upon exercise in payment of the aggregate exercise price, the +holder may elect instead to exercise its Pre-Funded Warrants on a cashless basis and receive upon such exercise (either in whole or in +part) the net number of shares of Common Stock determined according to a formula set forth in the Pre-Funded Warrant. + + + +Fundamental +Transactions + + + +If +a fundamental transaction occurs, then the successor entity will succeed to, and be substituted for us, and may exercise every right +and power that we may exercise and will assume all of our obligations under the Pre-Funded Warrants with the same effect as if such successor +entity had been named in the Pre-Funded Warrant itself. If holders of our Common Stock are given a 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 consideration it receives +upon any exercise of the Pre-Funded Warrant following such fundamental transaction. + + + + -133- + + Table of Contents + + + + + +Transferability + + + +Subject +to applicable laws, a Pre-Funded Warrant may be transferred at the option of the holder upon surrender of the Pre-Funded Warrant to us +together with the appropriate instruments of transfer. + + + +Fractional +Shares + + + +No +fractional shares of Common Stock will be issued upon the exercise of the Pre-Funded Warrants. Rather, the number of shares of Common +Stock to be issued will be rounded up to the nearest whole number. + + + +Trading +Market + + + +There +is no established trading market for the Pre-Funded Warrants on any securities exchange or nationally recognized trading system, and +we do not expect an active trading market to develop. We do not intend to list the Pre-Funded Warrants on any securities exchange or +other trading market. Without a trading market, the liquidity of the Pre-Funded Warrants will be extremely limited. + + + +Right +as a Shareholder + + + +Except +as otherwise provided in the Pre-Funded Warrants or by virtue of the holder s ownership of shares of Common Stock, such holder +of Pre-Funded Warrants does not have the rights or privileges of a holder of Common Stock, including any voting rights, until such holder +exercises such holder s Pre-Funded Warrants. + + + +Investor +Warrants to be Issued in this Offering + + + +The +following summary of certain terms and provisions of the Investor Warrants offered hereby is not complete and is subject to, and qualified +in its entirety by the provisions of the form of Investor Warrant, which will be filed as an exhibit to the registration statement of +which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the form of Investor +Warrant. + + + +The +Investor Warrants issued in this offering entitle the registered holders to purchase Common Stock at an assumed exercise price equal +to $4.00 per share (which equals the minimum bid price per share under the initial listing requirements of Cboe in Cboe Listing Rule +14.9(b)), subject to adjustment as discussed below, immediately following the issuance of such Investor Warrants and terminating +at 5:00 p.m., New York City time, five years after the date of issuance. + + + +The +exercise price and number of shares of Common Stock issuable upon exercise of the Investor Warrants may be adjusted in certain circumstances, +including in the event of a stock dividend or recapitalization, reorganization, merger or consolidation. However, the Investor Warrants +will not be adjusted for issuances of shares of Common Stock at prices below its exercise price. + + + + -134- + + Table of Contents + + + + + +Exercisability. +The Investor Warrants are exercisable immediately upon issuance and at any time up to the date that is five years from the date of issuance. +The Investor Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise +notice accompanied by payment in full for the number of shares of Common Stock purchased upon such exercise. Each Investor Warrant entitles +the holder thereof to purchase one share of our Common Stock. Investor Warrants are not exercisable for a fraction of a share and may +only be exercised into whole numbers of shares. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional +amount multiplied by the exercise price and round down to the nearest whole share. Unless otherwise specified in the Investor Warrant, +the holder will not have the right to exercise the Investor Warrants, in whole or in part, if the holder (together with its affiliates) +would beneficially own in excess of 4.99% (or 9.99% at the holder s election) of the number of our shares of Common Stock outstanding +immediately after giving effect to the exercise, as such percentage is determined in accordance with the terms of the Investor Warrant. +However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least 61 days +prior notice from the holder to us. + + + +Exercise +Price. The exercise price per share of Common Stock purchasable upon exercise of the Investor Warrants is $ , and is subject +to adjustments for stock splits, reclassifications, subdivisions, and other similar transactions. + + + +Listing; +Transferability. We have applied for listing of the Investor Warrants on Cboe under the symbol ARTHW . +No assurance can be given that our listing application will be approved. Subject to applicable laws, the Investor Warrants may be transferred +at the option of the holders upon surrender of the Investor Warrants to us, together with the appropriate instruments of transfer. + + + +Fundamental +Transactions. If a fundamental transaction occurs, then the successor entity will succeed to, and be substituted for us, and +may exercise every right and power that we may exercise and will assume all of our obligations under the Investor Warrants with the same +effect as if such successor entity had been named in the Investor Warrant itself. If holders of our Common Stock are given a 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 consideration it receives upon any exercise of the Investor Warrant following such fundamental transaction. In the event of a Fundamental +Transaction (as defined in each Investor Warrant) approved by our Board of Directors, the holders of the Investor Warrants have the right +to require us or a successor entity to redeem the Investor Warrants for cash in the amount of the Black Scholes Value (as defined in +each Investor Warrant) of the unexercised portion of the Investor Warrants as of the date of the consummation of the Fundamental Transaction. +In the event of a Fundamental Transaction which is not approved by our Board of Directors, the holders of the Investor Warrants have +the right to require us or a successor entity to redeem the Investor Warrants for the consideration paid in the Fundamental Transaction +in the amount of the Black Scholes Value of the unexercised portion of the Investor Warrants as of the date of the consummation of the +Fundamental Transaction. + + + +Rights +as a Shareholder. Except by virtue of such holder s ownership of our Common Stock, the holder of Investor Warrants does +not have rights or privileges of a shareholder, including any voting rights, until the holder exercises such Investor Warrant. + + + +Transfer +Agent + + + +The +transfer agent for our Common Stock is Empire Stock Transfer. Our transfer agent s address is 1859 Whitney Mesa Drive, Henderson, +Nevada 89014. + + + +Anti-Takeover +Provisions of Nevada State Law + + + +Some +features of the Nevada Revised Statutes ( NRS ), which are further described below, may have the effect of deterring +third parties from making takeover bids for control of us or may be used to hinder or delay a takeover bid. This would decrease the chance +that our stockholders would realize a premium over market price for their shares of Common Stock as a result of a takeover bid. + + + +Acquisition +of Controlling Interest + + + +The +NRS contain provisions governing acquisition of a controlling interest of a Nevada corporation. These provisions provide generally that +any person or entity that acquires a certain percentage of the outstanding voting shares of a Nevada corporation may be denied voting +rights with respect to the acquired shares, unless certain criteria are satisfied. Our amended and restated bylaws provide that these +provisions will not apply to us or to any existing or future stockholder or stockholders. + + + + -135- + + Table of Contents + + + + + +Combination +with Interested Stockholder + + + +The +NRS contain provisions governing combinations of a Nevada corporation that has 200 or more stockholders of record with an interested +stockholder. These provisions only apply to a Nevada corporation that, at the time the potential acquirer became an interested +stockholder, has a class or series of voting shares listed on a national securities exchange, or has a class or series of voting shares +traded in an organized market and satisfies certain specified public float and stockholder levels. As we do not now meet +those requirements, we do not believe that these provisions are currently applicable to us. However, to the extent they become applicable +to us in the future, they may have the effect of delaying or making it more difficult to affect a change in control of the Company in +the future. + + + +A +corporation affected by these provisions may not engage in a combination within two years after the interested stockholder acquires his, +her or its shares unless the combination or purchase is approved by the board of directors before the interested stockholder acquired +such shares. Generally, if approval is not obtained, then after the expiration of the two-year period, the business combination may be +consummated with the approval of the board of directors before the person became an interested stockholder or a majority of the voting +power held by disinterested stockholders, or if the consideration to be received per share by disinterested stockholders is at least +equal to the highest of: + + + + + + the + highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement + of the combination or within three years immediately before, or in, the transaction in which he, she or it became an interested stockholder, + whichever is higher; + + + + + + + + the + market value per share on the date of announcement of the combination or the date the person became an interested stockholder, whichever + is higher; or + + + + + + + + if + higher for the holders of preferred stock, the highest liquidation value of the preferred stock, if any. + + + + +Generally, +these provisions define an interested stockholder as a person who is the beneficial owner, directly or indirectly of 10% or more of the +voting power of the outstanding voting shares of a corporation, and define combination to include any merger or consolidation with an +interested stockholder, or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series +of transactions with an interested stockholder of assets of the corporation: + + + + + + having + an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation; + + + + + + + + having + an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation; or + + + + + + + + representing + 10% or more of the earning power or net income of the corporation. + + + + + -136- + + Table of Contents + + + + + +UNDERWRITING + + + +We +are offering the units described in this prospectus through the underwriters named below. We have entered into an underwriting agreement +dated , 2024 with Dawson James Securities, Inc. as the representative of the several underwriters named below ( Dawson +or the Representative ), in connection with this offering. Dawson is acting as the sole book-running manager in this +offering. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and the underwriters +have agreed to purchase, at the public offering price, less the underwriting discounts and commissions, as set forth on the cover page +of this prospectus, the number of Units and Pre-Funded Units set forth opposite their respective name s below. + + + + + Underwriters + Number of Units + Number of + Pre-Funded Units + + + Dawson James Securities, Inc. + + + + + + + + + + Total + + + + + + + +The +underwriters are committed to purchase all the Units and Pre-Funded Units offered by us if they buy any of them. However, the underwriters +are not obligated to purchase the shares and Investor Warrants covered by the underwriters over-allotment option described below. +The underwriters are offering the Units and Pre-Funded Units, subject to prior sale, when, as and if issued to and accepted by them. +The underwriting agreement provides that the obligations of the underwriters to purchase the Units and Pre-Funded Units included in this +offering are subject to approval of legal matters by their counsel and to other conditions. The underwriters reserve the right to withdraw, +cancel or modify offers to the public and to reject orders in whole or in part. + + + +We +have been advised by the underwriters that it intends to make a market in our shares of Common Stock but that they are not obligated +to do so and may discontinue making a market at any time without notice. + + + +In +connection with this offering, the underwriters or securities dealers may distribute prospectuses electronically. + + + +Option +to Purchase Additional Shares and/or Investor Warrants + + + +We +have granted the underwriters an option, exercisable for 45 days after the date of this prospectus, to purchase up to an additional shares +of Common Stock and/or Investor Warrants to purchase up to an additional shares of Common Stock (equal to 15% of the shares of Common +Stock (and Pre-Funded Warrants, if any) and Investor Warrants sold in this offering), in any combination, at the public offering price +per share of Common Stock and per Investor Warrant, respectively, less the underwriting discounts payable by us, solely to cover over-allotments, +if any. If any additional shares of Common Stock and/or Investor Warrants are purchased, the underwriters will offer these shares of +Common Stock and/or Investor Warrants on the same terms as those on which the other securities are being offered in this offering. + + + +Discounts +and Commissions + + + +The +underwriters propose to offer the Units and Pre-Funded Units to the public at the public offering price set forth on the cover page of +this prospectus and to certain dealers at that price less a concession not in excess of $ per Unit. The underwriters may offer the Units +and Pre-Funded Units through one or more of their affiliates or selling agents. If all the Units and Pre-Funded Units are not sold at +the public offering price, the underwriters may change the offering price and the other selling terms. After this offering, the public +offering price and concession may be changed by the underwriters. No such change will change the amount of proceeds to be received by +us as set forth on the cover page of this prospectus. + + + +The +underwriting discount is equal to the public offering price per share less the amount paid by the underwriters to us per Unit. The underwriting +discount was determined through an arm s length negotiation between us and the Representative. The underwriters commissions +and discounts will be 8% of the gross proceeds of this offering (or 4% on any orders from investors introduced to the offering by the +Company), or $ per Unit based on the public offering price set forth on the cover page of this prospectus. + + + +The +following table shows the public offering price, underwriting discounts and commissions and proceeds, before expenses, to us assuming +both no exercise and full exercise by the underwriters of their over-allotment option: + + + + + + Total + + + + Per Unit + Per Pre-Funded Unit + Without + Option + With Option + + + Public offering price + $ + $ + $ + $ + + + Underwriting discounts and commissions + $ + $ + $ + $ + + + Proceeds, before expenses, to us + $ + $ + $ + $ + + + + + +We +estimate that the total expenses of the offering payable by us, excluding the total underwriting discount will be approximately $775,000. + + + + -137- + + Table of Contents + + + + + +Indemnification + + + +Pursuant +to the underwriting agreement, we have agreed to indemnify the underwriters against certain liabilities, including liabilities under +the Securities Act, or to contribute to payments that the underwriters or such other indemnified party may be required to make in respect +of those liabilities. + + + +Lock-Up +Agreements + + + +We, +our directors and executive officers have agreed, subject to limited exceptions, for a period of six months after the closing of this +offering, not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, any shares +of Common Stock or any securities convertible into or exchangeable for our Common Stock either owned as of the date of the underwriting +agreement or thereafter acquired without the prior written consent of Dawson. Dawson may, in its sole discretion and at any time or from +time to time before the termination of the lock-up period, without notice, release all or any portion of the securities subject to lock-up +agreements. + + + +Exclusivity +Tail + + + +We +have entered into an engagement letter with Dawson to serve as our lead underwriter in the Primary Offering (the Engagement +Letter ). The Engagement Letter is on a month-to-month basis, renewing automatically for successive month periods, unless earlier +terminated in accordance with the terms of the Engagement Letter (the Engagement Period ). We have agreed that until +the Engagement Period terminates, Dawson will act as our exclusive underwriter, agent, or advisor if we proceed with an any alternative +offering, whether registered or unregistered, of our equity securities or a reverse merger during the Engagement Period. + + + +Upon +the closing of an offering or if an offering is not consummated before the Engagement Period, we have also agreed to pay Dawson a tail +fee equal to the compensation equivalent for this offering, if any investor, who was brought over-the-wall or introduced to us by Dawson +during the term of its engagement, provides us with capital in any financing of equity, equity-linked or debt or other capital raising +transaction during the 12 month period following the closing of an offering or the expiration or termination of our engagement of Dawson. + + + + -138- + + Table of Contents + + + + + +Right +of First Refusal + + + +We +have granted a right of first refusal to Dawson pursuant to which it has the right to act as the sole managing underwriter and sole book +runner, sole placement agent, or sole sales agent, for any and all future public or private equity, equity-linked or debt (excluding +commercial bank debt) offerings of the Company, or any successor to or any subsidiary of the Company, at any time prior to the 12 month +anniversary of the closing date of this offering. In accordance with FINRA Rule 5110(g)(6)(A), such right of first refusal shall not +have a duration of more than three years from the commencement of sales of this offering. Additionally, in accordance with FINRA Rule +5110(g)(5)(B), such right of first refusal shall automatically terminate in the event the letter of engagement is terminated for cause. + + + +Other +Relationships + + + +Dawson +has served as our placement agent for the Bridge Offering and the Uplist PIPE. In connection with the Bridge Offering, the Company paid +Dawson a cash fee equal to 8.0% of the aggregate gross proceeds of the Bridge Offering, which was $193,977, and reimbursement of expenses +of $50,000. Additionally, on September 7, 2023 the Company issued to Dawson, or its designees, the Placement Agent Warrants to purchase +an aggregate of 55,242 shares of Common Stock. The Placement Agent Warrants are exercisable at any time and from time to time, in whole +or in part, until September 7, 2028, at a price per share equal to $2.20 (which will increase to $5.15625 at the closing of the Uplist +Transaction, representing 125% of the assumed price per share of Common Stock in the Uplist Transaction, as required by FINRA). The Company +will pay Dawson a cash fee equal to 8.0% of the aggregate gross proceeds of the Uplist PIPE (expected to be $472,000), will reimburse +DJ for legal and other expenses of up to $150,000 and will issue to Dawson, or its designees, the PIPE Placement Agent Warrants to purchase +an aggregate of 71,533 shares of Common Stock. The PIPE Placement Agent Warrants will be exercisable at any time and from time +to time, in whole or in part, during the five-year period commencing upon issuance, at a price per share equal to $5.15625 (which is +125% of the price per Unit sold in this offering). + + + +The +above warrants and the underlying shares may be deemed to be compensation by FINRA, and therefore will be subject to FINRA Rule 5110(e)(1). +In accordance with FINRA Rule 5110(e)(1), neither the warrants nor any of our shares of common stock issued upon exercise of the warrants +may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction +that would result in the effective economic disposition of such securities by any person, for a period of 180 days immediately following +the commencement date of sales in this offering, subject to certain exceptions. In addition, the foregoing warrants may not be exercised +more than five years from the date of commencement of sales in this offering. + + + +The +underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings +in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions +for these transactions. + + + +Cboe +Listing + + + +Our +shares of Common Stock are quoted on the OTCQB under the symbol ARTH and there is no established public trading market +for the Investor Warrants. We have applied to list our Common Stock and Investor Warrants on Cboe under the symbol ARTH +and ARTHW , respectively. There is no assurance, however, that our Common Stock or Investor Warrants will ever be listed +on Cboe or an Alternate Exchange. We will not consummate this offering unless our Common Stock is approved for listing on Cboe +or an Alternate Exchange. + + + +Price +Stabilization, Short Positions + + + +In +connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our +shares of Common Stock during and after this offering, including: + + + + + + stabilizing + transactions; + + + + + + + + short + sales; + + + + + + + + purchases + to cover positions created by short sales; + + + + + + + + imposition + of penalty bids; and + + + + + + + + syndicate + covering transactions. + + + + +Stabilizing +transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our shares +of Common Stock while this offering is in progress. Stabilization transactions permit bids to purchase the underlying security so long +as the stabilizing bids do not exceed a specified maximum. These transactions may also include making short sales of our shares of Common +Stock, which involve the sale by the underwriters of a greater number of shares of Common Stock than they are required to purchase in +this offering and purchasing shares of Common Stock on the open market to cover short positions created by short sales. Short sales may +be covered short sales, which are short positions in an amount not greater than the underwriters option to purchase +additional shares referred to above, or may be naked short sales, which are short positions in excess of that amount. + + + + -139- + + Table of Contents + + + + + +The +underwriters may close out any covered short position by either exercising their option, in whole or in part, or by purchasing shares +in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for +purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. + + + +Naked +short sales are short sales made in excess of the over-allotment option. The underwriters must close out any naked short position by +purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there +may be downward pressure on the price of the shares of Common Stock in the open market that could adversely affect investors who purchased +in this offering. + + + +The +underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting +discount received by it because the Representative has repurchased shares sold by or for the account of that underwriter in stabilizing +or short covering transactions. + + + +These +stabilizing transactions, short sales, purchases to cover positions created by short sales, the imposition of penalty bids and syndicate +covering transactions may have the effect of raising or maintaining the market price of our Common Stock or preventing or retarding a +decline in the market price of our Common Stock. As a result of these activities, the price of our Common Stock may be higher than the +price that otherwise might exist in the open market. The underwriters may carry out these transactions on Cboe, in the over-the-counter +market or otherwise. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described +above may have on the price of the shares. Neither we, nor the underwriters make any representation that the underwriters will engage +in these stabilization transactions or that any transaction, once commenced, will not be discontinued without notice. + + + +Determination +of Offering Price + + + +The +public offering price for our securities in this offering will be determined by negotiation among us and the Representative. The principal +factors to be considered in determining the public offering price include: + + + + + + the + information set forth in this prospectus and otherwise available to the Representative; + + + + + + + + our + history and prospects and the history and prospects for the industry in which we compete; + + + + + + + + our + past and present financial performance; + + + + + + + + our + prospects for future earnings and the present state of our development; + + + + + + + + the + general condition of the securities market at the time of this offering; + + + + + + + + the + recent market prices of, and demand for, publicly traded shares of generally comparable companies; and + + + + + + + + other + factors deemed relevant by the Representative and us. + + + + +The +estimated public offering price set forth on the cover page of this prospectus and throughout this prospectus is subject to change as +a result of market conditions and other factors. We offer no assurances that the public offering price will correspond to the price at +which our securities will trade on Cboe or an Alternate Exchange subsequent to this offering. Neither we nor the underwriters +can assure investors that an active trading market will develop for our shares of Common Stock or that the shares of Common Stock will +trade in the public market at or above the public offering price. + + + + -140- + + Table of Contents + + + + + +Affiliations + + + +The +underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include +securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, +hedging, financing and brokerage activities. The underwriters and their affiliates may from time to time in the future engage with us +and perform services for us or in the ordinary course of their business for which they will receive customary fees and expenses. In the +ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array +of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including +bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve +securities and/or instruments of ours. The underwriters and their respective affiliates may also make investment recommendations and/or +publish or express independent research views in respect of these securities or instruments and may at any time hold, or recommend to +clients that they acquire, long and/or short positions in these securities and instruments. + + + +Electronic +Distribution + + + +A +prospectus in electronic format may be made available on the Internet sites or through other online services maintained by the underwriters +participating in this offering, or by its affiliates. In those cases, prospective investors may view offering terms online and, depending +upon the particular underwriter, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate +a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by +the underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters +websites and any information contained in any other website maintained by the underwriters is not part of the prospectus or the registration +statement of which this prospectus forms a part, has not been approved and/or endorsed by us or each underwriter in its capacity as underwriter +and should not be relied upon by investors. + + + +Selling +Restrictions + + + +Canada. +The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, +as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are +permitted clients, as defined in National Instrument 31 103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. +Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements +of applicable securities laws. + + + +Securities +legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus +(including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by +the purchaser within the time limit prescribed by the securities legislation of the purchaser s province or territory. The purchaser +should refer to any applicable provisions of the securities legislation of the purchaser s province or territory for particulars +of these rights or consult with a legal advisor. + + + +Pursuant +to section 3A.3 of National Instrument 33 105 Underwriting Conflicts (NI 33 105), the underwriters are not required to comply +with the disclosure requirements of NI 33-105 regarding the underwriters conflicts of interest in connection with this offering. + + + +European +Economic Area. In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive +(each, a Relevant Member State ) an offer to the public of any securities may not be made in that Relevant Member +State, except that an offer to the public in that Relevant Member State of any securities may be made at any time under the following +exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State: + + + + + + to + any legal entity which is a qualified investor as defined in the Prospectus Directive; + + + + + + + + to + fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural + or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, + subject to obtaining the prior consent of the representatives for any such offer; or + + + + + + + + in + any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall + result in a requirement for the publication by us or the underwriters of a prospectus pursuant to Article 3 of the Prospectus Directive. + + + + + -141- + + Table of Contents + + + + + +For +the purposes of this provision, the expression an offer to the public in relation to any securities in any Relevant Member +State means the communication in any form and by any means of sufficient information on the terms of the offer and any securities to +be offered so as to enable an investor to decide to purchase any securities, as the same may be varied in that Member State by any measure +implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC +(and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes +any relevant implementing measure in the Relevant Member State, and the expression 2010 PD Amending Directive means Directive +2010/73/EU. + + + +United +Kingdom. The underwriters have represented and agreed that: + + + + + + they + have only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement + to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the FSMA)) received + by them in connection with the issue or sale of the securities in circumstances in which Section 21(1) of the FSMA does not apply + to us; and + + + + + + + + they + have complied and will comply with all applicable provisions of the FSMA with respect to anything done by them in relation to the + securities in, from or otherwise involving the United Kingdom. + + + + +Switzerland. +The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (the SIX) or on any other +stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards +for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses +under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. +Neither this document nor any other offering or marketing material relating to the securities or the offering may be publicly distributed +or otherwise made publicly available in Switzerland. + + + +Neither +this document nor any other offering or marketing material relating to the offering, or the securities have been or will be filed with +or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will +not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of securities has not been and will not be +authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). Accordingly, no public distribution, offering or advertising, +as defined in CISA, its implementing ordinances and notices, and no distribution to any non-qualified investor, as defined in CISA, its +implementing ordinances and notices, shall be undertaken in or from Switzerland, and the investor protection afforded to acquirers of +interests in collective investment schemes under CISA does not extend to acquirers of securities. + + + +Australia. +No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities +and Investments Commission (ASIC), in relation to the offering. + + + +This +prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 +(the Corporations Act) and does not purport to include the information required for a prospectus, product disclosure statement or other +disclosure document under the Corporations Act. + + + +Any +offer in Australia of the securities may only be made to persons (the Exempt Investors) who are sophisticated investors +(within the meaning of section 708(8) of the Corporations Act), professional investors (within the meaning of section 708(11) +of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it +is lawful to offer the securities without disclosure to investors under Chapter 6D of the Corporations Act. + + + +The +securities applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the +date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act +would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant +to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring securities must observe such Australian +on-sale restrictions. + + + +This +prospectus contains general information only and does not take account of the investment objectives, financial situation or particular +needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment +decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, +and, if necessary, seek expert advice on those matters. + + + + -142- + + Table of Contents + + + + + +Notice +to Prospective Investors in the Cayman Islands. No invitation, whether directly or indirectly, may be made to the public in the +Cayman Islands to subscribe for our securities. + + + +Taiwan. +The securities have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant securities +laws and regulations and may not be sold, issued or offered within Taiwan through a public offering or in circumstances which constitutes +an offer within the meaning of the Securities and Exchange Act of Taiwan that requires a registration or approval of the Financial Supervisory +Commission of Taiwan. No person or entity in Taiwan has been authorized to offer, sell, give advice regarding or otherwise intermediate +the offering and sale of the securities in Taiwan. + + + +Notice +to Prospective Investors in Hong Kong. The contents of this prospectus have not been reviewed by any regulatory authority in +Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this prospectus, +you should obtain independent professional advice. Please note that (i) our shares may not be offered or sold in Hong Kong, by means +of this prospectus or any document other than to professional investors within the meaning of Part I of Schedule 1 of the +Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) (SFO) and any rules made thereunder, or in other circumstances which do +not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong) +(CO) or which do not constitute an offer or invitation to the public for the purpose of the CO or the SFO, and (ii) no advertisement, +invitation or document relating to our shares may be issued or may be in the possession of any person for the purpose of issue (in each +case whether in Hong Kong or elsewhere) which is directed at, or the contents of which are likely to be accessed or read by, the public +in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the shares which are or +are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of +the SFO and any rules made thereunder. + + + +Notice +to Prospective Investors in the People s Republic of China. This prospectus may not be circulated or distributed +in the PRC and the shares may not be offered or sold, and we will not offer or sell, to any person for re-offering or resale directly +or indirectly to any resident of the PRC, except pursuant to applicable laws, rules and regulations of the PRC. For the purpose of this +paragraph only, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau. + + + + -143- + + Table of Contents + + + + + +LEGAL +MATTERS + + + +Lowenstein +Sandler LLP, Roseland, New Jersey, is acting as counsel in connection with the registration of our securities under the Securities Act. +The validity of the securities being offered hereby has been passed upon for us by McDonald Carano LLP, Reno, Nevada. ArentFox Schiff +LLP, Washington, D.C, advised the underwriters in connection with the offering of the securities. + + + +EXPERTS + + + +Weinberg +& Company, P.A., an independent registered public accounting firm, has audited our consolidated financial statements as of and for +the year ended September 30, 2023, as stated in its report appearing herein, and such audited consolidated financial statements have +been so included in reliance upon the report of such firm given upon its authority as experts in accounting and auditing. The report +on the consolidated financial statements contains an explanatory paragraph regarding the Company s ability to continue as a going +concern. + + + +Baker +Tilly US, LLP, an independent registered public accounting firm, has audited our consolidated financial statements as of and for the +year ended September 30, 2022, as stated in its report appearing herein, and such audited consolidated financial statements have been +so included in reliance upon the report of such firm given upon its authority as experts in accounting and auditing. The report on the +consolidated financial statements contains an explanatory paragraph regarding the Company s ability to continue as a going concern. + + + +WHERE +YOU CAN FIND MORE INFORMATION + + + +We +file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains a website, at http://www.sec.gov, +that contains registration statements, reports, proxy statements and other information regarding registrants that file electronically +with the SEC, including us. Our website address is http://www.archtherapeutics.com. We have not incorporated by reference into +this prospectus the information on, or that can be accessed through, our website, and you should not consider it to be a part of this +document. You should not rely on any information on that website in making your decision to purchase shares of our Common Stock. + + + +We +have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities being offered by +this prospectus. This prospectus is part of that registration statement. This prospectus does not contain all of the information set +forth in the registration statement or the exhibits to the registration statement. For further information with respect to us and the +securities we are offering pursuant to this prospectus, you should refer to the registration statement and its exhibits. Statements contained +in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete, and you +should refer to the copy of that contract or other documents filed as an exhibit to the registration statement. You may read or obtain +a copy of the registration statement at the SEC s website referred to above. + + + + -144- + + Table of Contents + + + + + +Arch +Therapeutics, Inc. + + + +INDEX +TO CONSOLIDATED FINANCIAL STATEMENTS + + + + + Report of Independent Registered Public Accounting Firm (PCAOB ID 572) + F-2 + + + + + + + Report of Independent Registered Public Accounting Firm (PCAOB ID Number 23) + F-3 + + + + + + + Consolidated + Balance Sheets as of September 30, 2023 and 2022 + F-4 + + + + + + + Consolidated + Statements of Operations for the Years Ended September 30, 2023 and 2022 + F-5 + + + + + + + Consolidated + Statements of Changes in Stockholders Deficit for the Years Ended September 30, 2023 and 2022 + F-6 + + + + + + + Consolidated + Statements of Cash Flows for the Years Ended September 30, 2023 and 2022 + F-7 + + + + + + + Notes to Consolidated Financial Statements + F-8 + + + + + + + Condensed + Consolidated Balance Sheets as of March 31, 2024 (unaudited) and September 30, 2023 + F-25 + + + + + + + Condensed + Consolidated Statements of Operations for the Three and Six Months ended March 31, 2024 and March 31, 2023 + (unaudited) + F-26 + + + + + + + Condensed + Consolidated Statements of Changes in Stockholders Deficit for the Three and Six Months ended March 31, 2024 + and March 31, 2023 (unaudited) + F-27 + + + + + + + Condensed + Consolidated Statements of Cash Flows for the Six Months ended March 31, 2024 and March 31, 2023 + (unaudited) + F-28 + + + + + + + Notes + to Condensed Consolidated Financial Statements (unaudited) + F-29 + + + + + F-1 + + Table of Contents + + + + + +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM + + + +To +the Stockholders and Board of Directors of Arch Therapeutics, Inc. and Subsidiary + + + +Opinion +on the Financial Statements + + + +We +have audited the accompanying consolidated balance sheet of Arch Therapeutics, Inc. and Subsidiary (the Company) as of September +30, 2023, the related consolidated statements of operations, changes in stockholders deficit, and cash flows for the year then +ended, and the related notes (collectively referred to as the financial statements ). In our opinion, the financial statements +present fairly, in all material respects, the financial position of the Company as of September 30, 2023, and the results of its operations +and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. + + + +Going +Concern + + + +The +accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note +1 to the financial statements, during the year ended September 30, 2023, the Company incurred a net loss and utilized cash flows in operations, +and has had recurring losses since inception. These conditions raise substantial doubt about the Company s ability to continue +as a going concern. Management s plans in regards to these matters are also described in Note 1. The financial statements do not +include any adjustments that might result from the outcome of this uncertainty. + + + +Basis +for Opinion + + + +These +financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on the Company s +financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board +(United States) ( PCAOB ) and are required to be independent with respect to the Company in accordance with the U.S. federal +securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. + + + +We +conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company +is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, +we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion +on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. + + + +Our +audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or +fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding +the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant +estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides +a reasonable basis for our opinion. + + + +Critical +Audit Matter + + + +The +critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated +or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the +financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit +matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical +audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. + + + +Convertible +note transactions + + + +As +described in Note 7 to the financial statements, during the year ended September 30, 2023, the Company issued unsecured convertible +promissory notes totaling $1.3 million. In connection with the issuance of the convertible notes, the Company granted noteholders +shares of the Company s common stock, and warrants to acquire shares of the Company s common stock. The Company allocated +the proceeds received to the convertible notes, shares of common stock, and warrants based upon their relative fair value. The Company +used a Black Scholes model to determine the fair value of the warrants issued. + + + +We +identified the accounting for the issuance of the convertible notes, shares of common stock, and warrants as a critical audit matter +because of the significance of the account balances, and due to the complexity involved in assessing the classification and presentation +of the convertible notes and warrants. The auditing for these transactions required a high degree of audit judgement including evaluating +the reasonableness of the significant judgements made by management in determining the appropriate accounting. + + + +The +primary audit procedures we performed to address this critical audit matter included the following, among others: + + + + + + + + + We + read the convertible note and warrant agreements, and relevant documentation. + + + + + + + + + We + obtained the Company s analysis of the accounting of the convertible note and warrants + issued in accordance with relevant accounting standards. + + + + + + + + + We + evaluated the reasonableness of the Company s methodology for allocation of proceeds + including the Company s consideration of relevant accounting standards. + + + + + + + + + We + developed independent estimates for the relative fair value of the warrants and shares of + common stock issued based on the assumptions and data used by management. + + + + + + +We +have served as the Company s auditor since 2024. + + + +/s/ +Weinberg & Company, P.A. + +Los +Angeles, California + +February +14, 2024 + + + + F-2 + + Table of Contents + + + + + +Report +of Independent Registered Public Accounting Firm + + + +To +the Board of Directors and Shareholders of Arch Therapeutics Inc. and Subsidiary + + + +Opinion +on the Financial Statements + + + +We +have audited the accompanying consolidated balance sheet of Arch Therapeutics, Inc. and Subsidiary (the Company ) as of +September 30, 2022, the related consolidated statements of operations, changes in stockholders deficit, and cash flows for the +year ended September 30, 2022, and the related notes (collectively referred to as the consolidated financial statements ). +In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company +as of September 30, 2022, and the results of its operations and its cash flows for the year ended September 30, 2022, in conformity with +accounting principles generally accepted in the United States of America. + + + +Basis +for Opinion + + + +These +consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion +on the Company s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public +Company Accounting Oversight Board (United States) ( PCAOB ) and are required to be independent with respect to the Company +in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission +and the PCAOB. + + + +We +conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. +The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part +of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing +an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. + + + +Our +audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due +to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence +regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles +used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. +We believe that our audit provides a reasonable basis for our opinion. + + + + + /s/ Baker + Tilly US, LLP + + + + + + + + + We + served as the Company s auditor from 2013 to 2024. + + + + + + + + + Tewksbury, + Massachusetts + + December + 28, 2022, except for the effects of the reverse share split described in Note 2, + + as + to which the date is January 23, 2023 + + + + + + + F-3 + + Table of Contents + + + + + +Arch +Therapeutics, Inc. and Subsidiary + +Consolidated +Balance Sheets + +As +of September 30, 2023 and 2022 + + + + + + September 30, + September 30, + + + + 2023 + 2022 + + + ASSETS + + + + + Current assets: + + + + + Cash + $222,720 + $746,940 + + + Inventory + 1,364,504 + 1,414,848 + + + Prepaid expenses and other current assets + 362,866 + 436,407 + + + Total current assets + 1,950,090 + 2,598,195 + + + + + + + + Long-term assets: + + + + + Property and equipment, net + 4,599 + 2,044 + + + Other assets + 3,500 + 3,500 + + + Total long-term assets + 8,099 + 5,544 + + + + + + + + Total assets + $1,958,189 + $2,603,739 + + + + + + + + LIABILITIES AND STOCKHOLDERS DEFICIT + + + + + Current liabilities: + + + + + Accounts payable + $2,304,207 + $1,328,000 + + + Shareholders advances related to bridge financing + - + - + + Accrued expenses and other liabilities + 467,496 + 318,505 + + + Insurance premium financing + 243,285 + 247,933 + + + Convertible notes payable, senior secured, current portion, net of discount + 3,519,103 + + + + Convertible notes payable, unsecured, current portion, net of discount + 1,658,702 + + + + Convertible notes payable, Series 2, unsecured, current portion + 450,000 + 550,000 + + + Current portion of + convertible note + 450,000 + 550,000 + + Accrued interest, current portion + 823,128 + 127,781 + + + Derivative liability, current portion + + 748,275 + + + Total current liabilities + 9,465,921 + 3,320,494 + + + + + + + + Long-term liabilities: + + + + + Convertible notes payable, senior secured, net of discount + + 1,662,492 + + + Convertible notes payable, unsecured, long-term + + 699,781 + + + Convertible notes payable, Series 2, unsecured, long-term + + 450,000 + + Noncurrent portion of convertible + note + + 450,000 + + Accrued interest, long-term + + 204,575 + + + Derivative liability, long-term + + 459,200 + + + Total long-term liabilities + + 3,476,048 + + + + + + + + Total liabilities + 9,465,921 + 6,796,542 + + + + + + + + Commitments and contingencies + - + - + + + + + + + + Stockholders deficit: + + + + + Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding as of September 30, 2023 and 2022 + + + + + Preferred stock + + + + + Common stock, $0.001 par value, 350,000,000 and 4,000,000 shares authorized as of September 30, 2023 and 2022, 4,689,446 and + 1,252,734 shares issued and outstanding as of September 30, 2023 and 2022 + 4,689 + 1,252 + + + Common stock + 4,689 + 1,252 + + + Additional paid-in capital + 54,543,188 + 50,878,718 + + + Accumulated deficit + (62,055,609) + (55,072,773) + + + Total stockholders deficit + (7,507,732) + (4,192,803) + + + + + + + + Total liabilities and stockholders deficit + $1,958,189 + $2,603,739 + + + + + +The +accompanying notes are an integral part of these consolidated financial statements. + + + + F-4 + + Table of Contents + + + + + +Arch +Therapeutics, Inc. and Subsidiary + +Consolidated +Statements of Operations + +For +the Years Ended September 30, 2023 and 2022 + + + + + + Fiscal Year + Fiscal Year + + + + Ended + Ended + + + + September 30, + September 30, + + + + 2023 + 2022 + + + + + + + + Revenue + $75,724 + $15,652 + + + + + + + + Operating expenses: + + + + + Cost of revenues + 78,163 + 51,489 + + + Selling, general and administrative expenses + 4,371,164 + 4,519,636 + + + Research and development expenses + 670,880 + 1,153,333 + + + Total costs and expenses + 5,120,207 + 5,724,458 + + + + + + + Loss from operations + (5,044,483) + (5,708,806) + + + + + + + + Other income (expense): + + + + + Interest expense + (3,096,550) + (567,048) + + + Change in fair value of derivative liability + 1,158,197 + 1,000,000 + + + Gain on extinguishment of derivative liabilities + - + - + + Total other expense, net + (1,938,353) + 432,952 + + + + + + + + Net loss + $(6,982,836) + $(5,275,854) + + + + + + + + Loss per share - basic and diluted + + + + + Net loss per common share - basic and diluted + $(2.27) + $(4.40) + + + Weighted common shares - basic and diluted + 3,074,115 + 1,199,575 + + + + + +The +accompanying notes are an integral part of these consolidated financial statements. + + + + F-5 + + Table of Contents + + + + + +Arch +Therapeutics, Inc. and Subsidiary + +Consolidated +Statements of Changes in Stockholders Deficit + +For +the Years Ended September 30, 2023 and 2022 + + + + + + + + + + + + + + Fiscal Year Ended + Preferred Stock + Common Stock + Additional Paid-in + Accumulated + Total Stockholders + + + September 30, 2023 + Shares + Amount + Shares + Amount + Capital + Deficit + Deficit + + + + + + + + + + + + + Balance at September 30, 2022 + + $ + 1,252,734 + $1,252 + $50,878,718 + $(55,072,773) + $(4,192,803) + + + + + + + + + + + + + Net loss + + + + + + (6,982,836) + (6,982,836) + + + + + + + + + + + + + Issuance of common stock and warrants for cash, net + + + 3,344,321 + 3,345 + 2,206,495 + + 2,209,840 + + + + + + + + + + + + + Issuance of common stock upon conversion of convertible notes + + + 59,912 + 60 + 718,858 + + 718,918 + + + + + + + + + + + + + Issuance of common stock and warrants with convertible notes + + + 20,210 + 20 + 440,297 + + 440,317 + + + + + + + + + + + + + Exchange of warrants into common stock + + + 12,019 + 12 + 49,265 + + 49,277 + + + + + + + + + + + + + Stock-based compensation expense + + + 250 + + 249,555 + + 249,555 + + + + + + + + + + + + + Balance at September 30, 2023 + + $ + 4,689,446 + $4,689 + $ 54,543,188 + $(62,055,609) + $(7,507,732) + + + + + + + Fiscal Year Ended + Preferred Stock + Common Stock + Additional Paid-in + Accumulated + Total Stockholders + + + September 30, 2022 + Shares + Amount + Shares + Amount + Capital + Deficit + Deficit + + + + + + + + + + + + + Balance at September 30, 2021 + + $ + 1,186,901 + $1,186 + $48,770,059 + $(49,796,919) + $(1,025,674) + + Balance + + $ + 1,186,901 + $1,186 + $48,770,059 + $(49,796,919) + $(1,025,674) + + + + + + + + + + + + Net loss + + + + + + (5,275,854) + (5,275,854) + + + + + + + + + + + + + Issuance of common stock and warrants, net of financing costs + + + 63,833 + 64 + 1,609,077 + + 1,609,141 + + + + + + + + + + + + + Vesting of restricted stock issued + + + 2,000 + 2 + (2) + + + + + + + + + + + + + + + Stock-based compensation expense + + + + + 499,584 + + 499,584 + + + + + + + + + + + + + Balance at September 30, 2022 + + $ + 1,252,734 + $1,252 + $ 50,878,718 + $(55,072,773) + $(4,192,803) + + Balance + + $ + 1,252,734 + $1,252 + $ 50,878,718 + $(55,072,773) + $(4,192,803) + + + +The +accompanying notes are an integral part of these consolidated financial statements. + + + + F-6 + + Table of Contents + + + + + +Arch +Therapeutics, Inc. and Subsidiary + +Consolidated +Statements of Cash Flows + +For +the Years Ended September 30, 2023 and 2022 + + + + + + Fiscal Year + Fiscal Year + + + + Ended + Ended + + + + September 30, + September 30, + + + + 2023 + 2022 + + + Cash flows from operating activities: + + + + + Net loss + $(6,982,836) + $(5,275,854) + + + Adjustments to reconcile net loss to cash used in operating activities: + + + + + Depreciation + 1,966 + 3,196 + + + Stock-based compensation + 249,555 + 499,583 + + + Change in fair value of derivative liability + (1,158,197) + (1,000,000) + + + Inventory obsolescence charge + + 248,073 + + + Amortization of debt discount + 2,310,860 + 302,049 + + + Gain on extinguishment of derivative liabilities + - + + + + Accretion of discount and debt issuance costs on convertible notes payable + - + + + + Changes in operating assets and liabilities: + + + + + (Increase) decrease in: + + + + + Inventory + 50,344 + (569,156) + + + Prepaid expenses and other current assets + 421,091 + 225,124 + + + Increase (decrease) in: + + + + + Accounts payable + 976,207 + 846,869 + + + Accrued interest + 659,690 + 265,000 + + + Accrued expenses and other liabilities + 97,104 + (959) + + + Net cash used in operating activities + (3,374,216) + (4,456,075) + + + + + + + + Cash flows from investing activities: + + + + + Purchases of property and equipment + (4,521) + + + + Net cash used in investing activities + (4,521) + + + + + + + + + Cash flows from financing activities: + + + + + Repayment of insurance premium financing + (350,322) + (106,257) + + + Proceeds received from senior secured convertible notes, net of financing costs + + 3,042,633 + + + Proceeds from unsecured convertible notes + 995,000 + + + + Shareholder advances related to bridge financing + + + + + Proceeds from issued common stock and warrants, net of + financing costs + 2,209,839 + + + + Net cash provided by financing activities + 2,854,517 + 2,936,376 + + + + + + + + Net (decrease) increase in cash + (524,220) + (1,519,699) + + + + + + + + Cash, beginning of year + 746,940 + 2,266,639 + + + + + + + + Cash, end of year + $222,720 + $746,940 + + + + + + + + Non-cash financing activities: + + + + + Financing of insurance premium + $347,550 + $354,190 + + + Issuance of restricted stock + $ + $8,959 + + + Fair value of 2022 Warrants issued + $ + $1,470,133 + + + Fair value of 2022 Inducement Shares issued + $ + $314,523 + + + Relative fair value of common stock and warrants issued with notes payable + $1,159,247 + $ + + + Fair value of commons stock issued for warrants + $49,277 + $ + + + Exchange of Series G and Series H warrants for common + stock + $ + $ + + Relative fair value of warrants issued fourth + close + $ + $ + + Exchange of Series 2 Convertible Notes into Senior Secured + Notes (See Note 6) + $ + $699,781 + + + Issuance of restricted stock in consideration for services performed + $ + $30,840 + + + Fair Value of 2022 Placement Agent Warrants (see Note 6) + $ + 219,894 + + + Unpaid issuance costs in accounts payable + $110,576 + $73,048 + + + Exchange of Senior Secured and Series 2 Convertible + notes and accrued interest into common stock + $606,239 + $- + + Conversion of convertible notes and accrued interest + to common stock, net + $606,239 + $- + + Fair value of warrants issued - second close + $- + $256,439 + + Fair value of inducement shares issued - second close + $- + $25,840 + + Fair value of placement agent warrants - second close + $- + $28,093 + + + +The +accompanying notes are an integral part of these consolidated financial statements. + + + + F-7 + + Table of Contents + + + + + +Arch +Therapeutics, Inc. and Subsidiary + +Notes +to the Consolidated Financial Statements + +For +the Years Ended September 30, 2023 and 2022 + + + +1. DESCRIPTION OF BUSINESS + + + +Arch +Therapeutics, Inc. (together with its subsidiary, the Company or Arch ) is a biotechnology company developing +and marketing a products based on our innovative AC5 self-assembling technology platform. Arch is the result of the merger (the + Merger ) of three entities on June 26, 2013, previously known as Arch Biosurgery, Inc., Almah, Inc., and Arch Acquisition +Corporation, respectively. + + + +Arch +Biosurgery, Inc. (ABS) is a biotechnology company that was incorporated under the laws of the Commonwealth of Massachusetts on March +6, 2006 as Clear Nano Solutions, Inc., and changed its name from Clear Nano Solutions, Inc. to Arch Therapeutics, Inc. on April 7, 2008, +and, as part of the Merger transaction, changed its name from Arch Therapeutics, Inc. to Arch Biosurgery. + + + +Almah, +Inc., was incorporated under the laws of the State of Nevada on September 16, 2009 and, as part of the Merger transaction, changed its +name to Arch Therapeutics, Inc. and abandoned both its prior business plan and operations in order to adopt those of ABS. + + + +Arch +Acquisition Corporation, or Merger Sub, was a wholly owned subsidiary of Almah, Inc., formed for the purpose of the Merger transaction, +pursuant to which Merger Sub merged with and into ABS, and ABS thereafter became the wholly owned subsidiary of the Company. The ticker +symbol under which its Common Stock trades changed from AACH to ARTH , accordingly. + + + +The +Company s principal offices are located in Framingham, Massachusetts. + + + +We +believe these that our products can be important advances in the field of stasis and barrier applications, which includes managing wounds +created during surgery, trauma or interventional care, or from disease; stopping bleeding (hemostasis); and controlling leaking (sealant). +We have recently devoted a substantial part of our operational effort to the market adoption and commercial sales of AC5 Advanced Wound +System, our first product. Our goal is to make care faster and safer for patients by providing products for use on external wounds, which +we refer to as Dermal Sciences applications, and products for use inside the body, which we refer to as BioSurgery applications. + + + + F-8 + + Table of Contents + + + + + +Going +Concern + + + +The +accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement +of liabilities and commitments in the normal course of business. The Company has not yet generated sufficient revenues to fund operations +and relies on issuance of debt and equity instruments to generate working capital. As reflected in the accompanying financial statements, +for the year ended September 30, 2023, the Company recorded a net loss of $6,982,836 and used cash in operations of $3,374,216. These +factors raise substantial doubt about the Company s ability to continue as a going concern within one year of the date that the +financial statements are issued. The financial statements do not include any adjustments that might be necessary if the Company is unable +to continue as a going concern. + + + +In +evaluating the going concern position of the Company, management has considered potential funding providers and believes that financing +to fund future operations could be provided by equity and/or debt financing. Even if the Company is able to obtain additional financing, +it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, +in the case of equity financing. + + + +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES + + + +The +accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted +in the United States of America ( US GAAP ). + + + +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. + + + +On +January 6, 2023, the directors of the Company authorized a reverse share split of the issued and outstanding Common Shares in a ratio +of 1:200, effective January 17, 2023 (the Reverse Share Split ). All information included in these consolidated financial +statements has been adjusted, on a retrospective basis, to reflect the Reverse Share Split, unless otherwise stated. All outstanding +securities entitling their holders to purchase shares of Common Stock or acquire shares of Common Stock, including stock options, restricted +stock units, and warrants, were adjusted as a result of the Reverse Stock Split, as required by the terms of those securities. + + + +In +accordance with the Segment Reporting Topic of the Accounting Standards Codification, the Company s chief operating +decision maker (the Company s President and Chief Executive Officer) determined that the Company has only one reporting unit. + + + +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. Significant estimates include the assumptions used in the accrual for potential liabilities, the net realizable value of inventory, +the valuation of debt and equity instruments, the fair value of derivative liabilities, valuation of equity instruments issued for services, +and deferred tax valuation allowances. Actual results could differ from those estimates. + + + + F-9 + + Table of Contents + + + + + +Revenue +recognition + + + +In +accordance with Financial Accounting Standard Board s ( FASB ) Accounting Standards Codification ( ASC ) +Topic 606, Revenue from Contracts with Customers, the Company recognizes revenue through a five-step process: (i) identify the +contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate +the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) a performance obligation +is satisfied. + + + +The +Company s source of revenue is product sales. Contracts with customers contain a single performance obligation and the Company +recognizes revenue upon shipment from the Company s third-party warehouse which is when control of the product is transferred to +the customers. In circumstances where the transaction price is not able to be determined at the time of shipment, the Company does not +recognize revenue or any receivable amount until such time that the final transaction price is established and shipped to customer. + + + +Cost +of Revenues + + + +Cost +of revenues includes product costs, warehousing, overhead allocation and royalty expenses. + + + +Cash +and Cash Equivalents + + + +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 September 30, 2023 and 2022. + + + +Inventories + + + +Inventories +are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out ( FIFO ) basis. 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 Company records adjustments to its inventory for estimated obsolescence or +diminution in net realizable value equal to the difference between the cost of the inventory and the estimated net realizable value. +When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in the +period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not subsequently +written up. For the year ended September 30, 2023 there was no write-downs of inventories. For the year ended September 30, 2022, the +Company recorded write-down of inventories of $248,073. + + + +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 +FASB ASC Topic 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. For the years ended September 30, 2023 and 2022 there has not been any impairment of long-lived assets. + + + + F-10 + + Table of Contents + + + + + +Leases + + + +The +Company determines whether a contract is, or contains, a lease at inception. Operating lease right-of-use ( ROU ) +assets and liabilities are recognized at lease commencement based on the present value of unpaid lease payments over the lease term. +As our lease does not provide an implicit interest rate, the Company used 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. + + + +The +Company leases its office facility on a month to month basis with a monthly lease of approximately $3,500. The terms of the lease provide +break options allowing both landlord and tenant to terminate on provision of not less than one month s prior written notice. + + + +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 ( ASC 815 ). +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. + + + +Complex +Financial Instruments + + + +The +Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates +its financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded +derivatives. The Company values its derivatives using the Black-Scholes option-pricing model or other acceptable valuation models, including +Monte-Carlo simulations. Derivative instruments are valued at inception, upon events such as an exercise of the underlying financial +instrument, and at subsequent reporting periods. The classification of derivative instruments, including whether such instruments should +be recorded as liabilities, is re-assessed at the end of each reporting period. The Company reviews the terms of debt instruments, equity +instruments, and other financing arrangements to determine whether there are embedded derivative features, including embedded conversion +options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Additionally, in connection +with the issuance of financing instruments, the Company may issue freestanding options and warrants, including options or warrants to +non-employees in exchange for consulting or other services performed. + + + +The +Company accounts for its common stock warrants in accordance with Accounting Standards Codification ( ASC ) 815, Derivatives +and Hedging ( ASC 815 ). Based upon the provisions of ASC 815, the Company accounts for common stock warrants as liabilities +if the warrant requires net cash settlement or gives the holder the option of net cash settlement, or it fails the equity classification +criteria. The Company accounts for common stock warrants as equity if the contract requires physical settlement or net physical settlement +or if the Company has the option of physical settlement or net physical settlement and the warrants meet the requirements to be classified +as equity. Common stock warrants classified as liabilities are initially recorded at fair value on the grant date and remeasured at fair +value each balance sheet date with the offset adjustments recorded in change in fair value of warrant liability within the consolidated +statements of operations. Common stock warrants classified as equity are initially measured at fair value on the grant date and are not +subsequently remeasured. + + + + F-11 + + Table of Contents + + + + + +Income +Taxes + + + +In +accordance with FASB ASC Topic 740, Income Taxes ( ASC 740 ), the Company recognizes 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. + + + +The +Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions when management +determines that it is more likely than not 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. + + + +Stock-Based +Compensation + + + +The +Company accounts for stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation-Stock Compensation +( ASC 718 ), which requires all share-based payments be recognized in the consolidated financial statements based +on their fair values. In accordance with ASC 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. +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. +Stock-based compensation expense, when recognized in the consolidated financial statements, is based on awards that are ultimately expected +to vest. + + + +Loss +per Common Share + + + +Basic +earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number +of shares of common stock outstanding during the year, excluding shares of unvested restricted common stock. Shares of restricted stock +are included in the basic weighted average number of common shares outstanding from the time they vest. Diluted earnings (loss) per share +is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding +plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, +using the treasury stock method. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding +from the date they are granted. Potential common shares are excluded from the computation when their effect is antidilutive. + + + + F-12 + + Table of Contents + + + + + +For +the years ended September 30, 2023 and 2022, the calculations of basic and diluted loss per share are the same because potential dilutive +securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following: + + SCHEDULE +OF BASIC AND DILUTED LOSS PER SHARE POTENTIAL DILUTIVE SECURITIES + + + + September + 30, + 2023 + + September + 30, + 2022 + + + + + + + + + Stock Options + 102,125 + 98,626 + + + Stock Warrants + 26,284,002 + 806,452 + + + Convertible notes payable + 738,763 + 652,202 + + + Unvested restricted common stock + - + 250 + + + Total + 27,124,890 + 1,557,530 + + + + + +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 +September 30, 2023 and 2022, the carrying amounts of cash, accounts payables and accrued expense and other liabilities approximate fair +value because of their short-term nature. The carrying amounts for the Company s convertible notes (see Notes 6,7, and 8) approximate +fair value because borrowing rates and terms are similar to comparable market participants. + + + +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. During the year ended September 30, 2023, the Company reclassified the carrying +amount of Exchange Notes of $699,781 (see Notes 7 and 8) that were previously included in the Convertible Notes Payable, Senior Secured +to Convertible notes payable, unsecured. + + + +Recent +Accounting Pronouncements + + + +In +May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt Modifications and Extinguishments (Subtopic 470-50), Compensation + Stock Compensation (Topic 718), and Derivatives and Hedging Contracts in Entity s Own Equity (Subtopic 815-40): Issuer s +Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options ( ASU 2021-04 ). +ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding +equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the +original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between +the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and +then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category +(equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). +ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those +fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or +after the effective date. The Company adopted ASU 2021-04 effective October 1, 2022. The adoption of ASU 2021-04 did not have any impact +on the Company s consolidated financial statement presentation or disclosures. + + + + F-13 + + Table of Contents + + + + + +Other +recent accounting pronouncements and guidance issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified +Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on +the Company s present or future financial statements. + + + +3. INVENTORIES + + + +Inventories +consist of the following: + + SCHEDULE OF INVENTORIES + + + + September 30, + September 30, + + + + 2023 + 2022 + + + Finished Goods + $40,969 + $9,063 + + + Goods-in-process + 1,323,535 + 1,405,785 + + + Total + $1,364,504 + $1,414,848 + + + + + +4. INSURANCE PREMIUM FINANCING + + + +During +July 2023 and 2022, the Company entered into a financing agreement with First Insurance Funding to fund a portion of its insurance policies. +As part of the agreement, First Insurance Funding agreed to finance the insurance policies of the Company of approximately $395,000 and +$354,000, respectively and with an average interest rate per annum of 8.7% and 2.99%, respectively. The Company is required to make monthly +payments of approximately $35,000 through April 2024. + + + +The +outstanding balance as of September 30, 2023 and 2022 was $243,285 and $247,933, respectively. + + + +5. DERIVATIVE LIABILITIES + + WARRANT DERIVATIVE LIABILITY + +In +June 2018 and May 2019, the Company issued its Series F Warrants, Series G Warrants, and Series H Warrants. Pursuant to the terms of +the respective warrant agreements, the Company was required to purchase its Series F Warrants, Series G Warrants and Series H Warrants +for an amount of cash equal to $36.00, $22.00 and $10.66, respectively, (the Minimum Value ). As a result, the Company +accounted for the Series F Warrants, Series G Warrants and the Series H Warrants in accordance with ASC 815-10 and were recorded as liabilities +at the greater of the Minimum Value or fair value. These warrants were marked to fair value each reporting period using the Black Scholes +Model and the corresponding change in the fair value of the warrants were reported in the Consolidated Statement of Operations. + + + +As +of September 30, 2021, the estimated fair value of the derivative liabilities was $2,207,475. During the year ended September 30, 2022, +certain Series F and Series H warrants expired unexercised. As a result, the Company recognized a gain of $1,000,000 to account the expiration +of the corresponding derivative liability. As of September 30, 2022, the estimated fair value of the derivative liabilities was $1,207,475. + + + +On +March 10, 2023, the Company entered into exchange agreements with the holders of the Series G Warrants and the Series H Warrants. Pursuant +to the exchange agreements, the warrant holders exchanged 34,013 Series G Warrants for 3,402 shares of Common Stock and 43,077 Series H Warrants +for 8,617 shares of Common Stock. As a result, the Company recorded $49,277 to account the fair value of the common stock issued and +recorded a change in fair value of $1,158,197 to account for extinguishment of the corresponding derivative liability. As of September +30, 2023, there are no instruments accounted as derivative liability. + + + + F-14 + + Table of Contents + + + + + +Fair +Value Measurements Using Significant Unobservable Inputs - Year Ended September 30, 2023 + + SCHEDULE OF FAIR VALUE +MEASUREMENTS + +(Level +3) + + + + + + Series G + Series H + Total + + + Beginning balance at September 30, 2022 + $748,275 + $459,200 + $1,207,475 + + + Exchange of warrants into common stock + (13,947) + (35,330) + (49,277) + + + Extinguishment of derivative liabilities + (734,328) + (423,870) + (1,158,197) + + + Ending balance at September 30, 2023 + $ + $ + $ + + + + + +Fair +Value Measurements Using Significant Unobservable Inputs - Year Ended September 30, 2022 + + + +(Level +3) + + + + + + Series F + Series G + Series H + + + Beginning balance at September 30, 2021 + $1,000,000 + $748,275 + $459,200 + + + Beginning balance + $1,000,000 + $748,275 + $459,200 + + Expiration of derivative liability + (1,000,000) + + + + + Ending balance at September 30, 2022 + $ + $748,275 + $459,200 + + + Ending balance + $ + $748,275 + $459,200 + + + +As +of March 10, 2023 and September 30, 2022, the derivative liabilities were valued at the greater of their minimum value or by using the +Black Scholes option pricing model with the following assumptions: + + SCHEDULE OF DERIVATIVE +LIABILITIES + + + + Series G + Series H + Series G + Series H + + + Date of valuation + March 10, 2023 + September 30, 2022 + + + Closing price per share of Common Stock + $4.10 + $4.10 + $3.84 + $3.84 + + + Exercise price per share + $140.00 + $80.00 + $140.00 + $80.00 + + + Expected volatility + 179.41% + 141.03% + 132.97% + 122.50% + + + Risk-free interest rate + 4.91% + 4.75% + 4.05% + 4.14% + + + Dividend yield + + + + + + + Valuation assumptions + - + - + - + - + + Remaining expected term of underlying securities (years) + 0.24 + 1.31 + 0.69 + 1.57 + + + + + +6. CONVERTIBLE NOTES PAYABLE, SENIOR SECURED + + SCHEDULE OF CONVERTIBLE +NOTES PAYABLE SENIOR SECURED + + + + September + 30, + 2023 + + + September + 30, + 2022 + + + + + Senior Secured Convertible Promissory Notes (the 2022 Notes , includes $96,000 + of related party notes) + $4,230,000 + $4,230,000 + + + Unamortized debt discount + (710,897) + (2,567,508) + + + Net Balance + 3,519,103 + 1,662,492 + + + Current Balance + (3,519,103) + - + + + Non-Current Balance + - + 1,662,492 + + + + + +In +July 2022, the Company entered into a Securities Purchase Agreement (the SPA ) with certain institutional and accredited +individual investors and issued Senior Secured Convertible Promissory Notes (the 2022 Notes ) in the aggregate of $4,230,000 +in exchange for cash proceeds of $3,525,000, net of original issue discount (OID) of $705,000. + + + +The +2022 Notes are secured by tangible and intangible assets of the Company, bears interest at a rate of 10% per annum payable at maturity +or upon conversion, originally matured January 6, 2024 (which was subsequently extended to March 15, 2024), and are convertible into +shares of the Company s common stock at a conversion price of $9.14 per share. The 2022 Notes contain customary events of default. +Further, events of default under the 2022 Notes also include (i) the unavailability of Rule 144 on or after January 6, 2023; (ii) our +failure to deliver the shares of common stock to the 2022 Note holder upon exercise by such holder of its conversion rights under the +2022 Note; (iii) our loss of the bid price for its common stock and/or a market and such loss is not cured during the specified +cure periods; and (iv) our failure to complete an uplisting of our Common Stock to any of the Nasdaq Global Market, Nasdaq Capital Market, +New York Stock Exchange or NYSE American by March 15, 2024 (the Uplist Transaction ). During the year ended September 2023, +for no additional consideration, the 2022 Notes were amended several times in order to allow the Company to issue additional notes payable, +extend the completion date for the Uplist Transaction, and amend certain provisions with regards to mandatory conversion of the notes +upon the Uplist Transaction. + + + + F-15 + + Table of Contents + + + + + +In +connection with the issuance of the 2022 Notes, the Company granted the 2022 Notes noteholders 425,562 warrants to purchase shares of +common stock. The warrants are fully vested, exercisable at $9.94 per share and expire in 5 years. The Company estimated the relative +fair value of the warrants to be $1,470,000 using the Black Scholes option pricing model. The Company also issued note holders 63,842 +shares of the Company s common stock with a relative fair value of $315,000. The Company also issued 31,510 warrants to purchase +shares of common stock to the placement agent that assisted in the 2022 Notes offering. The placement agent warrants are fully vested, +exercisable at $10.06 per share and will expire in 5 years. The Company estimated the relative fair value of the placement agent warrants +to be $219,894 using the Black Scholes option pricing model. The Company incurred direct legal and professional fees of $555,414 as part +of this offering. + + + +The +Company recorded 2022 Notes with total principal of $4,230,000. In addition, total debt discount of $2,870,000 was recorded to account +for the 2022 Notes OID of $705,000, the relative fair value of the warrants of $1,470,000, the relative fair value of common stock issued +of $315,000, and direct legal and professional fees incurred in the 2022 Notes offering of $555,414. The debt discount is being amortized +over the term of the notes using the effective interest rate method. During the year ended September 30, 2022, the Company amortized +debt discount of $302,000. + + + +As +of September 30, 2022, outstanding balance of the 2022 Notes payable was $4,230,000 and unamortized debt discount was $2,567,508, or +a net balance of $1,662,492. During the year ended September 2023, the Company amortized debt discount of $1,857,000. As of September +30, 2023, outstanding balance of the 2022 Notes payable amounted to $4,230,000 and unamortized debt discount was $710,897, or a net balance +of $3,519,103. As of September 30, 2023 and 2022, notes payable in the aggregate of $96,000, respectively, are issued to two officers +and a member of the Board of Directors of the Company. + + + +7. CONVERTIBLE NOTES PAYABLE, UNSECURED + + SCHEDULE +OF CONVERTIBLE NOTES PAYABLE UNSECURED + + + + September + 30, + 2023 + + + September + 30, + 2022 + + + + + Exchanged notes (July 2022) + $699,781 + $699,781 + + + Second closing notes (January 2023) + 636,000 + - + + + Third closing notes (March, April, May, 2023) + 702,720 + - + + + Total + 2,038,501 + $699,781 + + + Unamortized debt discount + (379,799) + - + + + Net Balance + 1,658,702 + 699,781 + + + Current Balance + (1,658,702) + - + + + Non-Current Balance + - + 699,781 + + + + + +Exchanged +Notes (July 2022) + + + +In +relation to the issuance of the 2022 Notes (see Note 6), certain noteholders of the Company s Series 2 note payable (see Note 8) +agreed to exchange their Series 2 notes payable consisting of $600,000 principal and accrued interest of $99,781 for $699,781 of Unsecured +Convertible Promissory Notes (the Exchanged Notes ) on substantially the same terms as the 2022 Notes, except that the Exchanged +Notes are subordinate to the 2022 Notes and are unsecured. The notes bear interest at a rate of 10% per annum payable at maturity or +upon conversion, originally matured January 6, 2024 (which was subsequently extended to March 15, 2024), and are convertible into shares +of the Company s common stock at a conversion price of $9.14 per share. At September 30, 2022, there was no discount recorded +for the Exchanged Notes. + + + +Second +Closing Notes (January 2023) + + + +In +January 2023, pursuant to the SPA (see Note 6), as amended, investors agreed to purchase Unsecured Convertible Promissory Notes (the + Second Closing Notes ) in the aggregate of $636,000 in exchange for cash proceeds of $530,000, net of original issue discount +(OID) of $106,000. The notes are unsecured, bear interest at a rate of 10% per annum, originally matured January 6, 2024 (which was subsequently +extended to March 15, 2024), and are convertible into shares of the Company s common stock with a conversion price of $9.14 per +share. + + + + F-16 + + Table of Contents + + + + + +In +connection with the issuance of the Second Closing Notes, the Company granted the Second Closing Notes noteholders (i) 127,968 warrants +to purchase shares of common stock. The warrants are fully vested, exercisable at $9.94 per share and expire in 5 years. The Company +determined the relative fair value of the warrants to be $256,000 using the Black Scholes option pricing model; and (ii) 9,598 shares +of common stock with a relative fair value of $26,000. The Company also issued 6,565 warrants to purchase shares of the Company s +common stock to the placement agent who assisted in the Second Closing offering. The placement agent warrants are fully vested, exercisable +at $10.06 per share and will expire in 5 years. The Company determined the relative fair value of the placement agent warrants to be +$13,000 using the Black Scholes option pricing model. Furthermore, the Company also incurred direct legal and professional fees of $31,000 +as part of this offering. + + + +Third +Closing Notes (March, April and May 2023) + + + +In +March, April and May 2023, pursuant to the SPA, as amended, investors agreed to purchase Unsecured Convertible Promissory Notes (the + Third Closing Notes ) in the aggregate of $703,000 in exchange for cash proceeds of $488,000, net of original issue discount +(OID) of $215,000. The notes are unsecured, bear interest at a rate of 10% per annum, originally matured January 6, 2024 (which was subsequently +extended to March 15, 2024), and are convertible into shares of the Company s common stock with a conversion price of $9.14 per +share. + + + +In +connection with the issuance of the Third Closing Notes, the Company granted the Third Closing Notes noteholders (i) 141,396 warrants +to purchase shares of common stock. The warrants are fully vested, exercisable at $9.94 per share and expire in 5 years. The Company +determined the relative fair value of the warrants to be $164,000 using the Black Scholes option pricing model; and (ii) 10,608 shares +of common stock with a relative fair value of $18,000. The Company also incurred direct legal and professional fees of $5,000 as part +of this offering. + + + +The +Second Closing Notes and Third Closing Notes contain events of default similar to the 2022 Notes (See Note 6). Subsequent to issuance, +for no additional consideration, the Second Closing Notes and Third Closing Notes were amended several times in order to allow the Company +to issue additional notes payable, extend the completion date of the Uplist Transaction, and amend certain provisions with regards mandatory +conversion of the notes upon the Uplist Transaction. + + + +Debt +discount on unsecured convertible promissory notes + + + +As +a result of the issuance of the Second Closing and the Third Closing Notes, the Company recorded debt discount in the aggregate of $834,000 +to account for the Second Closing and the Third Closing Notes OID of $321,000, the relative fair value of the warrants issued of $433,000, +the relative fair value of common stock issued of $44,000, and direct legal and professional fees incurred of $36,000. The debt discount +is being amortized over the term of the notes using the effective interest rate method. + + + +During +the year ended September 30, 2023, the Company amortized debt discount of $454,000. As of September 30, 2023, outstanding balance of +the Exchange notes, Second Closing Notes, and Third Closing Notes was $2,039,000 and unamortized debt discount of $380,000, or a net +balance of $1,659,000. + + + +The +warrants issued with the 2022 Notes, the Second Closing Notes, and the Third Closing Notes were valued using the Black Scholes option +pricing model with the following assumptions: + + SCHEDULE +OF SHARE BASED PAYMENT AWARD AND WARRANTS VALUATION ASSUMPTIONS + + + + Note +holders + Placement +Agent + Note +holders + Placement +Agent + Note +holders + + + First closing + Second Closing + Third Closing + + + + Note +holders + Placement +Agent + Note +holders + Placement +Agent + Note +holders + + + Date of valuation + July 6, 2022 + January 18, 2023 + May 15, 2023 + + + Closing price per share of Common Stock + $9.98 + $9.98 + $5.76 + $5.76 + $2.77 + + + Exercise price per share + $9.94 + $10.06 + $9.94 + $10.06 + $9.94 + + + Expected volatility + 88.44% + 88.44% + 111.31% + 111.31% + 114.33% + + + Risk-free interest rate + 2.96% + 2.96% + 3.43% + 3.43% + 3.46% + + + Dividend yield + + + + + + + + Valuation assumptions + - + - + - + - + - + + Remaining expected term of underlying securities (years) + 5.0 + 5.0 + 5.0 + 5.0 + 5.0 + + + + + + F-17 + + Table of Contents + + + + + +8. CONVERTIBLE NOTES PAYABLE, SERIES 1 AND 2 + + SCHEDULE +OF CONVERTIBLE NOTES PAYABLE + + + + 2023 + 2022 + + + Series 1 Convertible Notes (converted in July 2023) + $- + $550,000 + + + Series 2 Convertible Notes (converted in November 2023) + 450,000 + 450,000 + + + Total + 450,000 + 1,000,000 + + + Current Balance + (450,000) + (550,000) + + + Non-Current Balance + $- + $450,000 + + + + + +Series +1 Convertible Notes + + + +On +June 4, 2020, the Company issued unsecured 10% Series 1 Convertible Notes in the aggregate principal amount of $550,000. The maturity +dates of the Series 1 Notes was June 30, 2023, and all were converted in July 2023. + + + +The +Series 1 Convertible Notes provide, among other things: + + + + + + (i) + interest + at a rate of 10% per annum; + + + + + + + + + (ii) + term + of approximately three years; + + + + + + + + + (iii) + allow + for the Company s ability to prepay the Series Convertible Notes, in whole or in part, at any time; + + + + + + + + + (iv) + allow + the automatic conversion of the Series 1 Convertible Notes upon a change of control into shares of the Company s common stock, + at a conversion price of $54.00 per share; + + + + + + + + + (v) + allow + the holders to convert the principal of the Series 1 Convertible Notes, along with accrued interest, in whole or in part, into shares + of common stock at the conversion price of $54.00 per share; + + + + + + + + + (vi) + allow + for the Company s ability to convert all note obligations outstanding upon a qualified equity financing into shares of common + stock at the corresponding price per share of the qualified equity financing; + + + + + + + + + (vii) + the + Company s ability to convert the principal of the Series 1 Convertible Notes, along with accrued interest, in whole or in part, + into shares of Common Stock at the respective Conversion Price in the event the volume weighted average price ( VWAP ) + of the Common Stock equals or exceeds $64.00 per share for at least fifteen consecutive Trading Days; + + + + + + + + + (viii) + the + Company s ability to convert all outstanding Note Obligations into shares of Common Stock at the respective Conversion Price + (an In Kind Note Repayment ) in lieu of repaying the Note Obligations outstanding on the Maturity Date, subject to a + conversion multiplier of 4.5, as amended. + + + + +As +of September 30, 2022, outstanding balance of the Series 1 Convertible Notes amounted to $550,000. + + + +During +the year ended September 30, 2023, pursuant to the terms of the convertible notes agreement, the Company issued 59,912 shares of common +stock to convert the outstanding notes payable of $550,000 and accrued interest of $168,918 for a total of $718,918. There are no Series +1 convertible notes payable outstanding as of September 30, 2023. + + + + F-18 + + Table of Contents + + + + + +Series +2 Convertible Notes + + + +On +November 6, 2020, the Company issued its unsecured Series 2 10% Convertible Notes Payable in exchange for cash proceeds of $1,050,000. +The Series 2 Convertible Notes have similar terms and provisions with the Series 1 Convertible Notes (see above), except the maturity +dates of the Series 2 Notes was November 30, 2023, and the notes were all converted in November 2023. + + + +As +of September 30, 2021, outstanding balance of the Series 2 Convertible Notes amounted to $1,050,000. During the year ended September +30, 2022, as a part of a separate 2022 Convertible Note Offering (see Note 6), certain holders of the Series 2 Notes agreed to exchange +their Series 2 Notes with an aggregate principal amount of $600,000 and accrued interest of approximately $100,000 for promissory notes +of the Company on substantially similar terms to those of the 2022 Notes (the Exchange Notes , see Note 7). + + + +As +of September 30, 2023 and 2022, outstanding balance of the Series 2 Convertible Notes amounted to $450,000 and $1,000,000, respectively. + + + +9. INCOME TAXES + + + +The +principal components of the Company s net deferred tax assets consisted of the following at September 30: + + SCHEDULE +OF COMPONENTS OF DEFERRED TAX ASSETS + + + + 2023 + 2022 + + + Net operating loss & charitable contribution carryforwards + $12,905,738 + $11,485,524 + + + Capitalized expenditures + 1,396,415 + 1,535,736 + + + Research and experimentation credit carryforwards + 1,014,466 + 946,246 + + + Stock based compensation + 1,491,338 + 1,427,946 + + + Property and Equipment + 1,531 + 2,616 + + + Accrued expenses + 746,143 + 162,191 + + + Inventory allowance + 51,463 + 70,805 + + + Gross deferred tax assets + 17,607,094 + 15,631,061 + + + Deferred tax asset valuation allowance + (17,607,094) + (15,631,061) + + + + + + + + Net deferred tax assets + $- + $- + + + + + +The +provision (benefit) for income taxes differs from the tax computed with the statutory federal income tax rate as follows: + + SCHEDULE +OF PROVISION BENEFIT INCOME TAX RATE + + + + 2023 + 2022 + + + Expected income tax (benefit) at federal statutory rate + 21.00% + 21.00% + + + + + + + + Increase due to: + + + + + State income taxes net of federal benefit + 0.24% + 3.65% + + + + + + + + Permanent Differences: + + + + + Stock based compensation + -% + (18.10)% + + + R&D, taken as a credit + (0.16)% + (0.23)% + + + Adjustment to fair value of derivative + 3.48% + 3.98% + + + Other + -% + (1.14)% + + + Change in Valuation Allowance + (24.56)% + (9.16)% + + + + + + + + Total Income Tax Provision (Benefit) + -% + -% + + + + + + F-19 + + Table of Contents + + + + + +As +of September 30, 2023 and 2022, the Company had federal net operating loss carryforwards totaling approximately $48,200,000 and $42,700,000, +respectively, which may be available to offset future taxable income. The pre-2018 federal net operating loss carryforwards total approximately +$21,750,000, and begin to expire in 2026. Due to the CARES Act, federal net operating losses generated in tax years beginning after December +31, 2017 can be carried forward indefinitely. As of September 30, 2023 and 2022, the Company has federal net operating loss carryforwards +with an indefinite life of $26,444,000 and $20,945,000. As of September 30, 2023 and 2022, the Company had federal research and experimentation +credit carryforwards of $679,000 and $626,000, respectively, which may be available to offset future income tax liabilities and which +would begin to expire in 2028. + + + +As +of September 30, 2023 and 2022, the Company had state net operating loss carryforwards of approximately $44,570,000 and $40,367,000, +respectively, which may be available to offset future taxable income and which would begin to expire in 2030. As of September 30, 2023 +and 2022, the Company had state research and experimentation credit carryforwards of $425,000 and $406,000, respectively, which may be +able to offset future income tax liabilities and which begin to expire in 2023. + + + +As +the Company has not yet achieved profitable operations, management believes the tax benefits as of September 30, 2023 and 2022 did not +satisfy the realization criteria set forth in FASB ASC Topic 740, Income Taxes, and therefore has recorded a valuation allowance +for the entire deferred tax asset. The valuation allowance increased in 2023 by approximately $1,976,000 and increased in 2022 by approximately +$483,000. The Company s effective income tax rate differed from the federal statutory rate due to state taxes and the Company s +full valuation allowance, the latter of which reduced the Company s effective federal income tax rate to zero. + + + +The +Company experienced an ownership change as a result of the Merger described in Note 1, causing a limitation on the annual use of the +net operating loss carryforwards, which are subject to a substantial annual limitation due to the ownership change limitations set forth +in Internal Revenue Code Section 382 and similar state provisions. A formal Section 382 study has not been performed. + + + +As +of September 30, 2023, the Company is open to examination in the U.S. federal and certain state jurisdictions for tax years ended September +30, 2023, 2022, 2021 and 2020. In addition, any loss years remain open to the extent that losses are available for carryover to future +years. Therefore, the tax years ended 2010 through 2021 remain open for examination by the IRS. + + + +The +Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted on March 27, 2020. The CARES Act affected items such as carryback +periods for net operating losses, modifications to the net interest deduction limitations and changes to tax depreciation methods. The +company has taken the CARES Act into consideration for the tax year ended September 30, 2023 and continues to evaluate the impact of +the CARES act on the business. + + + +10. STOCKHOLDERS DEFICIT + + + +Common +Stock + + + +During +the year ended September 30, 2023, the Company issued 3,436,712 shares of Common Stock, par value $0.001, as follows: (i) 250 shares issued +in connection with the vesting of a restricted stock grant; (ii) 3,344,321 shares issued in connection with certain financing activities +involving the sale of Common Stock and warrants to certain accredited investors in exchange for the net cash proceeds of $2,209,839 (the + Bridge Offering ); (iii) 20,210 inducement shares issued in connection with the closing of the Second Notes and Third Notes; +(iv) 12,019 shares issued in connection with the exchange of Series G and Series H warrants for Common Stock; and (v) 59,912 shares issued +in connection with the conversion of the Company s outstanding Series 1 Notes into Common stock. + + + + F-20 + + Table of Contents + + + + + +Common +Stock Options + + + +Common +Stock Options activity under the 2013 Plan for the year ended September 30, 2023 and 2022 follows: + + SCHEDULE OF STOCK OPTIONS ACTIVITY + + + + + + Weighted + + + + + + Weighted + Average + + + + + Option + Average + Remaining + Aggregate + + + + Shares + Exercise + Contractual + Intrinsic + + + + Outstanding + Price + Term (years) + Value + + + Outstanding at September 30, 2021 + 124,495 + $58.00 + 1.86 + $140,151 + + + Awarded + 6,625 + $6.00 + + + + + Forfeited/Cancelled + (32,494) + $70.00 + + + + + Outstanding at September 30, 2022 + 98,626 + $52.00 + 1.46 + $16,900 + + + Awarded + 24,500 + $8.00 + + + + + Forfeited/Cancelled + (21,001) + $68.00 + + + + + Outstanding at September 30, 2023 + 102,125 + $38.00 + 3.9 + $ + + + Vested at September 30, 2023 + 82,940 + $44.00 + 4.89 + $ + + + Vested and expected to vest at September 30, 2023 + 102,125 + $38.00 + 3.9 + $ + + + + + +During +the year ended September 30, 2022, the Company granted 2,375 options to employees and directors and 4,250 options to consultants to purchase +shares of common stock under the 2013 Plan. The stock options issued to employees and directors vest over a period of 36 months, and +options issued to consultants vest over a period of 12 months. The weighted average exercise price for all options was $10.02. Options +issued to employees and consultants expire in 5 years. Options issued to management and directors expire after 10 years. Total fair value +of the stock options issued was $47,609 using the Black-Scholes Option Pricing Model. The following assumptions were used to calculate +the fair value - expected volatility, 86.8% - 98.5%, risk-free interest rate, 1.5% - 3.5%, expected dividend yield, 0%, expected term, +3.6 - 5.8 years. + + + +During +the year ended September 30, 2023, the Company granted 20,875 +options to employees and directors and 3,625 +options to consultants to purchase shares of common stock under the 2013 Plan. The stock options issued to employees vest over a +period of 36 +months, and options issued to consultants and directors vest over a period of 12 +months. The exercise price for all options granted was $8.02. +Options issued to employees and consultants expire in 5 +years. Options issued to management and directors expire after 10 +years. Total fair value of the stock options issued $156,275 +using the Black-Scholes Option Pricing Model. The following assumptions were used to calculate the fair value - expected volatility, 102.8% +- 103.4 +%, risk-free interest rate, 3.8% +- 4.0%, +expected dividend yield, 0%, +expected term, 4.1 + 5.8 +years. + + + +Pursuant +to the vesting terms of the stock options, Share-based compensation expense recorded in the Company s Consolidated Statements of +Operations for the year ended September 30, 2023 and 2022 resulting from stock options awarded to the Company s employees, directors +and consultants was approximately $246,000 and $459,000, respectively. Of this amount during the years ended September 30, 2023 and 2022, +$57,000 and $148,000, respectively, were recorded as research and development expenses, and $189,000 and $311,000, respectively were +recorded as general and administrative expenses in the Company s Consolidated Statements of Operations. + + + +As +of September 30, 2023, there is approximately $162,000 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 1.80 years. As of +September 30, 2023, 0 shares are available for future grants under the 2013 Plan as the plan is now expired. + + + + F-21 + + Table of Contents + + + + + +Common +Stock Warrants + + + +Common +Stock Warrants activity for the year ended September 30, 2023 and 2022 follows: + + SCHEDULE OF STOCK WARRANTS ACTIVITY + + + + + + Weighted + + + + + + Weighted + Average + + + + + Warrants + Average + Remaining + Aggregate + + + + Shares + Exercise + Contractual + Intrinsic + + + + Outstanding + Price + Term (years) + Value + + + Outstanding at September 30, 2021 + 349,380 + $53.28 + 1.8 + $- + + + Awarded + 457,072 + $9.95 + 3.8 + - + + + Forfeited/Cancelled + - + $- + - + - + + + Outstanding at September 30, 2022 + 806,452 + $28.72 + 2.9 + $- + + + Awarded + 25,572,245 + $0.85 + 4.8 + 13,958,846 + + + Exchanged + (77,090) + $106.47 + - + - + + + Forfeited/Cancelled + (17,605) + $50.20 + - + - + + + Outstanding at September 30, 2023 + 26,284,002 + $0.85 + 4.8 + $13,958,846 + + + Vested at September 30, 2023 + 26,284,002 + $ + + $ + + + Vested and expected to vest at September 30, 2023 + 26,284,002 + $ + + $ + + + + + +Restricted +Stock + + + +On +July 30, 2021, the Company awarded 750 shares of Restricted Stock to an employee. The shares subject to this grant were awarded under +the 2013 Plan and 250 shares vest on each of the following dates: January 12, 2022, July 12, 2022, and January 12, 2023. + + + +On +September 27, 2021, the Company awarded 1,500 shares of Restricted Stock to a consultant. The shares subject to this grant were awarded +under the 2013 Plan and vested in three separate tranches on January 12, 2022, July 12, 2022 and January 12, 2023. + + + +Restricted +stock activity in shares under the 2013 Plan for the years ended September 30, 2023 and 2022 follows: + + SCHEDULE +OF RESTRICTED STOCK ACTIVITY + + + + 2023 + 2022 + + + Non Vested at September 30, 2022 and 2021 + 250 + 2,250 + + + Awarded + + + + + Vested + (250) + (2,000) + + + Forfeited + + + + + Non Vested at September 30, 2023 and 2022 + + 250 + + + + + +The +weighted average restricted stock award date fair value information for the years ended September 30, 2023 and 2022 follows: + + SCHEDULE +OF WEIGHTED AVERAGE RESTRICTED STOCK AWARD DATE FAIR VALUE + + + + 2023 + 2022 + + + Non Vested at September 30, 2022 and 2021 + $18.00 + $19.76 + + + Awarded + - + - + + + Vested + (18.00) + (19.90) + + + Forfeited + - + - + + + Non Vested at September 30, 2023 and 2022 + $ + $18.00 + + + + + +For +the years ended September 30, 2023 and 2022 compensation expense recorded for the restricted stock awards was approximately $3,000 and +$40,000, respectively. As of September 30, 2023, there is no unrecognized compensation expense related to unvested stock-based compensation +arrangements granted under the 2013 Plan. + + + +11. COMMITMENTS AND CONTINGENCIES + + + +In +the ordinary course of business, the Company enters into various agreements containing standard indemnification provisions. The Company s +indemnification obligations under such provisions are typically in effect from the date of execution of the applicable agreement through +the end of the applicable statute of limitations. The aggregate maximum potential future liability of the Company under such indemnification +provisions is uncertain. As of September 30, 2023 and 2022, no amounts have been accrued related to such indemnification provisions. + + + + F-22 + + Table of Contents + + + + + +From +time to time, the Company may be exposed to litigation in connection with its operations. The Company s policy is to assess the +likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. + + + +MIT +Licensing Agreement + + + +In +December 2007, the Company entered into a license agreement with MIT pursuant to which the Company acquired an exclusive world-wide license +to develop and commercialize technology related to self-assembling peptide compositions, and methods of making and using such compositions +in medical and non-medical applications, including claims that cover the Company s proposed products and methods of use thereof. +The license also provides non-exclusive rights to additional intellectual property in the fields that cover the Company s proposed +products and methods of use thereof, in order to provide freedom to operate. The license provides the Company a right to sublicense the +exclusively licensed intellectual property. The Company has not sublicensed the exclusively licensed intellectual property to any party +for any field. + + + +In +exchange for the licenses granted in the agreement, the Company has paid MIT license maintenance fees and patent prosecution costs. The +Company paid license maintenance fees of $50,000 to MIT in the fiscal years ended September 30, 2023 and 2022. For the years ended September +30, 2023 and 2022, the annual MIT license maintenance fees of $50,000 are included in accrued expenses and other liabilities on the Consolidated +Balance Sheets. The license maintenance fees and patent prosecution costs cover the contract year beginning January 1 through December +31. Annual license maintenance obligations extend through the life of the patents. In addition, MIT is entitled to royalties on applicable +future product sales, if any. The annual payments may be applied towards royalties payable to MIT for that year for product sales. + + + +The +Company is obligated to indemnify MIT and related parties from losses arising from claims relating to the exercise of any rights granted +to the Company under the license, with certain exceptions. The maximum potential amount of future payments the Company could be required +to make under this provision is unlimited. The Company considers there to be a low performance risk as of September 30, 2023. + + + +The +agreement expires upon the expiration or abandonment of all patents that are issued and licensed to the Company by MIT under such agreement. +The Company expects that patents will be issued from presently pending US and foreign patent applications. Any such patent will have +a term of 20 years from the filing date of the underlying application. MIT may terminate the agreement immediately, if the Company ceases +to carry on its business, if any nonpayment by the Company is not cured or the Company commits a material breach that is not cured. The +Company may terminate the agreement for any reason upon six months notice to MIT. + + + +12. SUBSEQUENT EVENTS + + + +In +October and November 2023, the Company received shareholder advances in the aggregate of $450,000 to support the operations of the Company. + + + +On +November 8, 2023, the Company entered into a Securities Purchase Agreement (the PIPE SPA ) with certain institutional and +accredited individual investors (collectively, the Investors ) providing for the issuance and sale by the Company to the +Investors of (i) pre-funded warrants (the PIPE Pre-Funded Warrants ) and (ii) warrants (the PIPE Common Warrants +and together with the PIPE Pre-Funded Warrants, the PIPE Warrants ). The PIPE Warrants will be issued as part of a private +placement offering authorized by the Company s Board of Directors (the PIPE Offering ). The estimated aggregate gross +proceeds for the sale of the PIPE Warrants will be approximately $7.1 million, before deducting the placement agent s fees and +other estimated fees and offering expenses payable by the Company. The closing of the PIPE Offering is contingent upon, among other conditions, +a registration statement that registers the PIPE Warrant shares for resale being declared effective by the SEC, and the approval of the +listing of the Common Stock on Nasdaq. The closing is expected to occur immediately prior to the pricing of the Uplist Transaction. + + + + F-23 + + Table of Contents + + + + + +In +November 2023, certain provisions of the Company s Convertible Notes Payable, Senior Secured (See Note 6) and Exchange Notes (see +Note 7) were amended to extend the date of the completion of an Uplist Transaction to March 15, 2024. In addition, upon effectivity of +the Uplist Transaction, 50% of the then outstanding principal amount of the Convertible Notes Payable, Senior Secured and Exchange Notes +shall automatically convert (the Automatic Conversion ) into shares of Common Stock, with the conversion price for purposes +of such Automatic Conversion of $4.00. Upon the Automatic Conversion and to the extent that the beneficial ownership of a holder of +Convertible Notes Payable, Senior Secured and Convertible Notes Payable, Unsecured would increase over the applicable Ownership Limitation, +the Holder will receive pre-funded warrants in lieu of shares of Common Stock otherwise issuable to the Holder in connection with the +Automatic Conversion, which may be exercised on a cashless basis, shall be exercisable immediately upon issuance and shall contain a +customary beneficial ownership limitation provision. In addition, upon the Automatic Conversion, the Holder shall receive a warrant (the + Uplist Conversion Warrant ) to purchase a number of shares of Common Stock equal to 6.3812 times the dollar amount under +the Convertible Notes Payable, Senior Secured and Convertible Notes Payable, Unsecured that was converted in the Automatic Conversion. +The Uplist Conversion Warrant shall have an exercise price per share of $4.00 and shall otherwise be identical to the PIPE Common Warrant. + + + +In +November 2023, the Company amended the Second A&R Registration Rights Agreement to that certain Second Amended and Restated Registration +Rights Agreement, dated as of May 15, 2023 to (I) extend the filing deadline by which the Company is obligated to file with the SEC a +registration statement under the Securities Act of 1933, as amended, registering certain securities issued in the 2022 Convertible Note +Offering to the earlier of (i) the date that is 30 days following the Uplist Transaction and (ii) January 31, 2024 (such date was subsequently +extended to March 15, 2024), and (II) to provide for the inclusion of the Registerable Securities (as defined therein) in the Uplist +S-1 (as defined therein). + + + +In +November 2023, the Company also entered into an amendment to the Bridge SPA, with certain institutional and accredited individual investors +that participated in the Bridge Offering. Under amendment, upon the closing of the next underwritten public offering of Common Stock +(the Qualifying Offering ), which the Company agreed is the Uplist Transaction, if the effective offering price to the public +per share of Common Stock (the Qualifying Offering Price ) is lower than $4.00 +per share, then the Company shall issue +additional Bridge Pre-Funded Warrants, or shares of Common Stock in lieu thereof to the extent necessary to cause the Company to meet +the listing requirements of the Company s proposed trading market in the Uplist Transaction, in an amount reflecting a reduction +in the purchase price paid for the Bridge Shares and Bridge Pre-Funded Warrants that equals the proportion by which the Qualifying Offering +Price is less than $4.00. + + + + F-24 + + Table of Contents + + + + +Arch +Therapeutics, Inc. and Subsidiary + +Condensed +Consolidated Balance Sheets + +As +of March 31, 2024 (Unaudited) and September 30, 2023 + + + + + + + + + + March 31, + September 30, + + + + 2024 + 2023 + + + + (unaudited) + + + + ASSETS + + + + + Current assets: + + + + + Cash + $26,426 + $222,720 + + + Inventory + 1,329,593 + 1,364,504 + + + Prepaid expenses and other current assets + 177,158 + 362,866 + + + Total current assets + 1,533,177 + 1,950,090 + + + Long-term assets: + + + + + Property and equipment, net + 3,390 + 4,599 + + + Other assets + 3,500 + 3,500 + + + Total long-term assets + 6,890 + 8,099 + + + Total assets + $1,540,067 + $1,958,189 + + + LIABILITIES AND STOCKHOLDERS DEFICIT + + + + + Current liabilities: + + + + + Accounts payable + $2,969,520 + $2,304,207 + + + Accrued interest + 1,026,963 + 823,128 + + Shareholders advances related to bridge financing + 1,125,000 + - + + + Accrued expenses and other liabilities + 363,092 + 467,496 + + + Insurance premium financing + 34,755 + 243,285 + + + Convertible notes payable, senior secured, current portion, net of discount + 4,211,720 + 3,519,103 + + + Convertible notes payable, unsecured, current portion, net of discount + 2,686,501 + 1,658,702 + + + Convertible notes payable, Series 2, unsecured, current portion + - + 450,000 + + + Current + portion of convertible note + - + 450,000 + + + Total current liabilities + 12,417,551 + 9,465,921 + + + Commitments and contingencies + - + - + + + Stockholders deficit: + + + + + Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding as + of March 31, 2024 and September 30, 2023 + - + - + + + Preferred stock + + + + + Common stock, $0.001 par value, 350,000,000 authorized as of March 31, 2024 and September 30, + 2023; 4,444,364 and 4,689,446 shares issued and outstanding as of March 31, 2024 and September 30, 2023 + 4,444 + 4,689 + + + Common stock + 4,444 + 4,689 + + + Additional paid-in capital + 55,324,472 + 54,543,188 + + + Accumulated deficit + (66,206,400) + (62,055,609) + + + Total stockholders deficit + (10,877,484) + (7,507,732) + + + Total liabilities and stockholders deficit + $1,540,067 + $1,958,189 + + + + + +The +accompanying notes are an integral part of these condensed consolidated financial statements. + + + + F-25 + + Table of Contents + + + + + +Arch +Therapeutics, Inc. and Subsidiary + +Condensed +Consolidated Statements of Operations (Unaudited) + +For +the Three and Six Months Ended March 31, 2024 and 2023 + + + + + + + + + + 2024 + 2023 + 2024 + 2023 + + + For the three months ended + For the six months ended + + + + March 31, + March 31, + March 31, + March 31, + + + + 2024 + 2023 + 2024 + 2023 + + + Revenue + $31,866 + $16,654 + $77,733 + $22,914 + + + Operating expenses: + + + + + + + Cost of revenues + 21,555 + 18,718 + 45,161 + 36,353 + + + Selling, general and administrative expenses + 683,184 + 1,252,786 + 1,994,534 + 2,355,701 + + + Research and development expenses + 203,869 + 170,634 + 409,449 + 332,087 + + + Total operating expenses + 908,608 + 1,442,138 + 2,449,144 + 2,724,141 + + + Loss from operations + (876,742) + (1,425,484) + (2,371,411) + (2,701,227) + + + Other (expense) income: + + + + + + + Interest expense + (592,397) + (635,190) + (1,779,380) + (1,159,503) + + + Gain on extinguishment of derivative liabilities + - + 1,158,197 + - + 1,158,197 + + + Total other (expense) income, net + (592,397) + 523,007 + (1,779,380) + (1,306) + + + Net loss + $(1,469,139) + $(902,477) + $(4,150,791) + $(2,702,533) + + + + + + + + + + Net loss per common share - basic and diluted + $(0.33) + $(0.71) + $(0.90) + $(2.15) + + + Weighted common shares - basic and diluted + 4,497,111 + 1,263,585 + 4,602,623 + 1,258,099 + + + + + +The +accompanying notes are an integral part of these unaudited condensed consolidated financial statements. + + + + F-26 + + Table of Contents + + + + + +Arch +Therapeutics, Inc. and Subsidiary + +Condensed +Consolidated Statements of Changes in Stockholders Deficit (Unaudited) + +For +the Three and Six Months Ended March 31, 2024 and 2023 + + + + + + + + + + Preferred +Stock +Shares + Amount + Common Stock +Shares + Amount + Additional Paid- +in Capital + Accumulated +Deficit + Total +Stockholders +Deficit + + + Balance at September 30, 2023 + - + $ - + 4,689,446 + $4,689 + $54,543,188 + $(62,055,609) + $(7,507,732) + + + Net loss + - + - + - + - + - + (2,681,652) + (2,681,652) + + + Issuance of common stock upon conversion of convertible notes + - + - + 52,918 + 53 + 587,906 + - + 587,959 + + + Stock-based compensation expense + - + - + - + - + 25,909 + - + 25,909 + + + Balance at December 31, 2023 + - + - + 4,742,364 + 4,742 + 55,157,003 + (64,737,261) + (9,575,516) + + + Net loss + - + - + - + - + - + (1,469,139) + (1,469,139) + + + Issuance of common stock upon conversion of convertible notes + - + - + 2,000 + 2 + 18,278 + - + 18,280 + + + Issuance of warrants, net of financing costs + - + - + - + - + 148,891 + - + 148,891 + + + Exchange of common stock into warrants + - + - + (300,000) + (300) + 300 + - + - + + + Balance at March 31, 2024 + - + $- + 4,444,364 + $4,444 + $55,324,472 + $(66,206,400) + $(10,877,484) + + + + + + + + + + + + + Balance at September 30, 2022 + - + $- + 1,252,734 + $1,252 + $50,878,718 + $(55,072,773) + $(4,192,803) + + + Net loss + - + - + - + - + - + (1,800,056) + (1,800,056) + + + Stock-based compensation expense + - + - + - + - + 104,026 + - + 104,026 + + + Balance at December 31, 2022 + - + - + 1,252,734 + 1,252 + 50,982,744 + (56,872,829) + (5,888,833) + + Balance + - + - + 1,252,734 + 1,252 + 50,982,744 + (56,872,829) + (5,888,833) + + Net loss + - + - + - + - + - + (902,477) + (902,477) + + + Vesting of restricted stock + - + - + 250 + - + - + - + - + + + Issuance of common stock and warrants, net of financing costs + - + - + 9,598 + 10 + 287,410 + - + 287,420 + + + Exchange of warrants into common stock + - + - + 12,019 + 13 + 49,265 + - + 49,278 + + + Stock-based compensation expense + - + - + - + - + 68,524 + - + 68,524 + + + Balance at March 31, 2023 + - + $- + 1,274,601 + $1,275 + $ 51,387,943 + $(57,775,306) + $(6,386,088) + + Balance + - + $- + 1,274,601 + $1,275 + $ 51,387,943 + $(57,775,306) + $(6,386,088) + + + +The +accompanying notes are an integral part of these unaudited condensed consolidated financial statements. + + + + F-27 + + Table of Contents + + + + + +Arch +Therapeutics, Inc. and Subsidiary + +Condensed +Consolidated Statements of Cash Flows (Unaudited) + +For +the Six Months Ended March 31, 2024 and 2023 + + + + + + + + + + 2024 + 2023 + + + For the Six Months Ended + + + + March 31, + March 31, + + + + 2024 + 2023 + + + Cash flows from operating activities: + + + + + Net loss + $(4,150,791) + $(2,702,533) + + + Adjustments to reconcile net loss to cash used in operating activities: + + + + + Depreciation + 1,209 + 1,043 + + + Stock-based compensation + 25,909 + 172,550 + + + Gain on extinguishment of derivative liabilities + - + (1,158,197) + + + Accretion of discount and debt issuance costs on convertible notes payable + 1,437,588 + 846,147 + + + Changes in operating asset and liabilities: + + + + + Inventory + 34,911 + 12,464 + + + Prepaid expenses and other current assets + 185,707 + 280,058 + + + Accounts payable + 665,314 + 1,097,894 + + + Accrued interest + 341,793 + 313,356 + + + Accrued expenses and other liabilities + (104,404) + (112,713) + + + Net cash used in operating activities + (1,562,764) + (1,249,931) + + + + + + + + Cash flows from financing activities: + + + + + Repayment of insurance premium financing + (208,530) + (212,514) + + + Shareholder advances related to bridge financing + 1,125,000 + 230,000 + + + Proceeds from unsecured convertible notes + 450,000 + 515,000 + + + Net cash provided by financing activities + 1,366,470 + 532,486 + + + + + + + + Net decrease in cash + (196,294) + (717,445) + + + + + + + + Cash, beginning of period + 222,720 + 746,940 + + + + + + + + Cash, end of period + $26,426 + $29,495 + + + + + + + + Non-cash financing activities: + + + + + Exchange of Senior Secured and Series 2 Convertible + notes and accrued interest into common stock + $606,239 + $- + + + Relative fair value of warrants issued fourth + close + $148,891 + $- + + + Conversion of convertible notes and accrued interest + to common stock, net + $606,239 + $- + + + Exchange of Series G and Series H warrants for common + stock + $- + $49,278 + + + Issuance of restricted stock + $- + $3,019 + + + Fair value of warrants issued - second close + $- + $256,439 + + + Fair value of inducement shares issued - second close + $- + $25,840 + + + Fair value of placement agent warrants - second close + $- + $28,093 + + + + +The +accompanying notes are an integral part of these unaudited condensed consolidated financial statements. + + + + F-28 + + Table of Contents + + + + + +ARCH +THERAPEUTICS, INC. + +NOTES +TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS + +THREE +AND SIX-MONTHS ENDED MARCH 31, 2024 AND 2023 + +(Unaudited) + + + +1. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES + + + +Arch +Therapeutics, Inc. (together with its subsidiary, the Company or Arch ) is a biotechnology company developing +and marketing products based on our innovative AC5 self-assembling technology platform. The Company s products are in the +field of stasis and barrier applications, which includes managing wounds created during surgery, trauma or interventional care, or from +disease; stopping bleeding (hemostasis); and controlling leaking (sealant). + + + +Basis +of presentation + + + +The +accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles +generally accepted in the United States of America ( U.S. GAAP ) and the applicable rules and regulations of the Securities +and Exchange Commission (the SEC ) regarding interim financial reporting. Certain information and note disclosures normally +included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and +regulations. These condensed financial statements should be read in conjunction with the financial statements contained in +the Company s Annual Report on Form 10-K for the year ended September 30, 2023, filed with the SEC. The accompanying condensed +financial statements are unaudited, but in the opinion of management contain all adjustments, including normal recurring adjustments, +necessary to present fairly the Company s financial position as of March 31, 2024, and the results of its operations and its cash +flows for the three and six months ended March 31, 2024 and 2023. The balance sheet as of September 30, 2023 is derived from the Company s +audited financial statements. The results of operations for the three and six months ended March 31, 2024 are not necessarily indicative +of the results of operations to be expected for the full fiscal year ending September 30, 2024. + + + +In +accordance with the Segment Reporting Topic of the Accounting Standards Codification, the Company s chief operating +decision maker (the Company s President and Chief Executive Officer) determined that the Company has only one reporting unit. + + + +The +condensed 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. + + + + F-29 + + Table of Contents + + + + + +Going +Concern + + + +The +accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement +of liabilities and commitments in the normal course of business. The Company has not yet generated sufficient revenues to fund operations +and relies on issuance of debt and equity instruments to generate working capital. As reflected in the accompanying financial statements, +for the six months ended March 31, 2024, the Company recorded a net loss of $4,150,791 and used cash in operations of $1,562,764. These +factors raise substantial doubt about the Company s ability to continue as a going concern within one year of the date that the +financial statements are issued. In addition, the Company s independent registered public accounting firm, in its report on the +Company s September 30, 2023, financial statements, raised substantial doubt about the Company s ability to continue as a +going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as +a going concern. + + + +The +Company expects to incur substantial expenses for the foreseeable future relating to research, development and commercialization of its +current and its potential future products. The Company has not yet generated sufficient revenues to fund operations and relies on issuance +of debt and equity instruments to generate working capital. In evaluating the going concern position of the Company, management has considered +potential funding providers and believes that financing to fund future operations could be provided by equity and/or debt financing. +Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt +financing, or cause substantial dilution for our stockholders, in the case of equity financing. + + + +Reverse +stock split + + + +On +January 6, 2023, the directors of the Company authorized a reverse share split of the issued and outstanding Common Shares in a ratio +of 1:200, effective January 17, 2023. Accordingly, all share and per share amounts presented herein with respect to common stock have +been retroactively adjusted to reflect the above-described reverse stock split for all periods presented. + + + +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 expense during the reporting +periods. Significant estimates include the assumptions used in the accrual for potential liabilities, the net realizable value of inventory, +the valuation of debt and equity instruments, the fair value of derivative liabilities, valuation of equity instruments issued for services, +and deferred tax valuation allowances. Actual results could differ from those estimates. + + + +Revenue + + + +The +Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers +( ASC 606 ), through a five-step process: (i) identify the contract(s) with a customer; (ii) identify the performance obligations +in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; +and (v) recognize revenue when (or as) a performance obligation is satisfied. + + + +The +Company s source of revenue is product sales. Contracts with customers contain a single performance obligation and the Company +recognizes revenue from product sales when the Company has satisfied our performance obligation by transferring control of the product +to the customers. Control of the product transfers to the customer upon shipment from the Company s third-party warehouse. In circumstances +where the transaction price is not able to be determined at the time of shipment, the Company does not recognize revenue or any receivable +amount until such time that the final transaction price is established. + + + +Cost +of Revenue + + + +Cost +of revenue includes product costs, warehousing, overhead allocation and royalty expense. + + + + F-30 + + Table of Contents + + + + + +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 +( ASC 718 ), which requires all share-based payments be recognized in the condensed consolidated financial statements +based on their fair values. In accordance with ASC 718, the Company has elected to use the Black-Scholes Option Pricing Model (the Black-Scholes +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. +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 the Company s awards. The dividend yield assumption is based on history and the expectation +of paying no dividends. Stock-based compensation expense, when recognized in the condensed 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 condensed 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 +March 31, 2024 and September 30, 2023, the carrying amounts of cash, accounts payables and accrued expense and other liabilities approximate +fair value because of their short-term nature. The carrying amounts for the Series Convertible Notes, 2022 Notes, Second Notes, Third +Notes and the Fourth Notes approximate fair value because borrowing rates and terms are similar to comparable market participants. + + + +Warrants + + + +The +Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant s +specific terms and applicable authoritative guidance in Accounting Standards Codification ( ASC ) 480, Distinguishing Liabilities +from Equity ( ASC 480 ), and ASC 815, Derivatives and Hedging ( ASC 815 ). The assessment considers whether the +warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether +the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the +Company s own common stock and whether the warrant holders could potentially require net cash settlement in a circumstance +outside of the Company s control, among other conditions for equity classification. This assessment, which requires the use of +professional judgment, is conducted when the warrants are issued and at the end each subsequent quarterly period while the warrants are +outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be +recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the +criteria for equity classification, the warrants are required to be liability classified and recorded at their initial fair value on +the date of issuance and remeasured at fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants +are recognized as a non-cash gain or loss on the statements of operations. The Company has determined that the warrants issued in June +2018 and May 2019 equity financing (see Note 3) meet the requirements for liability classification. During the three months ended March +31, 2023, $1,158,197 was recorded to gain on extinguishment of derivative liability for the exchange of the Series G warrants and Series +H warrants to 12,019 shares of common stock with a fair value of $49,278. + + + + F-31 + + Table of Contents + + + + + +Loss +per Common Share + + + +Basic +earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number +of shares of common stock outstanding during the year, excluding shares of unvested restricted common stock. Shares of restricted stock +are included in the basic weighted average number of common shares outstanding from the time they vest. Diluted earnings (loss) per share +is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding +plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, +using the treasury stock method. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding +from the date they are granted. Potential common shares are excluded from the computation when their effect is antidilutive. + + + +For +the periods ended March 31, 2024 and 2023, the calculations of basic and diluted loss per share are the same because potential dilutive +securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following: + + SCHEDULE +OF BASIC AND DILUTED LOSS PER SHARE POTENTIAL DILUTIVE SECURITIES + + + + March + 31, + 2024 + + March + 31, + 2023 + + + + + + + + + Stock options + 88,275 + 104,325 + + + Stock warrants + 26,724,240 + 847,021 + + + Convertible notes payable + 754,744 + 721,790 + + + Total + 27,567,259 + 1,673,136 + + + + + +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. + + + +Risks +and uncertainties Geopolitical Conflicts + + + +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 geopolitical conflicts. The Company s ability to obtain future inventory may be impacted, therefore +potentially affecting the Company s future revenue stream. 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 as well as uncertainties resulting from geopolitical +conflicts. The extent to which recent events, including recent wars in Ukraine and Israel/Gaza, will impact the global economy and the +Company is uncertain and cannot be reasonably measured. + + + +2. +INVENTORIES + + + +Inventories +consist of the following: + + SCHEDULE OF INVENTORIES + + + + March 31, + September 30, + + + + 2024 + 2023 + + + Finished Goods + $65,980 + $40,969 + + + Goods-in-Process + 1,263,613 + 1,323,535 + + + Total + $1,329,593 + $1,364,504 + + + + + +Inventories +are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out ( FIFO ) basis. 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 Company records adjustments to its inventory for estimated obsolescence or +diminution in net realizable value equal to the difference between the cost of the inventory and the estimated net realizable value. +Once inventory has been written down, it creates a new cost basis for inventory that may not be subsequently written up. For the periods +ended March 31, 2024 and 2023, the Company did not record any write-down of inventories. + + + + F-32 + + Table of Contents + + + + + +3. +WARRANT DERIVATIVE LIABILITY + + + +As +of March 31, 2024 and September 30, 2023, there are no financial instruments accounted as a derivative liability. + + + +The +Company previously issued warrants (Series G and Series H warrants) that were accounted for the in accordance with ASC 815-10 as the +Company is required to purchase the Series G, and Series H warrants for an amount of cash per share equal to $22.00 and $10.66, respectively, +(the Minimum Value ). Accordingly, the warrants were recorded as liabilities at the greater of the Minimum Value or fair +value at each reporting period. + + + +During +the three months ended March 31, 2023, the Company issued 12,019 shares of common stock with a fair value of $49,278 in exchange for the +cancellation of the Series G and Series H warrants. As a result, during the three month ended March 31, 2023, the Company recorded a +gain of $1,158,197 to account for the extinguishment of derivative liability. + + + +4. +CONVERTIBLE NOTES PAYABLE, SENIOR SECURED + + SCHEDULE OF CONVERTIBLE +NOTES PAYABLE + + + + March + 31, + 2024 + + + September + 30, + 2023 + + + + Senior Secured Convertible Promissory Notes (the 2022 Notes ) + $4,211,720 + $4,230,000 + + + Unamortized debt discount + - + (710,897) + + + Net Balance + $4,211,720 + $3,519,103 + + + + + +In +July 2022, the Company entered into a Securities Purchase Agreement (the SPA ) with certain institutional and accredited +individual investors and issued Senior Secured Convertible Promissory Notes (the 2022 Notes ) in the aggregate of $4,230,000 +in exchange for cash proceeds of $3,525,000, net of original issue discount (OID) of $705,000. + + + +The +2022 Notes are secured by tangible and intangible assets of the Company, bears interest at a rate of 10% per annum payable at maturity +or upon conversion, matures on June 30, 2024, as amended, and are convertible into shares of the Company s common stock at a conversion +price of $9.14 per share. + + + +The +2022 Notes contain customary events of default. Further, events of default under the 2022 Notes also include (i) the unavailability of +Rule 144 on or after January 6, 2023; (ii) our failure to deliver the shares of common stock to the 2022 Note holder upon exercise by +such holder of its conversion rights under the 2022 Note; (iii) our loss of the bid price for its common stock and/or a +market and such loss is not cured during the specified cure periods; and (iv) our failure to complete an uplisting of our Common Stock +to any of the Nasdaq Global Market, Nasdaq Capital Market, New York Stock Exchange or NYSE American by April 30, 2024 (the Uplist +Transaction ). During the year ended September 2023, for no additional consideration, the 2022 Notes were amended several times +in order to allow the Company to issue additional notes payable, extend the completion date for the Uplist Transaction, and amend certain +provisions with regards to mandatory conversion of the notes upon the Uplist Transaction. + + + +In +connection with the issuance of the 2022 Notes, the Company granted the 2022 Notes noteholders 425,555 warrants to purchase shares of +common stock. The warrants are fully vested, exercisable at $9.94 per share and expire in 5 years. The Company estimated the relative +fair value of the warrants to be $1,470,000 using the Black Scholes option pricing model. The Company also issued note holders 63,834 +shares of the Company s common stock with a relative fair value of $315,000. The Company also issued 31,510 warrants to purchase +shares of common stock to the placement agent that assisted in the 2022 Notes offering. The placement agent warrants are fully vested, +exercisable at $10.06 per share and will expire in 5 years. The Company estimated the relative fair value of the placement agent warrants +to be $108,000 using the Black Scholes option pricing model. The Company incurred direct legal and professional fees of $271,000 as part +of this offering. + + + +The +Company recorded 2022 Notes with total principal of $4,230,000. In addition, total debt discount of $2,870,000 was recorded to account +for the 2022 Notes OID of $705,000, the relative fair value of the warrants of $1,578,000, the relative fair value of common stock issued +of $315,000, and direct legal and professional fees incurred in the 2022 Notes offering of $271,000. The debt discount was amortized +over the term of the notes using the effective interest rate method. + + + + F-33 + + Table of Contents + + + + + +As +of September 30, 2023, outstanding balance of the 2022 Notes payable was $4,230,000 and unamortized debt discount was $710,897, or a +net balance of $3,519,103. + + + +On +December 26, 2023, the Company issued a total of 2,000 shares of Common Stock in partial satisfaction of the outstanding Senior Secured +Convertible Promissory Notes with the principal balance of $18,280. + + + +On +February 14, 2024, the Company entered into an amendment to the 2022 Notes, under which 95% +of the principal amount of the Notes shall automatically convert, upon the closing of an Uplist Transaction, as defined, with a conversion +price of $0.50 +per share, into pre-funded warrants with +an exercise price of $0.000125 +per share, exercisable immediately. In +addition, the note holder shall receive a warrant to purchase 80 times the dollar amount of the notes that are converted, with an exercise +price per share of $0.50. +There is no impact to the amendment until the Uplist transaction is completed. + + + +During +the three and six months ended March 31, 2024, the Company amortized debt discount of $46,965 and $710,897, respectively. As of March +31, 2024, the outstanding balance of the 2022 Notes payable amounted to $4,211,720 and no unamortized debt discount was remaining. On +April 30, 2024, the convertible notes payable was amended in order to extend the maturity date to June 30, 2024. There were no compensation +provided to the note holder nor any changes in the other terms of the notes payable. + + + +5. +CONVERTIBLE NOTES PAYABLE, UNSECURED + + SCHEDULE +OF CONVERTIBLE NOTES PAYABLE UNSECURED + + + + March + 31, + 2024 + + September + 30, + 2023 + + + + Exchanged notes (July 2022) + $699,781 + $699,781 + + + Second closing notes (January 2023) + 636,000 + 636,000 + + + Third closing notes (March, April, May, 2023) + 702,720 + 702,720 + + + Fourth closing notes (March, 2024) + 648,000 + - + + + Total + 2,686,501 + 2,038,501 + + + Unamortized debt discount + - + (379,799) + + + Net balance + $2,686,501 + $1,658,702 + + + + + +Exchanged +Notes (July 2022) + + + +In +relation to the issuance of the 2022 Notes (see Note 4), certain noteholders of the Company s Series 2 note payable agreed to exchange their Series 2 notes payable consisting of $600,000 principal and accrued interest of $99,781 for $699,781 of Unsecured +Convertible Promissory Notes (the Exchanged Notes ) on substantially the same terms as the 2022 Notes, except that the Exchanged +Notes are subordinate to the 2022 Notes and are unsecured. The notes bear interest at a rate of 10% per annum payable at maturity or +upon conversion, mature June 30, 2024, as amended, and are convertible into shares of the Company s common stock at a conversion +price of $9.14 per share. At March 31, 2024 and September 30, 2023, there was no unamortized discount for the Exchanged Notes. + + + +Second +Closing Notes (January 2023) + + + +In +January 2023, the Company issued Unsecured Convertible Promissory Notes (the Second Closing Notes ) in the aggregate of +$636,000 in exchange for cash proceeds of $530,000, net of original issue discount (OID) of $106,000. The notes are unsecured, bear interest +at a rate of 10% per annum, matures on June 30, 2024, as amended, and are convertible into shares of the Company s common stock +with a conversion price of $9.14 per share. + + + +In +connection with the issuance of the Second Closing Notes, the Company granted the Second Closing Notes noteholders 127,968 warrants to +purchase shares of common stock and 9,598 shares of common stock. The warrants are fully vested, exercisable at $9.94 per share and +expire in 5 years. The Company determined the relative fair value of the warrants to be $256,000 and the relative fair value of the 9,598 +shares of common stock to be $26,000. The Company also issued 6,565 placement agent warrants to purchase shares of the Company s +common stock. The placement agent warrants are fully vested, exercisable at $10.06 per share and will expire in 5 years. The Company +determined the relative fair value of the placement agent warrants to be $13,000. Furthermore, the Company also incurred direct legal +and professional fees of $31,000 as part of this offering. + + + + F-34 + + Table of Contents + + + + + +On +February 14, 2024, the Company entered into an amendment to the Second Closing Notes, under which 95% of the principal amount of the +Notes shall automatically convert, upon the closing of an Uplist Transaction, as defined, with a conversion price of $0.50 per share, +into pre-funded warrants with an exercise price of $0.000125 per share, exercisable immediately. In addition, the note holder shall receive +a warrant to purchase 80 times the dollar amount of the notes that are converted, with an exercise price per share of $0.50. + + + +Third +Closing Notes (March, April and May 2023) + + + +In +March, April and May 2023, the Company issued Unsecured Convertible Promissory Notes (the Third Closing Notes ) in the aggregate +of $703,000 in exchange for cash proceeds of $488,000, net of original issue discount (OID) of $215,000, and. The notes are unsecured, +bear interest at a rate of 10% per annum, matures on June 30, 2024, as amended, and are convertible into shares of the Company s +common stock with a conversion price of $9.14 per share. + + + +In +connection with the issuance of the Third Closing Notes, the Company granted the Third Closing Notes noteholders 141,396 warrants to purchase +shares of common stock and 10,608 shares of common stock. The warrants are fully vested, exercisable at $9.94 per share and expire in +5 years. The Company determined the relative fair value of the warrants to be $164,000, and the relative fair value of the 10,608 shares +of common stock to be $18,000. The Company also incurred direct legal and professional fees of $5,000 as part of this offering. + + + +The +Second Closing Notes and Third Closing Notes contain events of default similar to the 2022 Notes. Subsequent to issuance, for no additional +consideration, the Second Closing Notes and Third Closing Notes were amended several times in order to allow the Company to issue additional +notes payable, extend the completion date of the Uplist Transaction, and amend certain provisions with regards mandatory conversion of +the notes upon the Uplist Transaction. + + + +On +February 14, 2024, the Company entered into an amendment to the Third Closing Notes, under which 95% of the principal amount of the Notes +shall automatically convert, upon the closing of an Uplist Transaction, as defined, with a conversion price of $0.50 per share, into +pre-funded warrants with an exercise price of $0.000125 per share, exercisable immediately. In addition, the note holder shall receive a +warrant to purchase 80 times the dollar amount of the notes that are converted, with an exercise price per share of $0.50. + + + +Fourth +Closing Notes (March 2024) + + + +On +March 12, 2024, investors agreed to purchase Unsecured Convertible Promissory Notes (the Fourth Closing Notes ) in the aggregate +principal amount of $648,000 in exchange for cash proceeds of $450,000, net of an OID of $198,000. The notes are unsecured, bears interest +at a rate of 10% per annum, and matures June 30, 2024, as amended, and are convertible into shares of the Company s common stock +with a conversion price of $9.14 per share. + + + +In +connection with the issuance of the Fourth Closing Notes, the Company granted the Fourth Closing Notes noteholders 130,383 warrants to +purchase shares of common stock and 9,782 pre-funded warrants. The warrants are fully vested, exercisable at $9.94 per share, and expire +in 5 years, and prefunded warrants have similar terms, however, are exercisable at $0.001 per share. The Company determined the relative +fair value of the warrants and pre-funded warrants to be approximately $148,891. + + + + F-35 + + Table of Contents + + + + + +On +February 14, 2024, the Company entered into an amendment to the Fourth Closing Notes, under which 95% of the principal amount of +the Notes shall automatically convert, upon the closing of an Uplist Transaction, as defined, with a conversion price of $0.50 per share, +into pre-funded warrants with an exercise price of $0.000125 per share, exercisable immediately. In addition, the note holder shall receive +a warrant to purchase 80 times the dollar amount of the notes that are converted, with an exercise price per share of $0.50. + + + +6. +CONVERTIBLE NOTES PAYABLE, SERIES 2 + + CONVERTIBLE NOTES PAYABLE + +SCHEDULE +OF CONVERTIBLE NOTES PAYABLE + + + + March + 31, + 2024 + + September + 30, + 2023 + + + + Series 2 Convertible Notes (converted in + November 2023) + $- + $450,000 + + + + + +On +November 6, 2020, the Company issued its unsecured Series 2 10% Convertible Notes Payable in exchange for cash proceeds of $450,000. +The notes matured on November 30, 2023, and the notes were all converted in November 2023. As of September 30, 2023, outstanding balance +of the Series 2 Convertible Notes amounted to $450,000. + + + +On +November 30, 2023, the Series 2 Convertible Notes of $450,000 and outstanding accrued interest of $137,946, were converted into 52,918 +shares of the Company s common stock. + + + +7. +STOCKHOLDERS DEFICIT + + + +Common +Stock + + + +In +January 2024 certain shareholders of the Company exchanged a total of 300,000 shares of Company s Common Stock for 300,073 of pre-funded +warrants to purchase shares of Common Stock. At the date of the exchange, the fair value of the common stock received approximates the +fair value of the warrants issued. The pre-funded warrants are fully vested, exercisable at $0.001 per share, and expire in 5 years. + + + +2013 +Stock Incentive Plan + + + +On +September 1, 2023, a majority of shareholders approved the 2023 Stock Plan with 455,169 common shares reserved to be issued under the +plan. As of March 31, 2024, there were no issuances under the new plan. + + + +On +June 18, 2013, the Company established the 2013 Stock Incentive Plan (the 2013 Plan ). Under the 2013 Plan, the Company +can issue or grant a total of 185,571 shares, as amended. On June 18, 2023, the 2013 Stock Incentive Plan expired, and no shares are available +for grants under the 2013 Plan. + + + +Common +Stock Options + + + +Stock +compensation activity under the 2013 Plan for the six months ended March 31, 2024 follows: + +SCHEDULE OF STOCK OPTIONS ACTIVITY + + + + Option + Shares + Outstanding + + Weighted + Average + Exercise + Price + + Weighted + Average + Remaining + Contractual + Term + (years) + + Aggregate + Intrinsic + Value + + + + Outstanding at September 30, 2023 + 102,125 + $38.00 + 5.58 + $- + + + Awarded + - + - + - + - + + + Forfeited/Cancelled + (1,825) + (67.00) + - + - + + + Outstanding at December 31, 2023 + 100,300 + 38.00 + 4.00 + 11,000 + + + Awarded + - + - + - + - + + + Forfeited/Cancelled + (12,025) + (58.00) + - + - + + + Outstanding at March 31, 2024 + 88,275 + $35.00 + 5.00 + - + + + Vested at March 31, 2024 + 74,769 + $39.00 + 3.50 + - + + + Vested and expected to vest at March 31, 2024 + 88,275 + $35.00 + 5.00 + - + + + + + +During +the six months ended March 31, 2024 and 2023, the Company recorded stock compensation expense of $25,909 and $172,550 to account the +fair value of the stock options that vested. + + + +As +of March 31, 2024, there is approximately $45,000 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 1.34 years. + + + + F-36 + + Table of Contents + + + + + +Restricted +Stock + + + +For +the three months ended March 31, 2024 and 2023, compensation expense recorded for the restricted stock awards was approximately $0 and +$1,000, respectively. For the six months ended March 31, 2024 and 2023, compensation expense recorded for the restricted stock awards +was approximately $0 and $3,000, respectively. + + + +As +of March 31, 2023, there was no unrecognized compensation expense related to unvested stock-based compensation arrangements granted under +the 2013 Plan. + + + +8. +SHAREHOLDER ADVANCES RELATED TO BRIDGE FINANCING + + + +During +the period ended March 31, 2024, the Company received $1,125,000 +in shareholder advances provided as a +partial prepayment of securities to be issued pursuant to a Securities Purchase Agreement dated November 8, 2023 (the PIPE SPA ). +If the transaction underlying the PIPE SPA, with respect to $1,000,000 of these advances, was not consummated by March 31, 2024, +as amended, the Company would be obligated to repay all of the advances within three business days thereafter, provided, however, that +in lieu of repayment each investor may in its sole discretion elect to receive, by notice to the Company, prefunded warrants and common +warrants in lieu of repayment as if the PIPE SPA transaction had closed. If the transaction underlying the PIPE SPA, with respect to +$125,000 of these advances, was not consummated by April 30, 2024, as amended, the Company would be obligated to repay all of the advances +within three business days thereafter, provided, however, that in lieu of repayment each investor may in its sole discretion elect to +receive, by notice to the Company, prefunded warrants and common warrants in lieu of repayment as if the PIPE SPA transaction had closed. + + + +With respect to $1,000,000 of the above referenced +shareholder advances, if the Company s Common Stock had not been approved to be listed on a qualifying national exchange by April +2, 2024, as amended, then the amount of prefunded warrants and common warrants that would otherwise be issuable in connection with the +PIPE SPA specific to those advances shall be increased by twenty-five percent. With respect to $125,000 of the above referenced shareholder +advances, if the Company s Common Stock had not been approved to be listed on a qualifying national exchange by May 2, 2024, as +amended, then the amount of prefunded warrants and common warrants that would otherwise be issuable in connection with the PIPE SPA specific +to those advances shall be increased by twenty-five percent. + + + +As of May 9, 2024, the Company had not been approved +to be listed on a qualifying national exchange, had not repaid any advances, and had not received notice from any investors to receive +pre-funded warrants and common warrants in lieu of prepayment. + + + +9. +SUBSEQUENT EVENTS + + + +From +April 1, 2024 through April 3, 2024, the Company raised an additional $125,000 from three investors in the form of shareholder advances +provided as a partial prepayment of each investor s purchase price set forth on their respective signature pages to the PIPE SPA. +If the transaction underlying the PIPE SPA, with respect to these advances, was not consummated by April 30, 2024, as amended, the Company would be obligated to repay all +of the advances within three business days thereafter, provided, however, that in lieu of repayment each investor may in its sole discretion +elect to receive, by notice to the Company, prefunded warrants and common warrants in lieu of repayment as if the PIPE SPA transaction +had closed. + + + +With +respect to the $125,000 +of the above referenced shareholder advances received in April 2024, if the Company s Common Stock had not been approved to be +listed on a qualifying national exchange by May 2, 2024, as amended, then the amount of prefunded warrants and common warrants that +would otherwise be issuable in connection with the PIPE SPA specific to these advances shall be increased by twenty-five +percent. + + + +As +of May 9, 2024, the Company had not been approved to be listed on a qualifying national exchange, had not repaid any advances, and had +not received notice from any investors to receive pre-funded warrants and common warrants in lieu of prepayment. + + + +From +April 12, 2024 through May 1, 2024, the Company raised an additional $600,000 +in shareholder advances from five investors. Such amounts are expected to be exchanged into a new senior secured note with 20% +OID. Upon closing, all prior shareholder advances are expected to be applied toward or exchanged into the new senior note +with a maturity date of June 30, 2024. + + + +In May +2024, the Company issued its convertible notes payable totaling $2,220,000, in exchange for cash of $1,850,000, net of original issue +discount of $370,000. The convertible notes payable are secured by the Company s tangible and intangible assets, bears interest +at a rate of 10% per annum, convertible to common stock at a conversion price of $0.50 per share and will mature on June 30, 2024. In +addition, upon the closing of a transaction that results in the uplist of the Company s common stock to a National Exchange, 100% +of the then outstanding principal amount shall automatically convert into shares of common stock at a conversion price of $0.515625 per +share, subject beneficial ownership limitation. + + + +On June 12, 2024, the Company completed a second closing of its convertible notes payable +totaling $180,000, in exchange for cash of $150,000, net of original issue discount of $30,000. All other terms were identical to the +convertible notes payable issued by the Company in May 2024. + + + + F-37 + + + + + + + +969,697 +Units (consisting of 969,697 Shares +of Common Stock and Investor Warrants to Purchase up to + +969,697 Shares of Common Stock) + +Up +to 969,697 Pre-Funded Units (consisting of Pre-Funded Warrants to Purchase up to 969,697 Shares of + +Common Stock and Investor Warrants to Purchase up to 969,697 Shares of Common Stock) + +Up +to 969,697 Shares of Common Stock Underlying the Pre-Funded Warrants and + +Up +to 969,697 Shares of Common Stock Underlying the Investor Warrants + + + +ARCH +THERAPEUTICS, INC. + + + +PRELIMINARY +PROSPECTUS + + + +Sole +Book-Running Manager + + + +Dawson +James Securities, Inc. + + + + , +2023 + + + +Until +, 2023 (25 days after the date of this prospectus), all dealers that buy, sell or trade our securities, whether or not participating +in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus +when acting as underwriters and with respect to their unsold allotments or subscriptions. + + + + + + + + + + + +The +information in this prospectus is not complete and may be changed. The selling stockholders named herein may not sell these securities +until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell +these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. + + + +SUBJECT +TO COMPLETION, DATED JUNE 20, 2024 + + + +PRELIMINARY +PROSPECTUS + + + +ARCH +THERAPEUTICS, INC. + + + +8,609,230 +Shares of Common Stock + +Up +to 1,724,557 Shares of Common Stock underlying the 2022 Notes upon Regular Conversion + +Up +to 1,638,330 Shares of Common Stock underlying the 2022 Notes upon Automatic Conversion + +Up +to 50,792 Shares of Common Stock underlying the 2022 Warrants and + +2022 +Placement Agent Warrants + +Up +to 38,733 Shares of Common Stock underlying the Inducement Pre-Funded Warrants and Legacy Pre-Funded Warrants + +Up +to 600,000 Shares of Common Stock underlying the 2024 Notes upon 2024 Notes Regular Conversion + +Up +to 581,819 Shares of Common Stock underlying the 2024 Notes upon 2024 Notes Automatic Conversion + +Up +to 11,331,038 Shares of Common Stock underlying the Common Warrants, Bridge Pre-Funded Warrants and True-Up Pre-Funded Warrants + +Up +to 67,171,430 Shares of Common Stock underlying the Uplist Conversion Warrants and 2022 Note Conversion Pre-Funded Warrants + +Up +to 1,163,638 Shares of Common Stock underlying the 2024 Notes Uplist Conversion Warrants and 2024 Note Conversion Pre-Funded Warrants + +3,433,348 +Shares of Common Stock underlying the PIPE +Pre-Funded Warrants and PIPE Investor Warrants + +Up +to 151,552 Shares of Common Stock underlying the PIPE Advance Penalty Pre-Funded Warrants and PIPE Advance Penalty Common Warrants + +Up +to 1,950,000 Shares of Common Stock underlying the Execution Backstop Pre-Funded Warrants, Funding Backstop Pre-Funded Warrants and Backstop +Common Warrants + + + +This +prospectus relates to the offer and sale of up to 98,444,466 shares of our common stock, par value $0.001 per share ( Common +Stock ), by the selling stockholders identified in this prospectus. The shares of Common Stock being offered include: + + + + + + 730 + shares of Common Stock (the 2022 Inducement + Shares ) issued to selling stockholders in the second and third closings that we completed on January 18, 2023, + and May 15, 2023, respectively in the private placement (the 2022 Private Placement Financing ) under + the 2022 Notes SPA (as defined in this prospectus), 384,159 shares of Common Stock (the Bridge Shares ) + issued in our private placement that we completed on July 7, 2023 (the 2023 Bridge Financing ) and up to 8,224,341 + shares of Common Stock (the True-Up Shares ) that we may be required to issue in lieu of True-Up Pre-Funded Warrants + (as defined below) pursuant to the securities purchase agreement dated July 7, 2023, as amended, related to the 2023 Bridge Financing + (the Bridge SPA ); + + + + + + + + Up + to 1,223 shares of Common Stock (the Inducement Pre-Funded Warrant Shares ) issuable to selling stockholders + upon exercise, at an exercise price of $0.008 per share, of our warrants (the Inducement Pre-Funded Warrants ) + issued in lieu of shares otherwise issuable under the 2022 Notes SPA (as defined in this prospectus) in the fourth closing of our + 2022 Private Placement Financing; + + + + + + + + Up + to 37,510 shares of Common Stock (the Legacy Pre-Funded Warrant Shares ) issuable to selling stockholders upon + exercise, at an exercise price of $0.008 per share, of our warrants (the Legacy Pre-Funded Warrants ) acquired + in a private secondary transaction from a former stockholder of the Company; + + + + + + + Up + to 1,724,557 shares of Common Stock (the Conversion Shares ) issuable to selling stockholders upon conversion + (a Regular Conversion ) of our convertible notes issued in the 2022 Private Placement Financing at a conversion + price of $4.00 (which takes into account the change to $4.00 as of the closing of the Uplist PIPE through the operation of the Most + Favored Nation Provision (as defined in this prospectus), from the original conversion price of $73.12) per share, under Article + I thereof; + + + + + + + + Up + to 1,638,330 shares of Common Stock (the Automatic Conversion Shares ) issuable to selling stockholders + upon conversion of 95% of our convertible notes issued in the 2022 Private Placement Financing upon the Automatic Conversion + (as defined in this prospectus); + + + + + + + + Up + to 49,971 shares of Common Stock (the 2022 Warrant Shares ) issuable to selling stockholders upon exercise, + at an exercise price of $4.00 (which takes into account the change to $4.00 as of the closing of the Uplist PIPE through the operation + of the Most Favored Nation Provision, from the original conversion price of $79.52) per share, of our warrants (the 2022 + Warrants ) issued in the second, third and fourth closing of our 2022 Private Placement Financing; + + + + + + + + Up + to 1,638,330 shares of Common Stock ( 2022 Note Conversion Pre-Funded Warrant Shares ) issuable to the + selling stockholders upon exercise, at an exercise price of $0.001 per share, of our pre-funded warrants (the 2022 Note + Conversion Pre-Funded Warrants ) issuable upon the Automatic Conversion in lieu of Automatic Conversion Shares to the extent + needed to prevent any holder from beneficially owning more than 4.99% (or upon election 9.99%) of our outstanding Common Stock; + + + + + + + + Up + to 65,533,100 shares of Common Stock ( Uplist Conversion Warrant Shares ) issuable to the selling stockholders + upon exercise, at an exercise price of $4.00 per share, of our warrants ( Uplist Conversion Warrants ) issuable + upon the Automatic Conversion. + + + + + + + + Up + to 600,000 shares of Common Stock (the 2024 Conversion Shares ) issuable to selling stockholders upon conversion + (a 2024 Notes Regular Conversion ) of our convertible notes (the 2024 Notes ) issued pursuant + to the securities purchase agreement, dated as of May 15, 2024, among the Company and the purchasers signatory thereto (the 2024 + Notes SPA ; such issuance and sale, the 2024 Notes Financing ) at their conversion price of $4.00 per + share, under Article I thereof; + + + + + + + + Up + to 581,819 shares of Common Stock (the 2024 Notes Automatic Conversion Shares ) issuable to selling stockholders + upon conversion of 100% of the 2024 Notes upon the 2024 Notes Automatic Conversion (as defined in this prospectus); + + + + + + + + Up + to 581,819 shares of Common Stock ( 2024 Note Conversion Pre-Funded Warrant Shares ) issuable to the selling stockholders + upon exercise, at an exercise price of $0.001 per share, of our pre-funded warrants (the 2024 Note Conversion Pre-Funded + Warrants ) issuable upon the 2024 Notes Automatic Conversion in lieu of 2024 Notes Automatic Conversion Shares to the extent + needed to prevent any holder from beneficially owning more than 4.99% (or upon election 9.99%) of our outstanding Common Stock; + + + + + + + + Up + to 581,819 shares of Common Stock ( 2024 Notes Uplist Conversion Warrant Shares ) issuable to the selling stockholders + upon exercise, at an exercise price of $4.00 per share, of our warrants ( 2024 Notes Uplist Conversion Warrants ) + issuable upon the 2024 Notes Automatic Conversion. + + + + + + + + Up + to 821 shares of Common Stock (the 2022 Placement Agent Warrant Shares ) issuable to the selling stockholders + upon exercise, at an exercise price of $4.00 (which takes into account the change to $4.00 as of the closing of the Uplist PIPE through + the operation of the Most Favored Nation Provision, from the original conversion price of $80.48) per share, of placement agent warrants + issued in the 2022 Private Placement Financing (the 2022 Placement Agent Warrants ); + + + + + + + + Up + to 2,349,826 shares of Common Stock (the Common Warrant Shares ) issuable to selling stockholders upon exercise, + at an exercise price of $8.00 per share, of our warrants (the Common Warrants ) issued in the 2023 Bridge Financing; + + + + + + + + + + + + + + + Up + to 756,871 shares of Common Stock ( Bridge Pre-Funded Warrant Shares and together with the Common Warrant Shares, + the Bridge Warrant Shares ) issuable to the selling stockholders upon exercise, at an exercise price of $0.008 + per share, of pre-funded warrants issued in the 2023 Bridge Financing (the Bridge Pre-Funded Warrants and together + with the Common Warrants, the Bridge Warrants ); + + + + + + + + Up + to 8,224,341 shares of Common Stock (the True-Up Pre-Funded Warrant Shares ) issuable to selling stockholders + upon exercise, at an exercise price of $0.001 per share, of our pre-funded warrants (the True-Up Pre-Funded Warrants ) + that we may be required to issue to the Bridge Investors (as defined in this prospectus) as a result of the Primary Offering being + at a price per share below $32.00, pursuant to the Bridge SPA; + + + + + + + + Up + to 1,716,674 shares of Common Stock (the PIPE Investor Warrant Shares ) issuable to selling stockholders + upon exercise, at an exercise price of $4.00 per share, of our warrants (the PIPE Investor Warrants ) to be issued + in the private placement (the Uplist PIPE ) pursuant to the securities purchase agreement dated November 8, 2023 + (the PIPE SPA ); + + + + + + + + Up + to 1,716,674 shares of Common Stock ( PIPE Pre-Funded Warrant Shares and together with the PIPE Investor + Warrant Shares, the PIPE Warrant Shares ) issuable to the selling stockholders upon exercise, at an exercise + price of $0.001 per share, of pre-funded warrants to be issued in the Uplist PIPE (the PIPE Pre-Funded Warrants + and together with the PIPE Investor Warrants, the PIPE Warrants ); + + + + + + + + Up + to 75,776 shares of Common Stock (the PIPE Advance Penalty Pre-Funded Warrant Shares ) issuable to selling stockholders + upon exercise, at an exercise price of $0.001 per share, of our pre-funded warrants (the PIPE Advance Penalty Pre-Funded + Warrants ) issued pursuant to the PIPE Advances (as defined in this prospectus); + + + + + + + + Up + to 75,776 shares of Common Stock (the PIPE Advance Penalty Common Warrant Shares ) issuable to selling stockholders + upon exercise, at an exercise price of $4.00 per share, of our warrants (the PIPE Advance Penalty Common Warrants ) + issued pursuant to the PIPE Advances; + + + + + + + + Up + to 225,000 shares of Common Stock (the Execution Backstop Pre-Funded Warrant Shares ) issuable to selling stockholders + upon exercise, at an exercise price of $0.001 per share, of our pre-funded warrants (the Execution Backstop Pre-Funded + Warrants ) issued pursuant to the Backstop Agreement (as defined in this prospectus); + + + + + + + + Up + to 750,000 shares of Common Stock (the Funding Backstop Pre-Funded Warrant Shares ) issuable to selling stockholders + upon exercise, at an exercise price of $0.001 per share, of our pre-funded warrants (the Execution Backstop Pre-Funded + Warrants ) issuable pursuant to the Backstop Agreement; and + + + + + + + + Up + to 975,000 shares of Common Stock (the Backstop Common Warrant Shares ) issuable to selling stockholders upon + exercise, at an exercise price of $4.00 per share, of our warrants (the Backstop Common Warrants ) issuable pursuant + to the Backstop Agreement. + + + + +The +selling stockholders may sell the shares of Common Stock to be registered hereby from time to time on any national securities exchange +or quotation service on which the securities may be listed or quoted at the time of sale, in the over-the-counter market, in one or more +transactions otherwise than on these exchanges or systems or in the over-the-counter market, such as privately negotiated transactions, +or using a combination of these methods, and at fixed prices, at prevailing market prices at the time of the sale, at varying prices +determined at the time of sale, or at negotiated prices. See the disclosure under the heading Plan of Distribution +beginning on page 51 of this prospectus for more information. + + + +We +will not receive any proceeds from the resale of Common Stock by the selling stockholders. + + + +We +originally offered and sold the securities issued or issuable in connection with the 2022 Private Placement Financing, Uplist PIPE, +Bridge Offering and the 2024 Notes Financing under an exemption from the registration requirements of the Securities Act of +1933, as amended (the Securities Act ), pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated +thereunder. + + + +Our +Common Stock is traded on the QB tier of the OTC Marketplace ( OTCQB ) under the symbol ARTH . On June +18, 2024, the closing price of our Common Stock was $8.72 (post-Reverse Split, as defined below) +per share. In connection with the offering pursuant to the Company Prospectus, which precedes this prospectus in the registration +statement of which this prospectus forms a part (the Primary Offering ), described below, we have applied to +list our Common Stock and Investor Warrants (as defined in the Company Prospectus) on the Cboe BZX Exchange, Inc. +( Cboe ) under the symbols ARTH and ARTHW, respectively. + + + +In +the Primary Offering, we are offering 969,697 units ( Units ), on a firm commitment basis, at an assumed public +offering price of $4.125 per Unit (which represents the minimum bid price of $4.00 per share under the initial listing requirements of +Cboe in Cboe Listing Rule 14.9(b) plus a value of $0.125 attributed to the accompanying Investor Warrant), each Unit consisting of +one share of Common Stock and one warrant to purchase one share of our Common Stock (the Investor Warrants ). The +Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The shares of Common Stock can be +purchased in the Primary Offering only with the accompanying Investor Warrants as part of a Unit (other than pursuant to the underwriters +option to purchase additional shares of Common Stock and/or Investor Warrants). The shares of Common Stock and Investor Warrants comprising +the Units are immediately separable and will be issued separately in the Primary Offering. Each Investor Warrant offered by the Company +Prospectus will be exercisable on the date of issuance at an assumed exercise price per share of Common Stock of $4.00 (which equals +the minimum bid price per share under the initial listing requirements of Cboe in Cboe Listing Rule 14.9(b)), and will expire +five years from the date of issuance. Pursuant to the Company Prospectus, we are also offering the shares of Common Stock issuable upon +exercise of the Investor Warrants. + + + + + + + + + + + +We +are also offering in the Primary Offering to each purchaser whose purchases of Units would otherwise result in the purchaser, together +with its affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding Common Stock immediately following +the consummation of the Primary Offering, the opportunity to purchase, if the purchaser so chooses, pre-funded units ( Pre-Funded +Units ) (each Pre-Funded Unit consisting of one pre-funded warrant ( Pre-Funded Warrant ) to purchase one +share of Common Stock and one Investor Warrant to purchase one share of Common Stock) in lieu of Units that would otherwise result in +the purchaser s beneficial ownership exceeding 4.99% of our outstanding Common Stock (or at the election of the purchaser, 9.99%). +Each Pre-Funded Warrant contained in a Pre-Funded Unit will be exercisable into one share of Common Stock, exercisable until all of the +Pre-Funded Warrants are exercised in full. The purchase price of each Pre-Funded Unit will equal the price per Unit being sold to the +public in the Primary Offering minus $0.001, and the exercise price of each Pre-Funded Warrant included in the Pre-Funded Unit +will be $0.001 per share of Common Stock. The Primary Offering also relates to the shares of Common Stock issuable upon exercise of any +Pre-Funded Warrants contained in the Pre-Funded Units sold in the Primary Offering. Each Investor Warrant contained in a Pre-Funded Unit +will have an assumed exercise price of $4.00 (which equals the minimum bid price per share under the initial listing requirements of +Cboe in Cboe Listing Rule 14.9(b)). The Investor Warrants contained in the Pre-Funded Units will be exercisable immediately and will +expire five years from the date of issuance. Pursuant to the Company Prospectus, we are also offering the shares of Common Stock issuable +upon exercise of the Pre-Funded Warrants and Investor Warrants contained in the Pre-Funded Units. + + + +For +each Pre-Funded Unit we sell in the Primary Offering, the number of Units we are offering will be decreased on a one-for-one basis. The +Units and the Pre-Funded Units will not be issued or certificated. The shares of Common Stock or Pre-Funded Warrants, as the case may +be, and the Investor Warrants can only be purchased together in the Primary Offering but the securities contained in the Units or Pre-Funded +Units will be issued separately. + + + +The +final public offering price per Unit and Pre-Funded Unit, and the exercise price of the Investor Warrants, as applicable, will be determined +through negotiation between the underwriters and us at the time of pricing, considering our historical performance and capital structure, +prevailing market conditions, and overall assessment of our business, and may be at a discount to the current market price. + + + +In +the Primary Offering, we have granted the underwriters an option, exercisable within 45 days from the date of the Company Prospectus, +to purchase from us, up to an additional 145,454 shares of Common Stock at the public offering price and/or Investor Warrants +to purchase up to 145,454 shares of Common Stock (equal to 15% of the shares of Common Stock (and Pre-Funded Warrants, if any) +and Investor Warrants sold in the Primary Offering), in any combination, at a price per Investor Warrant equal to the public offering +price, less, in each case, the underwriting discounts and commissions, to cover over-allotments, if any. + + + +We +estimate that we will receive net proceeds from the Primary Offering of approximately $2.9 million or approximately $3.5 +million if the underwriters exercise their over-allotment option in full, after deducting the underwriting discounts and commissions +and estimating offering expenses payable by us. + + + +In +connection with the Primary Offering, we intend to effect a reverse stock split of our Common Stock at a ratio of 1-for-8 the Reverse +Split ). All share and per share information in this prospectus, other than the historical financial statements included +herein, has been adjusted to reflect the anticipated reverse stock split. + + + +We +are a smaller reporting company as defined under the federal securities laws and, as such, are eligible for +reduced public company reporting requirements. See Prospectus Summary - Implications of Being a Smaller +Reporting Company . + + + +Investing +in our Common Stock involves a high degree of risk. Before making any investment in our Common Stock, you should read and carefully consider +the risks described in this prospectus under the heading Risk Factors beginning on page 18 of this prospectus. + + + +You +should rely only on the information contained in this prospectus or any prospectus supplement or amendment thereto. We have not authorized +anyone to provide you with different information. + + + +Neither +the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined +if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. + + + +This +prospectus is dated , 2023 + + + + + + + + + + + +TABLE +OF CONTENTS \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001542574_prosper_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001542574_prosper_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..bfc5bb1248100e7420aedc5e0e11ed933b33fffa --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001542574_prosper_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information appearing in this prospectus, including the financial statements and related notes, and the risk factors, before deciding whether to purchase the Notes. PFL operates a peer-to-peer online credit marketplace, which this prospectus refers to as the marketplace, that enables PFL s borrowers to borrow money and its investors to purchase Borrower Payment Dependent Notes, or Notes, issued by PFL, the proceeds of which facilitate the funding of the Borrower Loans made to borrowers. The peer-to-peer lending industry is a unique industry, and the application of federal and state laws in areas such as securities and consumer finance to PFL s business is still evolving. PFL is a wholly-owned subsidiary of PMI. About the Marketplace PMI developed the marketplace and owned the proprietary technology that makes operation of the marketplace possible. Effective February 1, 2013, PMI transferred ownership of the marketplace, including all of the rights related to the operation of the marketplace, to PFL. PMI and WebBank entered into a Marketing Agreement, pursuant to which PMI, as agent of WebBank, manages the operation of the marketplace in connection with the submission of loan applications by potential borrowers, the making of related loans by WebBank and the funding of such loans by WebBank. In the future, PMI and or PFL may enter into agreements with other banks that would act in addition to, or in lieu of, WebBank, in connection with making Borrower Loans through the marketplace. PFL and PMI entered into an Administration Agreement, pursuant to which PMI has agreed to manage all other aspects of the marketplace on behalf of PFL. Prior to February 1, 2013, in addition to operating the marketplace, PMI also facilitated the origination of loans by WebBank through the marketplace and issued and sold notes corresponding to those loans. Notes issued and sold through the marketplace prior to the commencement of this offering are referred to as PMI Notes. Loan Listings. A loan listing, or a listing, is a request by a PFL borrower for a Borrower Loan in a specified amount that is posted on the marketplace by the borrower. A borrower who posts a loan listing on the marketplace is referred to as an applicant and an applicant who obtains a loan through the marketplace as a borrower. PMI adds to each listing additional information, including the desired loan amount, interest rate and corresponding yield percentage, the minimum amount of total bids required for the loan to fund, the Prosper Rating and Prosper Score for the listing, the applicant s debt-to-income ratio, certain credit information from the applicant s credit report, the applicant s numerical credit score range, and the applicant s self-reported annual income range, occupation and employment status. Neither PFL nor PMI guarantees payment of the Notes or the corresponding Borrower Loans. The Prosper Rating is a proprietary credit rating that we assign to each listing. The Prosper Rating is a letter that indicates the level of risk associated with a listing and corresponds to an estimated average annualized loss rate range for the listing. There are currently seven Prosper Ratings, represented by seven letter scores, but this, as well as the loss ranges associated with each, may change over time as the marketplace dictates. The estimated average annualized loss rate for each listing is based on the following scores a consumer reporting agency score and one or more custom Prosper scores calculated using the historical performance of previous Borrower Loans with similar characteristics (a Prosper Score ), as may be supplemented by additional proprietary scoring models. We use these scores to determine an estimated average annualized loss rate for each listing, which correlates to a Prosper Rating. This rating system allows for consistency when assigning ratings to listings. See About the Marketplace Risk Management for more information. Currently, the borrower s Prosper Rating and Prosper Score are determined based on information obtained from the borrower s TransUnion credit report, including one or more of his or her TransUnion FICO 08 score and VantageScore (a credit-scoring model created through a joint venture of Equifax, Experian, and TransUnion). Bidding on Listings. A bid on a listing is an investor s commitment to purchase a Note in the principal amount of the investor s bid that will be dependent for payment on the payments PFL receives on the Borrower Loan described in the listing. After a listing is posted, investors can place bids on that listing until the listing has received bids totaling the requested loan amount. The minimum amount an investor may bid is $25. All bids may be up to 100% of the requested loan amount. An investor who wishes to bid on a listing must have funds in the amount of the bid in his investor account at the time the bid is made. Once a bid is placed, it is irrevocable, and the amount of the bid may not be withdrawn from the investor s account, unless the bidding period expires without the listing having received enough bids to be funded. Once the listing has received bids totaling the requested loan amount, no further bids can be placed. The maximum length of the bidding period is 14 days. If the listing does not receive bids equal to or exceeding the minimum amount required for the listing to fund by the close of the fourteenth day after the listing is posted, the listing will terminate and the requested loan will not be funded. Borrower Loans. If at the end of the bidding period the listing has received bids equal to or exceeding the minimum amount required to fund, a loan will generally be made to the applicant in an amount equal to the total amount of all winning bids. All Borrower Loans are unsecured obligations of individual borrowers with a fixed interest rate set by us and a loan term currently set at two, three, four or five years, although we may expand the range of available loan terms in the future to between three months and seven years. The minimum and maximum principal amounts for Borrower Loans are currently $2,000 and $50,000, respectively. We may expand the range of the minimum and or maximum principal amounts for Borrower Loans in the future to $1,000 and or $60,000, respectively. All Borrower Loans are originated by WebBank, a Federal Deposit Insurance Corporation ( FDIC ) insured, Utah-chartered industrial bank. After originating a Borrower Loan, WebBank sells and assigns such Borrower Loans to PFL, without recourse to WebBank, in exchange for the principal amount of the Borrower Loan. WebBank has no obligation to Note holders. For all Borrower Loans, we verify the applicant s identity against data from consumer reporting agencies and other identity and anti-fraud verification databases. Loan listings can be posted without us obtaining any documentation of the applicant s ability to afford the loan. In some instances, we verify the income or employment information provided by applicants in listings. This verification is normally done after the listing has been created but before the loan is funded, and therefore the results of the verification process are not reflected in the loan listings. If we are unable to verify material information with respect to an applicant or listing, we will cancel or refuse to post the listing or cancel any or all commitments against the listing. We may also delay funding of a Borrower Loan in order to verify the accuracy of information provided by an applicant in connection with the listing, or to determine whether there are any irregularities with respect to the listing. If we identify material misstatements or inaccuracies in the listing or in other information provided by the applicant, we will cancel the listing or related loan. For more information, see About the Marketplace Borrower Identity and Financial Information Verification. The Notes. PFL generally issues and sells a series of Notes for each Borrower Loan that is funded through the marketplace. The Notes are sold to the investors who successfully bid on the corresponding Borrower Loan listing in the principal amounts of their respective bids. Each series of Notes is dependent for payment on payments PFL receives on the corresponding Borrower Loan. PFL uses the proceeds of each series of Notes to purchase the corresponding Borrower Loan from WebBank. PFL will pay each Note holder principal and interest on the Note in an amount equal to each such Note s pro rata portion of the principal and interest payments, if any, that PFL receives on the corresponding Borrower Loan, net of PFL s servicing fee, which is currently set at 1% per annum of the outstanding principal balance of the corresponding Borrower Loan prior to applying the current payment. PFL may in the future increase the servicing fee to a percentage that is greater than 1% but less than or equal to 3% per annum. Any change to PFL s servicing fee will only apply to Notes offered and sold after the date of the change. PFL will pay Note holders any other amounts it receives on the corresponding Borrower Loans, including late fees and prepayments, subject to its servicing fee, except that it will not pay Note holders any non-sufficient funds fees for failed borrower payments or any check processing fees. In addition, the funds available for payment on the Notes will be reduced by the amount of any attorneys fees or collection fees PFL, a third-party servicer or a collection agency imposes in connection with collection efforts related to the corresponding Borrower Loan. Notwithstanding the foregoing, PFL is not obligated to make any payments on any Note after its final maturity date. See The Offering Final maturity date Extension of maturity date. Under the Indenture, if a Repurchase Event occurs with respect to a Note, PFL will, at its sole option, either repurchase the Note from the holder or indemnify the holder of the Note for any losses resulting from nonpayment of the Note or from any claim, demand or defense arising as a result of such Repurchase Event. A Repurchase Event occurs with respect to a Note if (i) a Prosper Rating different from the Prosper Rating actually calculated by PFL was included in the listing for the corresponding Borrower Loan and the interest of the holder in the Note is materially and adversely affected, (ii) a Prosper Rating different from the Prosper Rating that should have appeared was included in the listing for the corresponding Borrower Loan because either PFL inaccurately input data into, or inaccurately applied, the formula for determining the Prosper Rating and, as a result, the interest of the holder in the Note is materially and adversely affected, or (iii) the corresponding Borrower Loan was obtained as a result of verifiable identify theft on the part of the purported borrower and a material payment default under the corresponding Borrower Loan has occurred. Under PFL s Investor Registration Agreement, PFL represents and warrants that (i) if an investor uses an automated bidding tool or order execution service offered by PFL, such as Auto Invest or Recurring Order (formerly known as Recurring Investment), to identify Notes for purchase, each Note purchased will conform to the investment criteria provided by the investor through such tool or service, and (b) each Note that an investor purchases from PFL will be in the principal amount of the bid such investor placed and will correspond to the Borrower Loan on which such investor bid. If PFL breaches either of these representations and warranties and, as a result, the Note sold to an investor is materially different from the Note that would have been sold had the breach not occurred or if the investor would not have purchased the Note at all absent such breach, PFL will, at its sole option, either indemnify the investor from any losses resulting from such breach, repurchase the Note or cure the breach, if the breach is susceptible to cure. If PFL breaches any of its other representations and warranties in the Investor Registration Agreement and such breach materially and adversely affects an investor's interest in a Note, PFL will, at its sole option, either indemnify the investor, repurchase the affected Note from such investor or cure the breach. If PFL repurchases any Notes, PMI will concurrently repurchase the related PMI Management Right for zero consideration. For more information about PFL s repurchase and indemnification obligations under the Indenture and the Investor Registration Agreements, see About the Marketplace Note Repurchase and Indemnification Obligations. PMI Management Rights. The PMI Management Rights are investment contracts issued by PMI directly to Note holders. The phrase investment contract is a concept under federal securities law that refers to an arrangement where investors invest money in a common enterprise with the expectation of profits, primarily from the efforts of others. Here, the investment contracts that PMI is registering as PMI Management Rights arise from the services that PMI has provided and will provide, as described in the Administration Agreement, the Indenture, the Investor Registration Agreement, and in this prospectus, which services include, but are not limited to the existence and operation of the marketplace verification of borrower information evaluation and validation of the Prosper Score and Prosper Rating remitting borrower payments and collecting on delinquent accounts. Investors who purchase PMI Management Rights will have rights under the federal securities laws as purchasers of a registered security. Investors will have limited contractual rights, collectively through the Indenture trustee, to enforce PMI's contractual obligations under the Administration Agreement. Such contractual rights exist under state law and will not, in any way, affect the rights of investors under the federal securities laws. The PMI Management Rights arise from the services that PMI will provide to PFL under the Administration Agreement as described in this prospectus. Pursuant to the Administration Agreement, PMI will provide three kinds of services to PFL (i) PMI will manage the operation of the marketplace itself, such as credit policy revisions and systems maintenance (the Loan Marketplace Administration Services ) (ii) PMI will provide back-office services to PFL, such as maintaining books and records, making periodic regulatory filings, and performing limited cash management functions (the Corporate Administration Services ) and (iii) PMI will service the Borrower Loans and Notes originated through the marketplace (the Loan and Note Servicing Services ). Holders of PMI Management Rights will have a limited contractual ability, collectively through the Indenture trustee, to enforce PMI s obligations under the Administration Agreement. However, holders of PMI Management Rights also have rights under the federal securities laws that are not limited, contractually or otherwise. PMI s obligations to provide services under the Administration Agreement may be terminated by PMI or by PFL under certain circumstances described in this prospectus. For more information, see Summary of Indenture, Form of Notes, PMI Management Rights and Administration Agreement PMI Management Rights. Termination of the Administration Agreement would not affect the rights of holders of previously issued PMI Management Rights under the federal securities laws. If PFL or PMI were to terminate PMI s obligations to provide services under the Administration Agreement, PMI would cease to issue new PMI Management Rights. PFL has entered into a back-up servicing agreement with a loan servicing company who is willing and able to transition loan and Note servicing responsibilities from PMI, but it is unlikely that the back-up servicer would be able to perform functions other than servicing the outstanding Borrower Loans and Notes. Therefore, PFL might have to suspend the facilitation of new Borrower Loans and the issuance of new Notes until it could find another party or parties that could perform the services PMI had been performing under the Administration Agreement. PFL believes it could find another party or parties to perform such services, but the search could take time. For more information, see Risk Factors Risks Related to PFL and PMI, Our Marketplace and Our Ability to Service the Notes. The PMI Management Rights will be attached to the Notes, will not be separable from the Notes and will not be assigned a value separate from the Notes. Servicing and Loan Marketplace Administration. PFL is responsible for servicing the Borrower Loans and Notes. Following its purchase of Borrower Loans and sale of Notes corresponding to the Borrower Loans, PFL begins servicing the Borrower Loans and Notes. If a Borrower Loan becomes one or more days past due, PFL may collect on it directly or refer it to a third party servicer or collection agency for collection. See About the Marketplace Loan Servicing and Collection for more information. PFL has entered into an Administration Agreement with PMI, pursuant to which PFL has engaged PMI to assist it in servicing the Borrower Loans, managing the marketplace, and in performing other duties. Pursuant to the Administration Agreement, PMI will provide a variety of administrative and management services, including, but not limited to, supervision of the management, maintenance and operation of the marketplace the issuance, sale and payment of the Notes PFL s purchase of Borrower Loans the operation of www.prosper.com PFL s compliance with applicable federal and state laws (including consumer protection laws, state lender licensing requirements and securities registration requirements) the applicant verification and eligibility processes the posting of listings on the marketplace and the assignment of a Prosper Rating and an interest rate to each listing. See About the Marketplace, Summary of Indenture, Form of Notes, PMI Management Rights and Administration Agreement Administration Agreement and Information About Prosper Marketplace, Inc. for more information. Recurring Order. Our automated loan search tool, Recurring Order (formerly known as Recurring Investment), allows investors to easily invest in Notes that meet their specific investment criteria by automatically bidding any available funds in their account on Notes that match their selected parameters, in accordance with their specified instructions. An investor using Recurring Order is asked to indicate (i) the Prosper Rating or Ratings and term of the Notes they wish to use as search criteria, and (ii) the amount they wish to invest per Note. If they wish, the investor can further customize their investment criteria by applying one or more of several dozen additional search criteria, such as loan amount, debt-to-income ratio and credit score. The investor can also set aside a specific amount of his or her funds as a cash reserve that will not be invested by the Recurring Order tool. After the investor has entered and saved the parameters of his or her search, Recurring Order automatically (i) runs searches on the designated criteria as new listings are posted on the marketplace, and (ii) places bids on any Notes identified by each such search. For more information about the Recurring Order tool and how it works, see About the Marketplace How to Bid to Purchase Notes Recurring Order. Auto Invest. Our automated loan search tool, Auto Invest, makes it easier for investors to build their desired portfolio of Notes by automatically investing any available funds in an investor s account in Notes that match the investor s specified investment criteria and allocation targets. An investor using Auto Invest is asked to select (i) a loan allocation target, or a target mix of loans based on Prosper Ratings, and (ii) the amount they wish to invest per Note. The investor has the option of selecting his or her target from Prosper s series of preset loan allocations based on the recent historical loan inventory on the marketplace, any of which may be customized by changing the individual allocation targets for each Prosper Rating, or they can create a custom loan allocation target across Prosper Ratings based on his or her specific risk tolerance. If they wish, the investor can further customize his or her investment criteria by applying additional filters, such as loan term and employment status. The investor can also set aside a percentage of his or her portfolio as a cash reserve that will not be invested by Auto Invest. Investors may update their target allocations, cash reserve and other criteria, and pause and restart Auto Invest, at any time. Once the investor turns on Auto Invest, the tool may immediately begin placing orders for Notes in accordance with the investor s current and target allocations and other investment criteria. The mix of Notes in any particular order may not match the investor s individual loan allocation targets, but over time Auto Invest will place orders so that the aggregate holdings in the investor s portfolio will approximate, to the extent possible, the allocation specified in his or her investment criteria. The frequency with which Auto Invest will place orders on the investor s behalf is based on the cash balance of his or her account, the availability of listings matching his or her investment criteria, and the demand from other investors. The investor s account and investment criteria will be reviewed by Auto Invest automatically each time new listings are posted on the marketplace. Auto Invest prioritizes accounts with a higher percentage of cash and places orders for those accounts first. Auto Invest does not prioritize accounts based on overall account size or investment criteria. For more information about the Auto Invest tool and how it works, see About the Marketplace How to Bid to Purchase Notes Auto Invest. Summary of Risk Factors An investment in our securities is subject to various risks, the most significant of which are summarized below. For more information about these and other risks involved with investing in Prosper s Notes, you should carefully read the factors described in the Risk Factors section of this Prospectus. Risks related to borrower default The Notes are risky and speculative investments suitable only for investors of adequate financial means. Payments on the Notes depend entirely on payments PFL receives on corresponding Borrower Loans. If a borrower fails to make any payments on the corresponding Borrower Loan related to a Note, payments on such Note will be correspondingly reduced. If payments on the Borrower Loan corresponding to an investor s Note become overdue, such investor may not receive the full principal and interest payments that were expected on the Note. Borrowers may not view or treat their obligations to PFL as having the same significance as loans from traditional lending sources. Information supplied by applicants may be inaccurate or intentionally false. Information regarding income and employment is not always verified. The credit information of an applicant may be inaccurate or may not accurately reflect the applicant s creditworthiness, which may cause an investor to lose all or part of the price paid for a Note. The fact that we have the exclusive right and ability to investigate claims of identity theft in the origination of Borrower Loans creates a significant conflict of interest between us and our investors. The Borrower Loans are not secured by any collateral or guaranteed or insured by any third party, and investors must rely on us or a third-party collection agency to pursue collection against any borrower. The Prosper Rating may not accurately set forth the risks of investing in the Notes, no assurances can be provided that actual loss rates for the Notes will come within the estimated average annualized loss rates indicated by the Prosper Rating, and investors have limited rights to cause Prosper to repurchase the Notes. We may not set appropriate interest rates for Borrower Loans. Investors who use the Recurring Order or Auto Invest tools may face additional risk of funding Borrower Loans that have been erroneously selected by the tool. The Recurring Order and Auto Invest tools may invest all available funds in an investor s account in accordance with the investor s investment criteria. The Borrower Loans do not restrict borrowers from incurring additional unsecured or secured debt, nor do they impose any financial restrictions on borrowers during the term of the Borrower Loan, which may reduce the likelihood that an investor will receive the full principal and interest payments that such investor expects to receive on a Note. In general, the Borrower Loans do not contain any cross-default or similar provisions. If a borrower defaults on any of his or her other debt obligations, our ability to collect on the Borrower Loan on which an investor s Note is dependent for payment may be substantially impaired. Risks Inherent in investing in the Notes The Notes are special, limited obligations of PFL only and are not directly secured by any collateral or guaranteed or insured by PMI or any third party. PFL is not obligated to indemnify Note holders or repurchase Notes except in limited circumstances. Our marketplace allows a borrower to prepay a Borrower Loan at any time without penalty. Borrower Loan prepayments will extinguish or limit an investor s ability to receive additional interest payments on a Note. Holders of the PMI Management Rights, collectively through the Indenture trustee, have a limited contractual ability to enforce PMI's obligations under the Administration Agreement. As a result, investors will have a limited contractual ability to require that PMI perform its obligations under the Administration Agreement. The Investor Registration Agreement contains provisions that limit certain legal rights of investors in relation to PFL and PMI. The Notes will not be listed on any securities exchange and can be held only by registered Prosper investors. Further, no trading platform for the transfer of Notes exists. Therefore, investors should be prepared to hold the Notes they purchase until maturity. Our participation in the funding of Borrower Loans could be viewed as creating a conflict of interest. Risks related to PFL and PMI, our marketplace and our ability to service the notes Human error in the operation of our platform has resulted in the allocation of Borrower Loans to our Note Channel which did not conform to the eligibility criteria applicable to Borrower Loans at the time of allocation. If we are unable to prevent the reoccurrence of similar errors, our business and investors could be adversely impacted. We have experienced errors on our platform that have resulted in incorrect reporting of performance returns to Note investors. If we are unable to prevent the reoccurrence of similar errors, investors could be adversely impacted. Arrangements for back-up servicing are limited. If PMI fails to maintain operations or the Administration Agreement is rejected or terminated (in bankruptcy or otherwise), investors may experience a delay and increased cost in respect of their expected principal and interest payments on Notes, and PFL may be unable to collect and process repayments from borrowers. PMI, in its capacity as servicer, has the authority to waive or modify the terms of a Borrower Loan without the consent of the Note holders. We have incurred operating losses in prior years and may continue to incur net losses in the future. PFL relies on a third-party commercial bank to process transactions. If PFL is unable to continue utilizing these services, its business and ability to service the Notes may be adversely affected. Any significant disruption in service in our marketplace or in PMI s computer systems could adversely affect PMI s ability to perform its obligations under the Administration Agreement. If the security of PFL s investors and borrowers confidential information stored in our systems is breached, users secure information may be stolen, our reputations may be harmed, and we may be exposed to liability. Increasing interest rates have adversely impacted and could materially and adversely impact our marketplace. Risks related to compliance and regulation Our marketplace represents a novel approach to borrowing and investing that may fail to comply with federal and state securities laws, borrower protection laws and the state counterparts to such consumer protection laws. Borrowers may dispute the enforceability of their obligations under borrower or consumer protection laws after collection actions have commenced, or otherwise seek damages under these laws. Investors may attempt to rescind their Note purchases under securities laws. Regulatory agencies and their state counterparts may investigate our compliance with these regulatory obligations, and may take enforcement action with respect to alleged law violations. There continues to be uncertainty as to how the actions of the Consumer Financial Protection Bureau or any other new agency could impact our business or that of our issuing bank. If our marketplace were found to violate a state s usury laws, we may have to alter our business model and our business could be harmed. If one or both of PMI and PFL is required to register under the Investment Company Act or the Investment Advisers Act, either of our ability to conduct business could be materially adversely affected. Several lawsuits have sought to recharacterize certain loan marketers and other originators as lenders. If litigation or a regulatory enforcement action on similar theories were successful against one or both of PMI and PFL, Borrower Loans originated through our marketplace could be subject to state consumer protection laws and licensing requirements in a greater number of states. We rely on agreements with WebBank, pursuant to which WebBank originates loans to qualified borrowers on a uniform basis throughout the United States and sells and assigns those loans to PFL. If our relationship with WebBank were to end, we may need to rely on individual state lending licenses to originate Borrower Loans. PMI's administration of Quick Invest under its previous offering and PFL s administration of Recurring Order (formerly known as Recurring Investment) and Auto Invest under its current offering, could create additional liability for PFL and such liability could be material. Corporate Information Prosper Marketplace, Inc. PMI was incorporated in the State of Delaware on March 22, 2005. Its principal executive offices are located at 221 Main Street, 3rd Floor, San Francisco, California 94105. Its telephone number at this location is (415) 593-5400. Prosper Funding LLC. PMI formed Prosper Funding LLC in the State of Delaware on February 17, 2012. PFL s principal executive offices are located at 221 Main Street, 3rd Floor, San Francisco, California 94105. Its telephone number at this location is (415) 543-5400. Its website address is www.prosper.com. The information contained on its website is not incorporated by reference into this prospectus. PFL has been organized and is operated in a manner that is intended (i) to minimize the likelihood that it will become subject to bankruptcy proceedings, and (ii) to minimize the likelihood that it would be substantively consolidated with PMI, and thus have its assets subject to claims by PMI s creditors, if PMI files for bankruptcy. This is achieved by placing certain restrictions on PFL s activities, including its transactions with PMI, and implementing certain formalities designed to expressly reinforce PFL s status as a distinct corporate entity from PMI. See Information About Prosper Funding LLC. \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001644515_docola-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001644515_docola-inc_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..bb8b9bf67728ab19b0378c870e962cb70f590547 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001644515_docola-inc_prospectus_summary.txt @@ -0,0 +1 @@ +The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted. PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST 28, 2024 1,165,217 Units Each Unit Consisting of One Share of Common Stock, One Tradeable Warrant to Purchase One Share of Common Stock, and One Non-Tradeable Warrant to Purchase One Share of Common Stock and the 2,330,434 Shares of Common Stock underlying such Warrants We are offering 1,165,217 units of Docola, Inc., a Delaware corporation. The initial public offering price is expected to be between $5.75 and $6.75 per unit. For purposes of this prospectus, the assumed public offering price per unit is $5.75, the low-end of the anticipated price range between $5.75 and $6.75 per unit. Each unit consists of one share of our common stock, par value $0.0001 per share, one tradeable warrant (each, a "Tradeable Warrant," collectively, the "Tradeable Warrants") to purchase one share of our common stock at an exercise price per share of $6.6125 (115% of the assumed public offering price of one unit in this offering), and one non-tradeable warrant (each, a "Non-tradeable Warrant," collectively, the "Non-Tradeable Warrants"; together with the Tradeable Warrants, each, a "warrant," collectively, the "warrants")) to purchase one share of our common stock at an exercise price per share of $6.6125 (115% of the assumed public offering price of one unit in this offering). The warrants will expire on the five-year anniversary of the initial issuance date. The units will have no stand-alone rights and will not be issued or certificated as stand-alone securities. Purchasers will receive only shares of common stock and warrants. The shares of common stock and warrants may be transferred separately, immediately upon issuance. \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001650789_sequoia_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001650789_sequoia_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001650789_sequoia_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY 1 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001668370_toughbuilt_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001668370_toughbuilt_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..75a70fb8343cab7eacbce5b063d120c543e31e59 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001668370_toughbuilt_prospectus_summary.txt @@ -0,0 +1,551 @@ +PROSPECTUS SUMMARY + + + +This summary highlights information about our company, +this offering and information contained in greater detail in other parts of this prospectus or incorporated by reference into this prospectus +from our filings with the SEC listed in the section entitled "Information Incorporated by Reference." Because it is only a +summary, it does not contain all of the information that you should consider before purchasing our securities in this offering and it +is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere or incorporated +by reference into this prospectus. You should read the entire prospectus, the registration statement of which this prospectus is a part, +and the information incorporated by reference into this prospectus in their entirety, including the "Risk Factors" and our +financial statements and the related notes incorporated by reference into this prospectus, before purchasing our securities in this offering. +Except as otherwise indicated herein or as the context otherwise requires, references in this prospectus to "ToughBuilt" "the +Company," "we," "us" and "our" refer to ToughBuilt Industries, Inc., a Nevada corporation, and +its subsidiaries. + + + +Overview + + + +We were formed to design, manufacture, and distribute +innovative tools and accessories to the building industry. We market and distribute various home improvement and construction product +lines for both Do-It-Yourself and professional markets under the TOUGHBUILT brand name, within the global multibillion-dollar per +year tool market. All of our products are designed by our in-house design team. Since our initial launch of product sales nine years ago, +we have experienced annual sales growth from approximately $1,000,000 in 2013 to approximately $95,000,000 in 2022. + + + +Our business is currently based on development of +innovative and state-of-the-art products, primarily in tools and hardware category, with particular focus on building and construction +industry with the ultimate goal of making life easier and more productive for contractors and workers alike. + + + +Our three major categories contain a total of 29 product +lines, consisting of (i) Soft Goods, which includes kneepads, tool bags, pouches and tool belts, (ii) Metal Goods, which consists of sawhorses, +tool stands and workbench and (iii) Utility Products, which includes utility knives, aviation snips, shears, lasers and levels. We also +have several additional categories and product lines in various stages of development. + + + +We operate through the following subsidiaries: (i) +ToughBuilt Industries UK Limited; (ii) ToughBuilt Mexico; (iii) ToughBuilt Armenia, LLC; and (iv) ToughBuilt Brazil. + + + +Recent Developments + + + +In order to maintain its Nasdaq listing, the Company +effected a reverse stock split of its outstanding common stock on a sixty-five (65) to one (1) share basis, rounding up for fractional +shares, and our common stock commenced trading on a post-reverse stock split basis at market open on January 2, 2024. Unless +otherwise indicated, the share and per share information in this prospectus reflects our prior reverse stock splits, including the 1-for-65 +stock split. The authorized number and par value of our common stock did not change as a result of the reverse stock split. + + + +The Company anticipates generating positive operating +cash flow in the third quarter of fiscal 2024. These expectations are dependent, in part, on the Company s plans for developing +and introducing new products in revenue-generating categories, adding new customers, increasing prices on certain products, and cutting +costs, where necessary. As disclosed in the "Management s Discussion and Analysis of Financial Condition and Results of Operations" +section included in this prospectus, we reduced our SG&A expenses by approximately $2.1 million, or 14%, during the three months ended +September 30, 2023, compared to the same period in 2022 primarily by decreasing our employee headcount. We intend to continue implementing +these and other cost-saving measures as warranted to assist us in becoming operating cash flow positive. However, there are no assurances +that we will be successful in achieving this milestone when expected, or at all. + + + +Business Developments + + + +The following highlights material +business developments in our business during fiscal year ended December 31, 2023: + + + + In January 2023, we launched more than 40 new SKUs into the Handheld Screwdrivers segment, including ratcheting bit drivers, insulated +screwdrivers, precision, slotted, Phillips, Torx and cabinet screwdrivers and demolition drivers. + + + + 4 + + + + + + + + In January 2023, we expanded our distribution agreement with Sodimac, the largest home improvement and construction supplier in South +America. In this extended agreement, stores in Chile, Peru, Argentina, Colombia, Brazil, and Uruguay will initially begin with 15 SKUs +in-store and brings 23 SKUs to Sodimac s online marketplace. + + + + In January 2023, we launched more than 20 new SKUs into the Handheld Wrenches segment, including adjustable wrenches, construction +wrenches and pipe wrenches. + + + + In February 2023, we launched our new line of pliers and clamps. The new line, comprised of more than 40 SKUs, will be made available +for purchase through leading U.S. home improvement retailers and across ToughBuilt s growing strategic networks of North American +and global trade partners and buying groups, servicing over 18,900 storefronts and online portals worldwide. + + + + In August 2023, the Company expanded its distribution in the European Union with two major retail groups, La Platforme Du Batiment +and Prolians, servicing professional customers in France and Spain. + + + + In August 2023, the Company expanded its distribution of products to customers in the United Kingdom through new business with Howdens +UK and City Electrical Factors UK ("CEF"), marking entry into a combined network of more than 1,200 retail locations nationwide. + + + + In October 2023, the Company launched its StackTech product line with an initial rollout more than 25 SKUs. StackTech is an intuitive +modular storage toolbox system and StackTech is the world s first auto-locking stacking tool storage solution with 14 unique +features. + + + + + + 5 + + + + + + + +Our Products + + + +TOUGHBUILT +manufactures and distributes an array of high-quality and rugged tool belts, tool bags, and other personal tool organizer products. We +also manufacture and distribute a complete line of knee pads for various construction applications, a variety of metal goods, including +utility knives, aviation snips and shears and digital measures such as lasers and levels. Our line of job site tools and material support +products consists of a full line of miter saw and table saw stands, sawhorses/job site tables, roller stands and workbench. All of our +products are designed and engineered in the United States and manufactured in China, India and the Philippines under our quality control +supervision. We do not need government approval for any of our products. + + + +Our soft-sided tool storage line is designed for a +wide range of Do-It-Yourself and professional needs. This line of pouches and tool and accessories bags is designed to organize our customers +tools faster and easier. Interchangeable pouches clip on and off any belt, bag ladder wall, or vehicle. Our products let our customers +carry what they want so they have it when they want it. ToughBuilt s wide mouth tool carry-all bags come in sizes from 12 inches +to 30 inches. They all have steel-reinforced handles and padded shoulder straps which allow for massive loads to be carried with ease. +Rigid plastic hard-body lining protects everything inside. Double mesh pockets included inside provide complete visibility for stored +items. They include a lockable zipper for added security and safety and secondary side handles for when it takes more than one to carry +the load. + + + +All of these products have innovative designs with +unique features that provide extra functionality and enhanced user experience. Patented features such as our exclusive "Cliptech" +mechanism incorporated in some of the products in this line are unique in these products for the industry and have distinguished the line +from other similarly situated products thus we believe, increasing appeal among the other products of this category in the professional +community and among the enthusiasts. + + + +Soft Goods + + + +The flagship of the product line is the soft goods +line that consists of over 100 variations of tool pouches, tool rigs, tool belts and accessories, tool bags, totes, variety of storage +solutions, and office organizers/bags for laptop/tablet/cellphones, etc. Management believes that the breadth of the line is one of the +deepest in the industry and has specialized designs to suit professionals from all sectors of the industry including plumbers, electricians, +framers, builders, and more. + + + +We have a selection of over 10 models of kneepads, +some with revolutionary and patented design features that allow the users to interchange components to suit particular conditions of use. +Management believes that these kneepads are among the best performing kneepads in the industry. Our "all terrain" knee pad +protection with snapshell technology is part of our interchangeable kneepad system which helps to customize the jobsite needs. They are +made with superior quality using multilevel layered construction, heavy-duty webbing, and abrasion-resistant PVC rubber. + + + +Metal Goods + + + +Sawhorses and Work Support Products + + + +The second major category consists of Sawhorses and +Work Support products with unique designs and robust construction targeted for the most discerning users in the industry. The innovative +designs and construction of the more than 18 products in this category have led to the sawhorses becoming among the best sellers of category +everywhere they are sold. The newest additions in this category include several stands and work support products that are quickly gaining +recognition in the industry and are expected to position themselves in the top tier products in a short time. Our sawhorse line, miter +saw, table saw & roller stands and workbench are built to very high standards. Our sawhorse/jobsite table is fast to set up, holds +2,400 pounds, has adjustable heights, is made of all-metal construction, and has a compact design. We believe that these lines of products +are slowly becoming the standard in the construction industry. + + + + 6 + + + + + + + +All of our products are designed in house to achieve +features and benefits for not only the professional construction worker but also for the Do-It-Yourself person. + + + +Electronic Goods + + + +Digital Measures and Levels + + + +TOUGHBUILT s third major product line is +the digital measure and levels. These digital measures are targeted toward the PROs for accurate job site measuring, to make sure the +job is done right and in time. These digital measures help calculate what amount of construction product is needed to finish the job. +Such as measures for floors, tile, and paint. + + + +Competition + + + +The tool equipment and accessories industry is +highly competitive on a worldwide basis. We compete with a significant number of other tool equipment and accessories manufacturers and +suppliers to the construction, home improvement, and Do-It-Yourself industry, many of which have significantly greater financial resources +than we have; more comprehensive product lines; longer-standing relationships with suppliers, manufacturers, and retailers; broader distribution +capabilities; stronger brand recognition and loyalty; and the ability to invest substantially more in product advertising and sales. Our +biggest three competitors are Stanley, Milwaukee and Dewalt, all of which have greater resources than us. + + + +Our competitors greater capabilities in the +above areas enable them to better differentiate their products from ours, gain stronger brand loyalty, withstand periodic downturns in +the construction and home improvement equipment and product industries, compete effectively on the basis of price and production, and +more quickly develop new products. Our financial condition and operating results can be adversely affected by these and other industry-wide +downward pressures on gross margins. Principal competitive factors important to us include price, product features, relative price/performance, +product quality and reliability, design innovation, marketing and distribution capability, service and support, and corporate reputation. + + + +Our Business Strategy + + + +Our product strategy is to develop product lines in +a number of categories rather than focus on a single line of goods. We believe that this approach allows for rapid growth, wider brand +recognition, and may ultimately result in increased sales and profits within an accelerated time period. We believe that building brand +awareness of our current ToughBuilt lines of products will expand our share of the pertinent markets. Our business strategy includes the +following key elements: + + + + A commitment to technological innovation achieved through consumer insight, creativity, and speed to market; + + + + A broad selection of products in both brand and private labels; + + + + Prompt response; + + + + Superior customer service; and + + + + Value pricing. + + + +We will continue to consider other market opportunities +while focusing on our customers specific requirements to increase sales. + + + + 7 + + + + + + + +Market + + + +In addition to the construction market, our products +are marketed to the "Do-It-Yourself" and home improvement marketplace. The home improvement industry has fared much better +in the aftermath of the Great Recession than the housing market. The U.S. housing stock of more than 130 million homes requires regular +investment merely to offset normal depreciation. And many households that might have traded up to more desirable homes during the downturn +decided instead to make improvements to their current homes. Meanwhile, federal and state stimulus programs encouraged homeowners and +rental property owners to invest in energy-efficient upgrades that they might otherwise have deferred. Finally, many rental property owners, +responding to a surge in demand from households either facing foreclosure or nervous about buying amid the housing market uncertainty, +reinvested in their units. + + + +TOUGHBUILT products are available worldwide in +many major retailers ranging from home improvement and construction products and services stores to major online outlets. Currently, we +have placement in Lowes, Home Depot, Menards, Bunnings (Australia), Princess Auto (Canada), Dong Shin Tool PIA (S. Korea) and others, +as well as seeking to grow our sales in global markets such as Western and Central Europe, Russia and Eastern Europe, South America and +the Middle East. + + + +Retailers by region include: + + + + United States: Lowe s, Home Depot, Menards, Harbor Freight, ACE Hardware, Acme, TSC-Canada: Princess Auto; + + United Kingdom: Wickes, TOOL STATION, Huws Gray, Selco Builders Warehouse, MKM, City Electrical Factors, and Carpet & Flooring; + + Europe: Elecktro3 and NCC Hardware; + + South America: Sodimac; + + Mexico: Sears + + Middle East: Lamed; + + Australia: Kincrome, and Bunnings; + + New Zealand: Kincrome, and Bunnings; + + South Korea: Dong Shin Tool PIA Co., Ltd. + + + +We are actively expanding into other markets including +South Africa. + + + +We are currently in product line reviews and discussions +with Home Depot Canada, Do It Best, True Value, and other major retailers both domestically and internationally. A product line review +requires the supplier to submit a comprehensive proposal which includes product offerings, prices, competitive market studies and relevant +industry trends, and other information. Management anticipates, within the near term, adding to its customer base up to three major retailers, +along with several distributors and private retailers within six sectors and among fifty-six targeted countries. + + + +Going Concern + + + +The Company has incurred substantial operating +losses since its inception. As reflected in our consolidated financial statements for the fiscal quarter ended September 30, 2023, we +had an accumulated deficit of approximately $173.2 million at September 30, 2023, a net loss of approximately $28.2 million, and approximately +$4.1 million of net cash used in operating activities for the nine months ended September 30, 2023. As reflected in our consolidated +financial statements for the fiscal year ended December 31, 2022, we had an accumulated deficit of approximately $145 million at December +31, 2022, a net loss of approximately $39.3 million for the year ended December 31, 2022, and approximately $37.3 million of net cash +used in operating activities for the year ended December 31, 2022. The consolidated financial statements included in this prospectus +were prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course +of business. At September 30, 2023, we had approximately $1.8 million in cash on hand. At December 31, 2023, we had unaudited amount of approximately $1.7 million in cash on hand. + + + +We anticipate incurring additional losses until such time, if ever, that we will be able to effectively market our products. +To fund our operations and grow our business, we will require to fund our capital requirements through the sale of debt or equity securities +or other arrangements. These factors raise substantial doubt about our ability to continue as a going concern. + + + + 8 + + + + + + + +Our revenues for the three months ended September +30, 2023 were $20,630,207, compared to and $30,245,251 for the same period in 2022, a decrease of +$9,615,044, or 31.8%. For the nine months ended September 30, 2023, our revenues were $59,722,486, compared to $65,353,651 for +the nine months ended September 30, 2022, a decrease of $5,631,165 or 8.6%. Revenue for Q4 2023 was unaudited $24.3 million compared to +$30 million in Q4 2022. Decrease was primarily due to overall market sector decline in sales. This represents a 20% decrease in revenue +for Q4. Our revenues decreased primarily due to capital constraints which have consequently limited our ability to meet demand for our +products. In recognition of the importance of maintaining sufficient inventory levels to meet demand, the Company intends to address this +limitation by exploring various financing options. However, the Company acknowledges that there can be no assurance of successfully securing +the necessary capital or restoring inventory levels to their desired state in the near term. + + + +This offering is being made on a best efforts basis +and we may sell fewer than all of the securities offered hereby and may receive significantly less in net proceeds from this offering. +Assuming that we receive net proceeds of approximately $4.2 million from this offering (assuming an offering with gross proceeds of $5,000,000), +we believe that the net proceeds from this offering will meet our capital needs for the next six months under our current business plan. +Assuming that we receive net proceeds of approximately $3.03 million from this offering (assuming an offering with gross proceeds of $3,750,000), +we believe that the net proceeds from this offering will satisfy our capital needs for the next five months under our current business +plan. Assuming that we receive net proceeds of approximately $1.875 million from this offering (assuming an offering with gross proceeds +of $2,500,000), we believe that the net proceeds from this offering will satisfy our capital needs for the next four months under our +current business plan. Assuming that we receive net proceeds of approximately $718,000 from this offering (assuming an offering with gross +proceeds of $1,250,000 we believe that the net proceeds from this offering will satisfy our capital needs for the next three months under +our current business plan. If we have insufficient capital to operate our business under our current business plan, we have contingency +plans for our business that include, among other things, the delay of the introduction of new products, a reduction in headcount, and +a reduction of the expansion of our distribution networks, which is expected to substantially reduce revenue growth and delay our profitability. +There can be no assurance that our implementation of these contingency plans will not have a material adverse effect on our business. + + + +Recent Developments + + + +Revenue for Q4 2023 was unaudited $24.3 million compared to $30 million in Q4 2022. Decrease was primarily due to +overall market sector decline in sales. This represents a 20% decrease in revenue for Q4. Our revenues decreased primarily due to capital +constraints which have consequently limited our ability to meet demand for our products. In recognition of the importance of maintaining +sufficient inventory levels to meet demand, the Company intends to address this limitation by exploring various financing options. However, +the Company acknowledges that there can be no assurance of successfully securing the necessary capital or restoring inventory levels to +their desired state in the near term. + + + +Corporate History + + + +We were incorporated in the State +of Nevada on April 9, 2012, as Phalanx, Inc. We changed our name to ToughBuilt Industries, Inc. on December 29, 2015. On September 18, +2018, we effected a 1-for-2 reverse stock split of our common stock. We consummated our initial public offering pursuant to a registration +statement on Form S-1 (File No: 333-226104) declared effective by the SEC on November 8, 2018, and become an SEC Exchange Act reporting +company pursuant to a Form 8-A (File No. 001-38739) on November 8, 2018. On April 15, 2020, we effected a 1-for-10 reverse stock split +of our common stock. On April 25, 2022, we effected a 1-for-150 reverse stock split of our common stock. On January 2, 2024, we effected +a 1-for-65 reverse stock split. Unless otherwise indicated, the share and per share information in this prospectus reflects the 1-for-65 +reverse stock split. The authorized number and par value of our common stock +did not change as a result of any of the reverse stock splits. + + + +Summary of Risk Factors + + + +Investing in our securities involves risks. You should +carefully read the section of this prospectus entitled "Risk Factors" and the other information in this prospectus for an +explanation of these risks before investing in our securities. In particular, the following considerations may offset our competitive +strengths or have a negative effect on our strategies or operating activities, which could cause a decrease in the price of our common +stock and a loss of all or part of your investment. + + + + our ability to continue as a going concern; + + + + our ability to regain and maintain our listing on the Nasdaq Capital Market or any exchange; + + + + our lack of operating history; + + + + 9 + + + + + + + + the expectation that we will incur significant operating losses for the foreseeable future and will need significant additional capital; + + + + our current and future capital requirements to support our development and commercialization efforts for our product candidates and +our ability to satisfy our capital needs; + + + + our dependence on third-parties to manufacture our products; + + + + our ability to maintain or protect the validity of our intellectual property; and + + + + our ability to our and our customers information from cyberattacks. + + + +The foregoing does not represent an exhaustive list +of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause +our actual results to differ from those anticipated in such forward-looking statements. The events and circumstances reflected in our +forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking +statements. You should refer to the "Risk Factors" section of this prospectus for a discussion of important factors that may +cause our actual results to differ materially from those expressed or implied by our forward-looking statements. You should review the +factors and risks and other information we describe in the reports we will file from time to time with the SEC after the date of this +prospectus. + + + +Executive +Offices and Internet Website + + + +Our principal executive offices are located at 8669 +Research Drive, Irvine, CA 92618, and our telephone number is (949) 528-3100. Our website address is www.toughbuilt.com. Information +contained in, or accessible through, our website does not constitute part of this prospectus or registration statement and inclusions +of our website address in this prospectus or registration statement are inactive textual references only. You should not rely on any such +information in making your decision whether to purchase our securities. + + + +Smaller Reporting Company Status + + + +We lost our status as an "emerging growth +company" on January 1, 2023 but retain our status as a "smaller reporting company" as defined in Rule 12b-2 of the +Exchange Act, and have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies. We +will remain a smaller reporting company until the end of the fiscal year in which (i) we have a public common equity float of more +than $250 million, or (ii) we have annual revenues for the most recently completed fiscal year of more than $100 million and a +public common equity float or a public float of more than $700 million. We also would not be eligible for status as a smaller +reporting company if we become an investment company, an asset-backed issuer or a majority-owned subsidiary of a parent company that +is not a smaller reporting company. + + + +We have elected to take advantage of certain of +the reduced disclosure obligations in the registration statement of which this prospectus is a part and may choose to take advantage of +other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different +from what you might receive from other public reporting companies in which you hold equity interests. + + + + 10 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001675634_shiftpixy_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001675634_shiftpixy_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..69faac99bd69ccb0270e3c3eb4462422522f3d9c --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001675634_shiftpixy_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY 5 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001691936_stryve_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001691936_stryve_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..67577e3a022e49a08aa9ff345e8db85137362581 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001691936_stryve_prospectus_summary.txt @@ -0,0 +1,297 @@ +SUMMARY +OF THE PROSPECTUS + + + +This +summary highlights selected information from this prospectus and may not contain all of the information that is important to you in making +an investment decision. Before investing in our Class A Common Stock, you should carefully read this entire prospectus, including our +financial statements and the related notes incorporated herein by reference. + + + +Overview + + + +Stryve +is an emerging healthy snacking company which manufactures, markets and sells highly differentiated healthy snacking products that Stryve +believes can disrupt traditional snacking categories. Stryve s mission is "to help Americans snack better and live happier, +better lives." Stryve offers convenient snacks that are lower in sugar and carbohydrates and higher in protein than other snacks. +Stryve offers all-natural, delicious snacks which it believes are nutritious and offer consumers a convenient healthy snacking option +for their on-the-go lives. + + + +Stryve s +current product portfolio consists primarily of air-dried meat snack products marketed under the Stryve , Kalahari , Braaitime , +and Vacadillos brand names. Unlike beef jerky, Stryve s all-natural air-dried meat snack products are made of beef and spices, +are never cooked, most contain zero grams of sugar, and are free of monosodium glutamate (MSG), gluten, nitrates, nitrites, and preservatives. +As a result, Stryve s products are Keto and Paleo diet friendly. Further, based on protein density and sugar content, Stryve believes +that its air-dried meat snack products are some of the healthiest shelf-stable snacks available today. + + + +Stryve +distributes its products in major retail channels, primarily in North America, including mass, convenience, grocery, club stores, and +other retail outlets, as well as directly to consumers through its e-commerce websites, as well as direct to consumer through the Amazon +platform. + + + +Stryve +believes increased consumer focus in the U.S. on health and wellness will continue to drive growth of the healthy snacking category and +increase demand for Stryve s products. Stryve has made substantial investments since its inception in product development, establishing +its manufacturing facility, and building its marketing, sales and operations infrastructure to grow its business. As a result, Stryve +has reported net losses since its inception. Stryve intends to continue to invest in productivity, product innovation, improving its +supply chain, enhancing and expanding its manufacturing capabilities, and expanding its marketing and sales initiatives to drive continued +growth. + + + +Transformation +Strategy + + + +In +May of 2022, Stryve announced a leadership change with Chris Boever stepping in as the new Chief Executive Officer of the Company. With +this change in leadership, management thoughtfully reviewed the business, strategy, near-term prospects, and its path to profitability. +From this, management began executing on a three-phase transformation plan to drive the Company towards a profitable, self-sustaining +model. The first phase of the transition was focused on cost reduction, revenue rationalization, pricing, and organizational design. +The second phase began later in 2022 and was focused on improvements in quality, talent, and maximizing value through productivity. Management +believes the benefits of the efforts within each of these phases will be compounding as the changes and improvements are being built +into the Company s ongoing operating model. + + + +As +an extension of the restructuring plans, we evaluated our revenue base in the second half of 2022 and took steps to improve or eliminate +low-quality revenue sources in order to create opportunities to drive long-term value-creating growth. Additionally, we took actions +to improve the quality of our revenue through improving our price-mix by working strategically with of some of our large retail partners +to introduce new products that improved our unit economics while creating a more attractive consumer offering. + + + +As +part of the transformation, Management identified certain one-time write-downs for assets that were non-core to the go-forward plan as +well as identified necessary write-downs of inventory and incurring one-time employee costs related to actions taken to reorganize the +business and its objectives in line with the strategic direction that Mr. Boever has for the enterprise. These charges began in the second +quarter of 2022 and continued to a lesser extent throughout 2023. + + + + + + 3 + + + + + + + + + +In +2024, the final phase of the transformation is now underway. It is focused on accelerating quality growth through brand reinvigoration, +enhanced sales strategies, disciplined promotional activity, and new partnerships to help expand the reach of our brands. We expect to +continue to garner new retail distribution in both measured and non-measured channels and build upon the increases we ve seen in +our retail consumption metrics, ultimately increasing our market share within the category while seeking to maintain an optimized spending +profile across the business. + + + +A +key piece of our retail growth strategy is tied to making the product more available and approachable. To accomplish this, we completed +a strategic redesign of our packaging with retail conversion at the forefront of design considerations. We collaborated with both consumers +and retailers as we sought to optimize the packaging for retail conversion. We received a positive response from many retail partners +on the new designs, garnering additional distribution in the process. We began manufacturing select items in the new packaging in mid-2023 +and transitioned the rest of our production over to the new packing throughout the balance of 2023 with final cut over occurring around +year-end. Our new packaging began to ship to retailers and distributors broadly beginning the first quarter of 2024, and by the end of +the first half of 2024 we estimate that approximately three fourths of retailer shelves have transitioned to the new packaging. + + + +We +are encouraged by the consumer and retailer response to our updated packaging and are excited to share that as the new packaging has +made its way through distribution and onto shelves for consumers that the impact on our retail consumption data has been significant. +While the impact of the packaging and product quality have been significant in terms of consumer response at retail, we expect to see +opportunities to grow our distribution footprint in measured channels in the coming quarters as a result of this performance which could +lead to meaningful sales growth for the business. + + + +Compliance +With the Nasdaq Capital Market Listing Requirements + + + +Our +Class A Common Stock is currently listed for trading on Nasdaq Capital Market (the "Nasdaq"). On April 9, 2024, we received +a deficiency letter from the Nasdaq Listing Qualifications Department indicating that we were not in compliance with Nasdaq s Listing +Rule 5550(b)(1) because our stockholders equity for the year ended December 31, 2023, as reported in our Form 10-K, was below +the minimum stockholders equity requirement of $2,500,000 (the "Stockholders Equity Requirement"). The notice +had no immediate effect on our continued listing on Nasdaq, subject to our compliance with the other continued listing requirements. +We had until October 7, 2024 to meet the Stockholders Equity Requirement. + + + +As we did not regain compliance with the Stockholders Equity Requirement by October 7, 2024, we received a +delisting determination letter on October 8, 2024 (the "Delisting Determination Letter"). The Delisting Determination Letter +stated that unless we requested a timely hearing before a Nasdaq Hearing Panel ("Panel") to appeal Nasdaq s delisting +determination, trading of our Class A common stock and warrants would be suspended and delisted from Nasdaq. + + + +We have filed a request a hearing before the Panel, which was granted for November 26, +2024 (the "Hearing Date"), at which we will request a suspension of delisting pending our return to compliance. Pursuant to +Nasdaq Listing Rule 5815(a)(1)(B), the hearing request has stayed the suspension of trading and delisting of our Class A Common Stock +and warrants pending the conclusion of the hearing process. Consequently, our Class A Common Stock and warrants will remain listed on +Nasdaq at least until the Panel renders a decision following the hearing. + + + +If, prior to the Hearing Date, +we are able to sell all of the securities in this +offering, we believe we will satisfy the Stockholders Equity Requirement. + + + +We +must satisfy Nasdaq s continued listing requirements or risk delisting, which could have a material adverse effect on our business. +If our Class A Common Stock is delisted from Nasdaq, it could materially reduce the liquidity of our Class A Common Stock and result +in a corresponding material reduction in the price of our Class A Common Stock as a result of the loss of market efficiencies associated +with Nasdaq and the loss of federal preemption of state securities laws. In addition, delisting could harm our ability to raise capital +through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, +suppliers, customers and employees and fewer business development opportunities. If our Class A Common Stock is delisted, it could be +more difficult to buy or sell our Class A Common Stock or to obtain accurate quotations, and the price of our Class A Common Stock could +suffer a material decline. Delisting could also impair our ability to raise capital on acceptable terms, if at all. + + + +Risks +of Investing + + + +Investing +in our securities involves substantial risks. Potential investors are urged to read and consider the risk factors relating to an investment +in our securities set forth under "Risk Factors" in this prospectus as well as other information we include in this prospectus. + + + + + + 4 + + + + + + + + + + Recent +Developments + + + + Warrant +Re-Price + + + + In +connection with this offering, we also agreed to amend certain existing warrants that were previously issued on January 11, 2022 to +purchase up to 529,412 shares of our Class A Common Stock and have an exercise price of $54.00 per share, (the "Existing +Warrants"), such that effective upon the closing of this offering, the Existing Warrants will be amended to have a reduced +exercise price equal to $ per share. The exercise of the repriced Existing Warrants will be subject to the Stockholder Approval +along with the common warrants issued in this offering. + + + +Emerging +Growth Company under the JOBS Act + + + +As +a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" +under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we have elected to take advantage +of reduced reporting requirements and are relieved of certain other significant requirements that are otherwise generally applicable +to public companies. As an emerging growth company: + + + + we + may present only two years of audited financial statements and only two years of related + Management s Discussion and Analysis of Financial Condition and Results of Operations; + + + + we + are exempt from the requirement to obtain an attestation and report from our auditors on + whether we maintained effective internal control over financial reporting under the Sarbanes-Oxley + Act; + + + + we + are permitted to provide less extensive disclosure about our executive compensation arrangements; + and + + + + we + are not required to give our stockholders non-binding advisory votes on executive compensation + or golden parachute arrangements. + + + +We +may take advantage of these provisions until the last day of the fiscal year following the fifth anniversary of our initial public offering +if we continue to be an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in +annual revenue, have more than $700 million in market value of our shares held by non-affiliates or issue more than $1.0 billion of non-convertible +debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have elected to provide +two years of audited financial statements. Additionally, we have elected to take advantage of the extended transition period provided +in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates +for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively +and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act. + + + +Corporate +Information + + + +Additional +information about us can be found in our Annual Report on Form 10-K for the year ended December 31, 2023 together with any material changes +thereto contained in subsequently filed quarterly reports on Form 10-Q, which are incorporated by reference herein. + + + +Andina +Acquisition Corp. III (Andina) was a blank check company incorporated as a Cayman Islands exempted company on July 29, 2016. Stryve Foods, +LLC was a Texas limited liability company formed on January 13, 2017. On July 20, 2021, we completed the Business Combination, under +which Andina was domesticated as a corporation in the State of Delaware, renamed "Stryve Foods, Inc." and was organized as +an "Up-C" structure in which substantially all of the assets of the combined company are held by Andina Holdings, LLC (Holdings), +and our only assets are our equity interests in Holdings. As the managing member of Holdings, we have full, exclusive and complete discretion +to manage and control the business of Holdings and to take all action we deem necessary, appropriate, advisable, incidental, or convenient +to accomplish the purposes of Holdings. As of the open of trading on July 21, 2021, our Class A Common Stock and Warrants, formerly those +of Andina, began trading on Nasdaq as "SNAX" and "SNAXW," respectively. + + + +Our +principal executive offices are located at P.O. Box 864, Frisco, Texas 75034, and our telephone number is (972) 987-5130. Our website +address is www.stryve.com. Information contained on our website is not a part of this prospectus, and the inclusion of our website address +in this prospectus is an inactive textual reference only. + + + + + + 5 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001735092_gofba-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001735092_gofba-inc_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..b9cf297cca52ec2d3882146fa9d4a986d6d2c55f --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001735092_gofba-inc_prospectus_summary.txt @@ -0,0 +1,113 @@ +PROSPECTUS SUMMARY + +You should read the following summary together with the more detailed information and the financial statements appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Risk Factors and elsewhere in this Prospectus. Unless the context indicates or suggests otherwise, references to we, our, us, the Company, or the Registrant refer to Gofba, Inc., a California corporation. + +GOFBA, INC. + +Our Company + +Gofba, Inc., was formed to create a safe haven for users of the internet. To that end, we have created an internet supersite , consisting of search, chat, email, news and offsite file transfer and storage modules, in order to address dangerous, pressing issues not adequately addressed by our competitors. We see two primary threats to the average user of the internet, and one major issue users encounter with file transfers. The first is unrestricted, free access to inappropriate material, including, but not limited to, pornographic material. To address this we have developed a clean database from scratch that does not contain inappropriate material and we use proprietary search algorithms which automatically eliminate, or make scarce, inappropriate material from search results. The second is security. To address this, we have developed proprietary security algorithms which provide an enhanced level of protection for users. Put simply, Gofba is the online solution to these problems; providing users with a safe haven on the internet. The issue related to file transfers is that it has been difficult to transfer large amounts of information in a speedy, user-friendly, and secure manner. With limited promotional activity and no advertising, we currently enjoy over 46 million users worldwide.1 Our user base has been consistently expanding since we launched Gofba Search in 2008, and we expect it to continue to increase. A number of our users are located in conservative countries and we discuss the unique nature of having users based in conservative countries below. + +Our Opportunity + +Current web search options offer a staggeringly homogenous experience with little differentiating one site from the other. Gofba offers a unique search product, one that excludes objectionable material and provides unparalleled security. Gofba has developed proprietary phrase recognition and image scanning technology that ensures this inappropriate content is made scarce or not returned as a result from web search queries. These two factors, cleanliness and security, provide a competitive advantage which will open markets to us and allow us to penetrate a niche market that has never before been filled. Our unique database solution also allows us to tailor our search engine based on geography to disallow certain search results that may be objectionable to a certain country or society. For instance, China and certain middle-eastern countries do not want certain content returned with search results, even content that seems benign to western countries. Our technology allows us to scrub our database of those objectionable search results and, therefore, provide a clean search engine option to certain countries that currently disallow many of our competitors, such as Google. We believe this provides with a unique business opportunity. +__________________ +1Due to our strict privacy policy, we can only see how many accounts are created and whether that person logs into their account. In order to comply with our privacy policy, we do not track how a person uses their account. It is one of the ways we separate ourselves from our competitors. However, since we can tell if users have logged-in, we do occasionally delete accounts that have not been logged into in a number of years. As a result, the 46 million user number is a cumulative number of users, but does not include approximately 15 million accounts we have deleted due to non-use. We are not able to see how active the user is with their account once logged-in. + + +5 + +Table of Contents + +Risks Related to our Business + +Our ability to implement our business strategy is subject to numerous risks, as more fully described in the section entitled Risk Factors immediately following this prospectus summary. These risks include, among others: + + + +We have a limited operating history and, accordingly, investors have little basis upon which to evaluate our ability to achieve our business objectives; + + + + + + + +We will need additional funding to execute our business plan. However, there can be no assurance that we will be successful in obtaining such funding on acceptable terms or at all; + + + + + + + +We face significant competition for users, advertisers, publishers, developers, and distributors; + + + + + + + +If we are unable to provide innovative search experiences and other products and services that differentiate our services and generate significant traffic to our websites, our business could be harmed, impairing our ability to generate revenue; + + + + + + + +Changes in regulations or user concerns regarding privacy and protection of user data, or any failure to comply with such laws, could adversely affect our business; and + + + + + + + +Interruptions, delays, or failures in the provision of our services could damage our reputation and harm our operating results. + + +Implications of Being an Emerging Growth Company + +As a company with less than $1.235 billion in revenue during our last fiscal year, we qualify as an emerging growth company, as defined in the Jumpstart Our Business Startups Act ( JOBS Act ). For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding advisory say-on-pay votes on executive compensation and stockholder advisory votes on golden parachute compensation. + +Under the JOBS Act, we will remain an emerging growth company until the earliest of: + + + +the last day of the fiscal year during which we have total annual gross revenues of $1.235 billion or more; + + + + + + + +the last day of the fiscal year following the fifth anniversary of the closing of our initial public offering, which is December 31, 2025; + + + + + + + +the date on which we have, during the previous three-year period, issued more than $1 billion in non- convertible debt; and + + + + + + + +the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934 (the Exchange Act ) (we will qualify as a large accelerated filer as of the first day of the first fiscal year after we have (i) more than $700 million in outstanding common equity held by our non- affiliates and (ii) been public for at least 12 months; the value of our outstanding common equity will be measured each year on the last day of our second fiscal quarter). + + + +6 + +Table of Contents + +We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information we provide to our stockholders may differ from information you might receive from other public reporting companies in which you hold equity interests. + +We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001771951_dynamic_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001771951_dynamic_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..0162bddeb2d25912136c7a6f835ff2972ac98013 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001771951_dynamic_prospectus_summary.txt @@ -0,0 +1 @@ +Prospectus Summary — Implications of Being an Emerging Growth Company and a Smaller Reporting Company. Investing in the offered securities involves a high degree of risk. See "Risk Factors" beginning on page 17 of this prospectus and the section entitled "Risk Factors" included in our most recent Annual Report on Form 10-K, as revised or supplemented by our subsequent Quarterly Reports on Form 10-Q, which are incorporated herein by reference, for a discussion of information that you should consider before investing in our securities. The Fund will distribute to shareholders a Schedule K-1 that will contain information regarding the income and expenses of the Fund. These securities have not been approved or disapproved by the United States Securities and Exchange Commission (the "SEC") or any state securities commission nor has the SEC or any state securities commission passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense. THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. April [ ], 2024 These Shares are neither interests in nor obligations of any of the Sponsor, Wilmington Trust, National Association (the "Trustee"), or any of their respective affiliates. The Shares are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. This prospectus has two parts: a disclosure document and a statement of additional information. The disclosure document is comprised of the offered series disclosure and the general pool disclosure. These parts are bound together, contain important information, and are incomplete if not distributed together to prospective participants. COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE STATEMENT YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL. FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THE DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL, AT PAGES 41 THROUGH 43 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGES 41 THROUGH 42. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 17 THROUGH 39. iv THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE REGISTRATION STATEMENT OF THE TRUST. INVESTORS CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN WASHINGTON, D.C. THE TRUST WILL FILE QUARTERLY AND ANNUAL REPORTS WITH THE SEC. INVESTORS CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR FURTHER INFORMATION. THE FILING OF THE TRUST ARE POSTED AT THE SEC WEBSITE AT WWW.SEC.GOV. REGULATORY NOTICES NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, ANY FUND, THE SPONSOR, THE AUTHORIZED PARTICIPANTS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY OFFER, SOLICITATION, OR SALE OF THE SHARES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION, OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER, SOLICITATION, OR SALE. AUTHORIZED PARTICIPANTS MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN TRANSACTING IN SHARES. SEE "PLAN OF DISTRIBUTION" IN THE GENERAL POOL DISCLOSURE OF THIS PROSPECTUS. SHAREHOLDERS HAVE THE RIGHT, DURING NORMAL BUSINESS HOURS, TO HAVE ACCESS TO AND COPY (UPON PAYMENT OF REASONABLE REPRODUCTION COSTS) SUCH BOOKS AND RECORDS IN PERSON OR BY THEIR AUTHORIZED ATTORNEY OR AGENT. MONTHLY ACCOUNT STATEMENTS CONFORMING TO THE COMMODITY FUTURES TRADING COMMISSION ("CFTC") AND THE NATIONAL FUTURES ASSOCIATION (THE "NFA") REQUIREMENTS WILL BE POSTED ON THE SPONSOR S WEBSITE AT WWW.DYNAMICSHARESETF.COM. ADDITIONAL REPORTS MAY BE POSTED ON THE SPONSOR S WEBSITE AT THE DISCRETION OF THE SPONSOR OR AS REQUIRED BY REGULATORY AUTHORITIES. THERE WILL SIMILARLY BE DISTRIBUTED TO SHAREHOLDERS, NO MORE THAN 90 DAYS AFTER THE CLOSE OF THE FUND S FISCAL YEAR, CERTIFIED AUDITED FINANCIAL STATEMENTS. THE TAX INFORMATION RELATING TO SHARES OF THE FUND NECESSARY FOR THE PREPARATION OF SHAREHOLDERS ANNUAL FEDERAL INCOME TAX RETURNS WILL ASLO BE DISTRIBUTED. v Dynamic Shares Trust TABLE OF CONTENTS CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 1 TRADEMARKS AND COPYRIGHTS 1 PART ONE: OFFERED SERIES DISCLOSURE 2 SUMMARY 2 \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001810140_polished_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001810140_polished_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..ea4c67d7fad905d931efa08e1d5c178127396943 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001810140_polished_prospectus_summary.txt @@ -0,0 +1 @@ +Prospectus Summary 1 Risk Factors 11 Cautionary Note Concerning Forward-Looking Statements 37 Use of Proceeds 39 Market Price of Our Common Stock and Related Stockholder Matters 40 Capitalization 41 Dilution 42 Management s Discussion and Analysis of Financial Condition and Results of Operations 43 Business 62 Management 72 Executive Compensation 77 Principal Stockholders 82 Certain Relationships and Related Persons Transactions 84 Description of Securities 87 Underwriting 90 Legal Matters 95 Experts 95 Where You Can Find More Information 95 Index to Financial Statements F-1 i ABOUT THIS PROSPECTUS We and the underwriters have not authorized anyone to give any information or to make any representations other than those contained in this prospectus. You must not rely on any information or representations not contained in this prospectus. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions and estimates. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained or incorporated by reference in this prospectus filed with the Securities and Exchange Commission (the SEC ). We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are not making an offer to sell, nor seeking offers to buy, our securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of those respective documents, regardless of the time of delivery of this prospectus or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date. For investors outside the United States ( U.S. ): We and the underwriters have not done anything that would permit this offering or the possession or distribution of this prospectus in any jurisdiction where action for those purposes is required, other than in the U.S. Persons outside the U.S. who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside of the U.S. ii PROSPECTUS SUMMARY The following information is a summary of the prospectus and does not contain all of the information you should consider before investing \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001811623_kuvatris_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001811623_kuvatris_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..27ac1ddb99750d6f09bab2105d6ddfb856a6bc81 --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001811623_kuvatris_prospectus_summary.txt @@ -0,0 +1 @@ +PROSPECTUS SUMMARY 1 THE OFFERING 4 RISK FACTORS 5 USE OF PROCEEDS 13 DIVIDEND POLICY 13 DETERMINATION OF OFFERING PRICE 13 BUSINESS 14 MANAGEMENT 31 EXECUTIVE COMPENSATION 36 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 40 DESCRIPTION OF CAPITAL STOCK 40 SELLING STOCKHOLDERS 41 PLAN OF DISTRIBUTION 43 LEGAL MATTERS 44 EXPERTS 44 WHERE YOU CAN FIND MORE INFORMATION 44 EXHIBITS II-2 i ABOUT THIS PROSPECTUS This prospectus relates to the resale by the Selling Stockholders identified in this prospectus under the caption "Selling Stockholders," from time to time, of up to an aggregate of 9,023,083 shares of Common Stock. We are not selling any shares of Common Stock under this prospectus, and we will not receive any proceeds from the sale of shares of Common Stock offered hereby by the Selling Stockholders, although we may receive cash from the exercise by the Selling Stockholders of the Warrants. You should rely only on the information provided in this prospectus, including any information incorporated by reference. We have not authorized anyone to provide you with any other information and we take no responsibility for, and can provide no assurances as to the reliability of, any other information that others may give you. The information contained in this prospectus speaks only as of the date set forth on the cover page and may not reflect subsequent changes in our business, financial condition, results of operations and prospects. We are not, and the Selling Stockholders are not, making offers to sell these securities in any jurisdiction in which an offer or solicitation is not authorized or permitted or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such an offer or solicitation. You should read this prospectus, including any information incorporated by reference, in its entirety before making an investment decision. ii CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus and the information incorporated by reference in this prospectus contain forward-looking statements. The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," "expect," "scheduled to," and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following: the expectation that we will incur significant operating losses for the foreseeable future and will need significant additional capital, including through future sales and issuances of equity securities which could also result in substantial dilution to our stockholders; our current and future capital requirements to support our development and commercialization efforts for our product candidates and our ability to satisfy our capital needs; our dependence on our product candidates, which are still in preclinical or early stages of clinical development; our, or our third-party manufacturers , ability to manufacture cGMP batches of our product candidates as required for pre-clinical and clinical trials and, subsequently, our ability to manufacture commercial quantities of our product candidates; our ability to successfully obtain a priority review voucher, or PRV, for PAX-101 and the commercial value to be realized from any such PRV, if any; our ability to attract and retain key executives and medical and scientific personnel; our ability to add new facilities or to expand our existing facilities as we add employees, and our belief that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations; our ability to complete required clinical trials for our product candidates and obtain approval from the FDA or other regulatory agencies in different jurisdictions; our lack of a sales and marketing organization and our ability to commercialize our product candidates if we obtain regulatory approval; our dependence on, and utilization of, third parties to manufacture our product candidates; our reliance on third-party CROs to conduct our clinical trials; our ability to obtain, maintain or protect the validity of our intellectual property, including our granted or potential future patents; our ability to internally develop new inventions and intellectual property; our interpretations of current laws and the passages of future laws; our business model and strategic plans for our products, technologies and business, including our implementation thereof; the accuracy of our estimates regarding expenses and capital requirements; our ability to adequately support organizational and business growth; and our recent suspension from trading on the Nasdaq Capital Market. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in this prospectus under "Risk Factors" and under similar headings in our most recent Annual Report on Form 10-K and our subsequent Quarterly Reports on Form 10-Q incorporated by reference herein. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward- looking events and circumstances discussed in this prospectus or incorporated by reference herein may not occur and actual results could differ materially and adversely from those anticipated or implied in our forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or will occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations, except as required by law. You should read this prospectus, the documents incorporated by reference herein and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. iii PROSPECTUS SUMMARY This summary highlights certain information about us, this offering and selected information contained elsewhere in this prospectus and in the documents incorporated by reference. This summary is not complete and does not contain all the information that you should consider before deciding whether to invest in our securities. For a more complete understanding of our company and this offering, we encourage you to read and consider carefully the more detailed information contained in or incorporated by reference in this prospectus, including the information contained under the heading "Risk Factors" beginning on page 5 of this prospectus. Some of the statements in this prospectus and the documents incorporated by reference constitute forward-looking statements that involve risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements." Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those discussed in "Risk Factors" and other sections of this prospectus and the documents incorporated by reference. Overview We are a clinical stage biopharmaceutical company focusing on the development of anti-purinergic drug therapies ("APT") for the treatment of disorders with intractable neurologic symptoms, ranging from neurodevelopmental disorders, including autism spectrum disorder ("ASD"), to Myalgic Encephalomyelitis/Chronic Fatigue Syndrome ("ME/CFS"), a debilitating physical and cognitive disorder believed to be viral in origin and now with rising incidence globally due to the long term effects of SARS-CoV-2 ("COVID-19"). APTs have been shown to block the effects of excess production and extracellular receptor activity of adenosine triphosphate ("ATP"), which acts as both the main energy molecule in all living cells and a peripheral and central nervous system neurotransmitter via receptors that are found throughout the nervous system. Excess purinergic signaling can offset homeostasis and trigger immune responses that result in localized and systemic increases in inflammatory chemokines and cytokines, ultimately stimulating ATP production. APTs may also impact immunologic and inflammatory mechanisms that may be causing or exacerbating symptoms in these seemingly unrelated disorders, which may be caused in part by similar mechanisms of ATP overproduction. One of our primary points of focus is currently the development and testing of our lead program, PAX-101, an intravenous formulation of suramin, in the treatment of ASD and the advancement of the clinical understanding of using that agent against other disorders such as fragile X syndrome (FXS), fragile X-associated tremor/ataxia syndrome (FXTAS), ME/CFS and Long COVID-19 Syndrome ("LCS"), a clinical diagnosis in individuals who have been previously infected with COVID-19. In February 2021, we announced positive topline data from our Phase 2 dose-ranging clinical trial evaluating PAX-101 (commonly known as intravenous suramin) for the treatment of the core symptoms of ASD, as described in more detail below. We also intend to submit data to support a New Drug Application (an "NDA") for PAX-101 under the Tropical Disease Priority Voucher Program of the U.S. Food and Drug Administration (the "FDA") for the treatment of Human African Trypanosomiasis, a fatal parasitic infection commonly known as African sleeping sickness ("HAT"), leveraging suramin s historical use in treating HAT outside of the United States. We have exclusively licensed clinical data from certain academic or international government institutions to potentially accelerate PAX-101 s development plans in the United States through this regulatory program and seek approval in the United States for the treatment of East African HAT (as defined below) as early as late 2024 or in the first half of 2025. We are also pursuing the development of next generation APT product development candidates for neurodevelopmental indications. These candidates include PAX-102, our proprietary intranasal formulation of suramin, as well as other new chemical entities that are more targeted and selective antagonists of particular purine receptor subtypes. We believe our lead drug candidate (suramin), if approved by the FDA, may be a significant advancement in the treatment of ASD and a potentially useful treatment for FXS, FXTAS, ME/CFS and LCS. In July 2023, we announced positive topline results from the PAX-101 (intravenous suramin) Phase 3 African Sleeping Sickness Study, PAX-HAT-301. The conclusions of the study confirmed that the retrospective, non-randomized, externally controlled, interventional efficacy and safety study of suramin for the treatment of Stage 1 TBR HAT demonstrated better health outcomes when compared with a natural history control group of patients evaluated and treated from 1900-1910, prior to the availability of suramin in Africa. The adverse event profile of suramin observed in the study was consistent with what has been widely reported in published medical and clinical literature. On October 26, 2023, we completed a type-B meeting with the FDA, where we discussed the results of our recent data from our PAX-HAT-301 study of suramin in HAT. On June 27, 2024, we completed a type-C meeting with the FDA, where we discussed our Chemistry, Manufacturing, and Controls ("CMC") regulatory guidelines for our PAX-101 candidate. We received constructive feedback which will aid in the completion of our remaining work to file an NDA expected in late 2024 or in the first half of 2025. Most of the work to achieve this important milestone will focus on completing the production of commercial lots of PAX-101 under CMC regulatory guidelines, underway now and scheduled to conclude in late 2024. Additionally, we discussed the implementation and completion of a registry for patients treated with PAX-101 for the indication of HAT to be submitted along with the NDA. 1 Corporate Information We were formed as a Delaware limited liability company under the name Purinix Pharmaceuticals LLC ("Purinix") on April 5, 2018. On April 15, 2020, we converted into a Delaware corporation and changed our name to PaxMedica, Inc. Our offices are located at 101 Arch Street, 8th Floor, Boston, MA 02110, and our telephone number is (239) 216-1459. Our website is www.paxmedica.com. Information contained in, or accessible through, our website does not constitute part of this prospectus or registration statement and inclusions of our website address in this prospectus or registration statement are inactive textual references only. "PaxMedica" and our other common law trademarks, service marks or trade names appearing herein are the property of PaxMedica, Inc. We do not intend the use or display of other companies trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Sources of Funding and Going Concern We have not generated any revenue to date and, through June 30, 2024, we had an accumulated deficit of approximately $58.7 million. To date, we have financed our operations through capital contributions from our prior members when we were a limited liability company, proceeds from our initial public offering, the issuance of convertible notes, our entry into a Simple Agreement for Future Equity ("SAFE") with an investor, the issuance of Series X preferred stock, par value $0.0001 per share ("Series X preferred stock"), private sales of our Common Stock to accredited investors made pursuant to an exemption from registration, our follow-on public offering in November 2023, and a warrant exchange in September 2024, which is described in Note 10 to our financial statements attached filed with our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed with the Commission on September 20, 2024. We expect our expenses to increase significantly in connection with our ongoing activities to develop, seek regulatory approval and commercialization of PAX-101 and our other product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will likely need substantial additional financing to support our continuing operations. We will seek to fund our operations through public or private equity or debt financings or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so. Accordingly, there are material risks and uncertainties that raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital and should we be unable to raise sufficient additional capital, we may be required to undertake cost-cutting measures including delaying or discontinuing certain clinical activities. The net proceeds from the exercise of the Warrants by the Selling Stockholders are not expected to remove the substantial doubt regarding our ability to continue as a going concern. Nasdaq Delisting On April 30, 2024, the Nasdaq Stock Market LLC ("Nasdaq") notified us that a Nasdaq Hearings Panel (the "Panel") had determined to delist the Common Stock from the Nasdaq Capital Market and that trading of the Common Stock would be suspended at the open of trading on May 2, 2024. This determination resulted from the Panel s conclusion that the Company was in violation of the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2). The Company opted to appeal this determination before the Nasdaq Listing and Hearing Review Council (the "Council"). We were subsequently notified by the Council that our appeal was denied. After the suspension from the Nasdaq Capital Market went into effect, our Common Stock became eligible for quotation on the OTC Pink Market under its existing symbol, "PXMD." Reverse Stock Split On October 30, 2023, we filed a Certificate of Amendment to our Certificate of Incorporation (the "Reverse Split Amendment") with the Secretary of State of the State of Delaware to effect a 1-for-17 reverse stock split of our outstanding Common Stock (the "Reverse Stock Split"). The Reverse Split Amendment became effective at 8:03 a.m. Eastern Time on October 30, 2023 (the "Effective Time"). The Reverse Split Amendment was authorized by our stockholders at our special meeting of stockholders on September 26, 2023. 2 The Reverse Split Amendment provided that, at the Effective Time, every 17 shares of our issued and outstanding Common Stock were automatically combined into one issued and outstanding share of Common Stock, without any change in par value per share. The Reverse Stock Split affected all of our shares of Common Stock outstanding immediately prior to the Effective Time. As a result of the Reserve Stock Split, proportionate adjustments have been made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options and warrants issued us and outstanding immediately prior to the Effective Time, which resulted in a proportionate decrease in the number of shares of our common stock reserved for issuance upon exercise or vesting of such stock options and warrants, and, in the case of stock options and warrants, a proportionate increase in the exercise price of all such stock options and warrants. In addition, the number of shares reserved for issuance under our 2020 Plan (as defined below) immediately prior to the Effective Time were reduced proportionately. No fractional shares were issued as a result of the Reverse Stock Split. Stockholders of record who would otherwise have been entitled to receive a fractional share received a number of shares rounded up to the next whole share in lieu thereof. The Reverse Stock Split affected all stockholders proportionately and did not affect any stockholder s percentage ownership of our common stock (other than the nominal effect of the treatment of fractional shares). All share and per share information referenced throughout this prospectus has been retroactively adjusted to reflect the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split have been rounded up to the nearest whole share. Implications of being an Emerging Growth Company and a Smaller Reporting Company We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include those that allow us to: provide only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced "Management s Discussion and Analysis of Financial Condition and Results of Operations" disclosure; make reduced disclosure about our executive compensation arrangements; hold no non-binding advisory votes on executive compensation or golden parachute arrangements; and exempt us from the auditor attestation requirement in the assessment of our internal control over financial reporting. We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the completion of our initial public offering (i.e., December 31, 2027); (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus and in the documents incorporated by reference in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. Additionally, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, while we are an emerging growth company, and we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. For certain risks related to our status as an emerging growth company, see "Risk Factors — Risks Related to Our Common Stock — We are an , ' ': emerging growth company. . ." in this prospectus. We are also a "smaller reporting company" as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies (i) until the fiscal year following the determination that the market value of our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or (ii) if our annual revenues are less than $100 million during the most recently completed fiscal year, until the fiscal year following the determination that the market value of our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. 3 THE OFFERING Common Stock to be offered by the Selling Stockholders Up to 9,023,083 shares of Common Stock Common Stock outstanding prior to this offering 10,879,170 shares of Common Stock Common Stock to be outstanding after this offering 19,902,253 shares of Common Stock, assuming the exercise of all the Warrants Use of Proceeds We will not receive any proceeds from the sale of the Shares by the Selling Stockholders. The only proceeds we will receive in connection with this offering, if any, will be the exercise price paid by the holders of the Warrants for the Common Stock issuable upon the exercise of the Warrants. See "Use of Proceeds" on page 13 of this prospectus. Trading Symbol PXMD Risk Factors See "Risk Factors" beginning on page 5 of this prospectus, as well as other information included herein, for a discussion of the factors you should read and consider carefully before investing in our securities. The number of shares of our Common Stock we expect to be outstanding after completion of this offering (assuming the exercise of all Warrants) is based on 10,879,170 shares of our Common Stock outstanding as of September 30, 2024 and excludes: 8,359 shares of our Common Stock issuable upon the exercise of warrants issued certain investors in 2020 to purchase shares of Common Stock at an exercise price of $51.00 per share; 51,055 shares of Common Stock issuable upon the conversion of our outstanding Series X Preferred Stock; 1,471 shares of our Common Stock reserved for issuance upon settlement of restricted stock units ("RSUs") granted as of October 11, 2022 pursuant to the PaxMedica Inc. Amended and Restated 2020 Omnibus Equity Incentive Plan (the "2020 Plan"); 493,297 shares of our Common Stock available for issuance under the 2020 Plan; 6,364 shares of our Common Stock issuable upon the exercise of warrants to purchase shares of Common Stock at an exercise price of $116.88 per share issued to the underwriters in connection with our initial public offering; 11,481 shares of our Common Stock issuable upon exercise of warrants issued to agents in connection with a private offering of convertible notes in the first half of 2022 at an exercise price of $71.40 per share; 8,360 shares of our Common Stock issuable upon the exercise of warrants issued to agents in connection with a private offering completed in tranches in January and March 2023 to purchase shares of Common Stock at an exercise price of $51.00 per share and $59.50 per share, respectively; up to $14,434,085 of shares of our Common Stock issuable to Lincoln Park Capital Fund, LLC ("Lincoln Park") from time to time under an equity line agreement, of which 770,718 shares of Common Stock have been registered for resale on a Registration Statement on Form S-1 (File No. 333-268882), initially filed with the SEC on December 19, 2022 and declared effective on December 27, 2022; 47,059 shares of Common Stock issuable to Lind Global Fund II, LP upon the exercise of warrants issued in February 2023 at an exercise price of $1.30; 1,323,770 shares of Common Stock issuable to an investor upon the exercise of a warrant with an exercise price of $0.20, which shares have been registered for resale via a Registration Statement on Form S-1 (File No. 333-275416), initially filed with the SEC on November 9, 2023 and declared effective on November 20, 2023 (the "November 2023 S-1"); 961,535 shares of Common Stock issuable to multiple investors upon the exercise of warrants, each with an exercise price of $1.30, which shares have been registered for resale via the November 2023 S-1; 215,385 shares of Common Stock issuable upon the exercise of warrants granted to a placement agent in connection with its services related to our November 2023 financing, each with an exercise price of $1.63 per share, which shares have been registered for resale via the November 2023 S-1. All share and per share information referenced throughout this prospectus has been retroactively adjusted to reflect the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split were rounded up to the nearest whole share. 4 RISK FACTORS An investment in our common stock is speculative, illiquid and involves a high degree of risk including the risk of a loss of your entire investment. We have identified a number of these factors under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, which, if not updated in this prospectus, is incorporated by reference herein, as well as in other information included or incorporated by reference in this prospectus and any prospectus supplement. You should carefully consider the risks and uncertainties and the other information contained in this prospectus. The risks identified are not the only ones facing us. Additional unanticipated or unknown risks and uncertainties may exist that could also adversely affect our business, operations and financial condition in ways that are unknown to us or unpredictable. If any of the risks actually materialize, our business, financial condition and/or operations could suffer. In such event, the trading price of our Common Stock could decline, and you could lose all or a substantial portion of your investment. See the section of this prospectus titled "Where You Can Find More Information. Risks Related to Our Financial Position and Need for Capital We have never generated revenue from operations, are unlikely to generate revenues for several years, and our recurring losses from operations have raised substantial doubt regarding our ability to continue as a going concern. We may never become profitable or, if we achieve profitability, be able to sustain profitability. We have never generated revenue from operations, are unlikely to generate revenues for several years, and are currently operating at a loss and expect our operating costs will increase significantly as we incur further costs related to preclinical development and the clinical trials for our drug candidates. We expect to incur substantial expenses without corresponding revenues unless and until we are able to obtain regulatory approval and successfully commercialize any of our drug candidates. We may never be able to obtain regulatory approval for the marketing of our drug candidates in any indication in the United States or internationally. Even if we are able to commercialize our drug candidates, there can be no assurance that we will generate significant revenues or ever achieve profitability. We have incurred recurring losses since inception and have an accumulated deficit of approximately $58.7 million as of June 30, 2024, which recurring losses have raised substantial doubt regarding our ability to continue as a going concern. We anticipate operating losses to continue for the foreseeable future due to, among other things, costs related to research funding, development of our product candidates and preclinical and clinical programs, regulatory clearances, strategic alliances, the development of our administrative organization, as well as costs to comply with the requirements of being a public company operating in a highly regulated industry. As of June 30, 2024, we had $0.3 million of cash and cash equivalents. Our forecast of the period of time through which our current financial resources will be adequate to support our operations and the costs to support our general and administrative, sales and marketing, research and development activities and costs to comply with the requirements of being a public company operating are forward-looking statements and involve risks and uncertainties. The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. We are uncertain when or if we will be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable would impair our ability to sustain operations and adversely affect the price of our common stock and our ability to raise capital. We are an early clinical stage pharmaceutical company with a limited operating history. We are an early clinical stage pharmaceutical company with a limited operating history. We must complete clinical studies and receive regulatory approval of an NDA before commercial sales of a product can commence. The likelihood of success of our business plan must be considered in light of the problems, substantial expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early-stage businesses and the regulatory and competitive environment in which we operate. Pharmaceutical product development is a highly speculative undertaking, involves a substantial degree of risk and is a capital-intensive business. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially early-stage clinical pharmaceutical companies such as ours. Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential investors should consider that we cannot assure you that we will be able to, among other things: successfully implement or execute our current business plan, and we cannot assure you that our business plan is sound; successfully manufacture our clinical products and establish commercial drug supply; 5 successfully complete the clinical trials necessary to obtain regulatory approval for the marketing of our drug candidates, including PAX-101; secure, maintain and, as necessary, defend our intellectual property rights; secure market exclusivity and/or adequate intellectual property protection for our drug candidates; attract and retain an experienced management and advisory team; secure acceptance of our drug candidates in the medical community and with third-party payors and consumers; launch commercial sales of our drug candidates, whether alone or in collaboration with others; raise sufficient funds in the capital markets or otherwise to effectuate our business plan; and utilize the funds that we do have and/or raise in this offering or in the future to efficiently execute our business strategy. If we cannot successfully execute any one of the foregoing, our business may fail and your investment will be adversely affected. We need to raise additional capital to fund our operations, which may not be available on acceptable terms, if at all. Our ability to continue as a going concern and continue our operations is dependent on our ability to raise additional capital and should we be unable to raise sufficient additional capital, we may be required to undertake cost-cutting measures including delaying or discontinuing certain clinical activities. We need to raise significant additional capital to continue to fund the clinical trials for PAX-101, and our other product candidates. We will likely seek to sell common equity, preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing. In addition, the sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have rights senior to those of our common stock. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations, fund raising capabilities or otherwise. Any other third-party funding arrangement could require us to relinquish valuable rights. The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate some or all of our planned clinical trials, development programs or operations. These factors among others create a substantial doubt about our ability to continue as a going concern. Risks Related to Our Common Stock Our Common Stock has been suspended from trading by Nasdaq, which may affect liquidity. Our Common Stock was suspended from trading on the Nasdaq Capital Market on May 2, 2024. Since that date, our Common Stock has been trading over the counter on the OTC Pink Market. It is expected that our Common Stock will be delisted from trading on the Nasdaq Capital Market when Nasdaq files a Form 25 officially delisting our Common Stock. Our shares of Common Stock are thinly traded. If an active market for our Common Stock with meaningful trading volume does not develop or is not maintained, the market price of our Common Stock may decline materially, and you may not be able to sell your shares. No longer being listed on Nasdaq will make it more difficult to raise capital, fund our development program and sustain our operations. Future sales of shares by existing stockholders or us could cause our stock price to decline. Sales of a substantial number of shares of our Common Stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Common Stock. We may issue additional shares of our Common Stock or securities convertible into our Common Stock from time to time in connection with a financing, acquisition, investments or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our Common Stock to decline. 6 Sales of our Common Stock may be made by holders of our public float or by holders of restricted securities in compliance with the provisions of Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"). There were 10,879,170 shares of Common Stock outstanding as of September 30, 2024, substantially all of which are freely tradable, without restriction, in the public market. We have also registered 493,297 shares of our Common Stock underlying existing grants or grants that we may issue under our equity compensation plan. Also, in general, under Rule 144, a non-affiliated person who has satisfied a six-month holding period in a company registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), may, sell their restricted common stock without volume limitation, so long as the issuer is current with all reports under the Exchange Act in order for there to be adequate common public information. Affiliated persons may also sell their common shares held for at least six months, but affiliated persons will be required to meet certain other requirements, including manner of sale, notice requirements and volume limitations. Non-affiliated persons who hold their common shares for at least one year will be able to sell their common stock without the need for there to be current public information in the hands of the public. Future sales of shares of our public float or of restricted Common Stock made in compliance with Rule 144 may have an adverse effect on the then prevailing market price, if any, of our Common Stock. We are an "emerging growth company," and will be able take advantage of reduced disclosure requirements applicable to "emerging growth companies," which could make our Common Stock less attractive to investors. We are an "emerging growth company," as defined in the JOBS Act and, for as long as we continue to be an "emerging growth company," we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to "emerging growth companies," including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an "emerging growth company" for up to five years after our initial public offering, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. We intend to take advantage of these reporting exemptions described above until we are no longer an "emerging growth company." Under the JOBS Act, "emerging growth companies" can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies. As a result of this election, our financial statements may not be comparable to those of companies that are not emerging growth companies. We cannot predict if investors will find our Common Stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile. We have identified material weaknesses in our internal control over financial reporting. If our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and procedures and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired. In the course of preparing our financial statements for the year ended December 31, 2023, we identified material weaknesses in our internal control over financial reporting relating to the evaluation of complex financial instruments, including earnings per share. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Our management has concluded that we did not design and maintain effective controls over information technology (IT) general controls for information systems that are relevant to the preparation of our financial statements, specifically, with respect to user provisioning and deprovisioning, user access review, passwords, privileged access, cybersecurity, system development lifecycle, and SOC report management review. These IT deficiencies did not result in a misstatement to our financial statements, however, the deficiencies, when aggregated, could impact the effectiveness of IT-dependent controls that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, management has determined that these deficiencies in the aggregate constitute a material deficiency. To remediate this weakness, we have developed a remediation plan with assistance from our IT advisors and have dedicated significant resources and efforts to the remediation and improvement of our internal control over financial reporting. 7 In addition, we do not have sufficient segregation of duties within our accounting functions, which is a basic internal control. Due to our size, segregation of all duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets, and the recording of transactions should be performed by separate individuals. Our management has weighed the impact of our failure to have a proper segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the resulting control deficiency represented a material weakness. While our management has implemented procedures to ensure that the financial statements balances included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented, we have not yet hired a sufficient number of additional accounting and finance staff to fully address this material weakness. Until such time as we have hired adequate staff, this material weakness will not be remediated. The material weaknesses have not been remediated as of the date of filing of the registration statement of which this prospectus forms a part. Moreover, we cannot assure you, however, that any actions we may take in the future will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control until after we are no longer an "emerging growth company" as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control is documented, designed, or operating. Any failure to implement and maintain effective internal control also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control that we will eventually be required to include in our periodic reports that are filed with the Commission. Ineffective disclosure controls and procedures and internal control could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Common Stock. Risks Related to Our Clinical Development Clinical and preclinical drug development is a lengthy and expensive process with uncertain outcomes that may lead to delayed timelines and increased cost, which may prevent us from being able to complete clinical trials. Clinical testing is expensive, can take many years to complete, and its outcome is inherently uncertain. The results of preclinical and clinical studies of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through preclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. In addition, there may be third party individuals or groups that publish data from experiments using suramin that may reflect, either positively or negatively, on our clinical development program despite that we have no affiliation with or control over such individuals or groups. For example, we are aware of other suramin-related research that has been conducted in the autism indication at the University of California, San Diego as well as in other unrelated indications within and outside of the United States. Our clinical development programs could be negatively impacted by adverse events reported in such third party studies. With respect to ME/CFS and LCS, no company, to our knowledge, has yet been successful in its efforts to obtain regulatory approval in the United States or Europe of treatment for these conditions. The mechanism of disease for these conditions has not been scientifically confirmed, and as a result, the mechanism of action for PAX-101 in potentially treating these diseases is unknown. In addition, LCS is potentially a self-resolving disease in some people, as well as a disease that increases and decreases in severity. As such, there may not be sufficient biomarkers or validated behavioral scoring metrics that could be used to support potential approval for PAX-101 in these diseases, and clinical trials will be difficult to design, conduct and assess. 8 This will make our development and potential approval of PAX-101 for these indications very difficult, and we may not be successful. We cannot be certain that clinical trials for PAX-101 or any of our other product candidates will be completed, or completed on schedule, or that any other future clinical trials for PAX-101 or any of our other product candidates, will begin on time, not need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all, or that any interim analyses with respect to such trials will be completed on schedule or support continued clinical development of the associated product candidate. In particular, the basis for our submission of an NDA for approval of PAX-101 in HAT is historical data that is limited and not complete, and FDA may not agree that our study design is adequate or the data sufficient for approval. Because of the difficulties inherent in designing clinical trials for a universally fatal disease, we may not be able to provide FDA with additional data (regarding safety and effectiveness) or analyses adequate for approval if requested by the FDA, which could prevent us from ever getting approval for PAX-101 in HAT. We could also encounter delays if a clinical trial is suspended or terminated by us upon recommendation of the data monitoring committee for such trial, by the institutional review board ("IRB") of the institutions in which such trials are being conducted, or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, site misconduct or deviations from Good Clinical Practice, major findings from an inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions, or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate revenue from the sale of any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval processes, and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may significantly harm our business, financial condition and prospects. If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of any of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful. We intend to seek FDA approval through the 505(b)(2) regulatory pathway for each of our product candidates. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act, or FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant. If the FDA does not allow us to pursue the 505(b)(2) regulatory pathway for our product candidates as anticipated, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for our product candidates would likely substantially increase. Moreover, the inability to pursue the 505(b)(2) regulatory pathway could result in new competitive products reaching the market faster than our product candidates, which could materially adversely impact our competitive position and prospects. Even if we are permitted to pursue the 505(b)(2) regulatory pathway for a product candidate, we cannot assure you that we will receive the requisite or timely approvals for commercialization of such product candidate. In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA s interpretation of Section 505(b)(2). We expect that our competitors could file citizens petitions with the FDA in an attempt to persuade the FDA that our product candidates, or the clinical studies that support their approval, contain deficiencies. If the FDA s interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its Section 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2). 9 Delays in the commencement, enrollment and completion of our clinical trials could result in increased costs to us and may delay or limit our ability to obtain regulatory approval for PAX-101 and our other product candidates. Delays in the commencement, enrollment and completion of clinical trials could increase our product development costs or delay the regulatory approval of our product candidates. The commencement, enrollment and completion of clinical trials can be delayed for a variety of reasons, including: the inability to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; the inability to maintain necessary supplies of study drug and comparator to maintain predicted enrollment rates at clinical trial sites; regulatory authority objections to commencing a clinical trial; the inability to obtain ethics committee or IRB approval to conduct a clinical trial; difficulty recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our study and competition from other clinical trial programs for the same indication as our product candidates; difficulty obtaining informed consent in some patient populations who may be under 18 years of age and may not have the capacity to consent; the inability to retain subjects in clinical trials due to the treatment protocol, personal issues, side effects from the therapy or lack of efficacy; and difficulty in importing and exporting clinical trial materials and study samples. Even if we obtain regulatory approval for our product candidates, if we are unable to successfully commercialize our products, it will limit our ability to generate revenue and will materially adversely affect our business, financial condition and results of operations. Even if we obtain regulatory approval for our product candidates, our long-term viability and growth depend on the successful commercialization of products which lead to revenue and profits. Pharmaceutical product development is an expensive, high risk, lengthy, complicated, resource intensive process. In order to succeed, among other things, we must be able to: identify potential drug product candidates; design and conduct appropriate laboratory, preclinical and other research; submit for and receive regulatory approval to perform clinical studies; design and conduct appropriate preclinical and clinical studies according to good laboratory and good clinical practices; select and recruit clinical investigators; select and recruit subjects for our studies; collect, analyze and correctly interpret the data from our studies; submit for and receive regulatory approvals for marketing; secure market and formulary access from payors; and manufacture the drug product candidates according to cGMP. The development program with respect to any given product may take many years and thus delay our ability to generate profits. In addition, potential products that appear promising at early stages of development may fail for a number of reasons, including the possibility that the products may require significant additional testing or turn out to be unsafe, ineffective, too difficult or expensive to develop or manufacture, too difficult to administer, or unstable. Failure to successfully commercialize our products will adversely affect our business, financial condition and results of operations. The market for PAX-101 s lead indication, HAT, is extremely small, as the majority of usage would be in Sub-Saharan Africa. Further, we would likely donate any product for use in this indication to the WHO for use by patients in Africa. 10 If our preclinical and clinical studies do not produce positive results, if our clinical trials are delayed or if serious side effects are identified during such studies or trials, we may experience delays, incur additional costs and ultimately be unable to commercialize our product candidates. Before obtaining regulatory approval for the sale of our product candidates, we must conduct, generally at our own expense, extensive preclinical tests to demonstrate the safety of our product candidates in animals, and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Preclinical and clinical testing is expensive, difficult to design and implement and can take many years to complete. A failure of one or more of our preclinical studies or clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process that could delay or prevent our ability to obtain regulatory approval or commercialize our product candidates, including: our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or we may abandon projects that we expect to be promising; regulators or ethics committees/IRBs may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site; conditions imposed on us by the FDA or any non-U.S. regulatory authority regarding the scope or design of our clinical trials may require us to resubmit our clinical trial protocols to ethics committees/IRBs for re-inspection due to changes in the regulatory environment; the number of patients required for our clinical trials may be larger than we anticipate and recruitment of the target population may be more difficult than we anticipate, or participants may drop out of our clinical trials at a higher rate than we anticipate; our third-party contractors or clinical investigators may fail to comply with regulatory requirements or fail to meet their contractual obligations to us in a timely manner; we might have to suspend or terminate one or more of our clinical trials if we, the regulators or the ethics committees/IRBs determine that the participants are being exposed to unacceptable health risks; regulators or ethics committees/IRBs may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; the cost of our clinical trials may be greater than we anticipate; the supply or quality of our product candidates or other materials necessary to conduct our clinical trials may be insufficient or inadequate or we may not be able to reach agreements on acceptable terms with prospective clinical research organizations; and the effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics. For example, suramin can cause significant side effects, including nausea, vomiting, diarrhea, abdominal pain, and a feeling of general discomfort. Other side effects include skin sensations such as crawling or tingling sensations, tenderness of the palms and soles, numbness of the extremities, watery eyes, and photophobia. In addition, nephrotoxicity is common, as is peripheral neuropathy when the drug is administered at high doses. In addition, if we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may: be delayed in obtaining, or may not be able to obtain, marketing approval for one or more of our product candidates; obtain approval for indications that are not as broad as intended or entirely different than those indications for which we sought approval; the product labeling may be very restrictive and lead to limitations in commercial value; or have the product removed from the market after obtaining marketing approval. 11 General Company-Related Risks Since certain of our directors and officers are employed by and/or consult for other companies, their other activities could compete for time on, or create conflicts of interest with, our activities. In addition, the loss of the services of certain key employees, including Howard J. Weisman, our Chief Executive Officer and Chairman of the Board, would adversely impact our business prospects. Certain of our officers are not required to work exclusively for us. For example, Stephen D. Sheldon, our Chief Financial Officer and Chief Operating Officer, is also the Chief Executive Officer of Indochina Healthcare Co. Ltd. Therefore, it is possible that a conflict of interest with regard to an officer s time may arise based on their other employment and/or business operations. As we progress, if the full-time services of these individuals are required and the current directors and officers cannot provide that level of commitment, we will need to identify suitable individuals who can dedicate such time to our Company. We can provide no assurance that we will be able to successfully identify and retain qualified candidates for these positions. Furthermore, the loss of the services of any of our executive officers or other key employees could potentially harm our business, operating results or financial condition. In particular, we believe that the loss of the services of Howard J. Weisman, our Chief Executive Officer, would have a material adverse effect on our business. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel. We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively. The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors in a number of jurisdictions, many of which have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than we have. Established competitors may invest heavily to quickly discover and develop novel compounds that could make PAX-101 or any other product candidates we may develop or acquire obsolete or uneconomical. Any new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, cost, convenience, tolerability and safety to be commercially successful. Other competitive factors, including generic competition, could force us to lower prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to PAX-101 or any of our other product candidates. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies and private and public research institutions. We face competition with respect to our current product candidates and we will face competition with respect to any product candidates that we may seek to develop or commercialize in the future. Our current and potential competitors in ASD include CureMark LLC, which is in Phase 3 studies for CM-AT for ASD, Yamo Pharmaceuticals, which is in Phase 2 studies for LI-79 for ASD, GW Pharmaceuticals, which is in Phase 2 studies for Cannabidivarin for ASD, Harmony Biosciences, which is in Phase 3 studies for Cannabidiol ("CBD") gel for ASD, QBioMed, which is developing a preclinical asset called QBM-001 for rare pediatric nonverbal autism and Kuzani Therapeutics, Inc., which has announced that it is in clinical development for the treatment of the core symptoms of ASD in children. There are two treatments that have been approved by FDA to treat the non-core symptom of irritability in ASD: Risperdal (Risperidone) and Abilify (Aripiprazole). Axial Therapeutics is in Phase 2 studies for AB-2004 for irritability in ASD. For ME/CFS, AIM ImmunoTech has an approval for rintatolimod in Argentina, and is in development for the drug in the US. For LCS, Tonix Pharmaceuticals is in Phase 2 studies for TNX-102 SL. 12 USE OF PROCEEDS We will not receive any of the proceeds from the sale by the Selling Stockholders of the Shares. Upon any exercise of the Warrants by payment of cash, however, we will receive the exercise price of the Warrants, which, if exercised in cash with respect to the 9,023,083 shares of Common Stock offered hereby, would result in gross proceeds to us of approximately $1.8 million. However, we cannot predict when or in what amounts, or if, the Warrants will be exercised by payments of cash and it is possible that the Warrants may expire and never be exercised, in which case we would not receive any cash proceeds. DIVIDEND POLICY We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. DETERMINATION OF OFFERING PRICE The prices at which the shares of Common Stock covered by this prospectus may actually be sold will be determined by the prevailing market price for shares of our Common Stock or by negotiations between the Selling Stockholders and buyers of the Shares in private transactions or as otherwise described in "Plan of Distribution." 13 BUSINESS Overview We are a clinical stage biopharmaceutical company focusing on the development of anti-purinergic drug therapies ("APT") for the treatment of disorders with intractable neurologic symptoms, ranging from neurodevelopmental disorders, including autism spectrum disorder ("ASD"), to neurodegenerative disorders such as Fragile X Tremor Ataxia Syndrome (FXTAS) and post-viral Myalgic Encephalomyelitis/Chronic Fatigue Syndrome ("ME/CFS"), which causes physical and cognitive decline in affected adults. APTs have been shown to block the effects of excess production and extracellular receptor activity of adenosine triphosphate ("ATP"), which acts as both the main energy molecule in all living cells and a peripheral and central nervous system neurotransmitter via receptors that are found throughout the nervous system. Excess purinergic signaling can offset homeostasis and trigger immune responses that result in localized and systemic increases in inflammatory chemokines and cytokines, ultimately stimulating ATP production. APTs may also impact immunologic and inflammatory mechanisms that may be causing or exacerbating symptoms in these seemingly unrelated disorders, which may be caused in part by similar mechanisms of ATP overproduction. One of our primary points of focus is currently the development and testing of our lead program, PAX-101, an intravenous formulation of suramin, in the treatment of ASD and the advancement of the clinical understanding of using that agent against other disorders such as fragile X syndrome (FXS), fragile X-associated tremor/ataxia syndrome (FXTAS), and ME/CFS. In November 2023, we announced the publication in a peer-reviewed medical journal of the results of our Phase 2 dose-ranging clinical trial evaluating PAX-101 (commonly known as intravenous suramin) for the treatment of the core symptoms of ASD, as described in more detail below. In July 2023, we announced topline data from a Phase 3 retrospective trial evaluating the efficacy of suramin in the treatment of the fatal parasitic infection commonly known as African sleeping sickness ("HAT"), collecting exclusively licensed real-world evidence for suramin s historical use in treating Human African Trypanosomiasis outside of the United States. The retrospective, non-randomized, externally controlled, interventional efficacy and safety study of suramin for the treatment of Stage 1 TBR HAT demonstrated better health outcomes when compared with a natural history control group of patients evaluated and treated from 1900-1910, prior to the availability of suramin in Africa. The adverse event profile of suramin observed in the study was consistent with what has been widely reported in published medical and clinical literature. We intend to submit data to support a New Drug Application (an "NDA") for PAX 101 under the Neglected Rare Tropical Disease Priority Voucher Program of the U.S. Food and Drug Administration (the "FDA") for the treatment of Human African Trypanosomiasis in late 2024 or early 2025. On October 24, 2023, we entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Rediscovery Life Sciences AKI LLC ("RLS"). Pursuant to the Asset Purchase Agreement, we acquired substantially all of the assets of RLS, including but not limited to its intellectual property, equipment, and inventory. The total purchase price for the assets was $100,000, payable in cash at closing, along with a one-time payment of 1% of gross proceeds earned by us in connection with any potential sale of a Priority Review Voucher issued by the FDA in connection with the potential approval of an NDA for HAT. The acquisition was financed through our existing cash reserves. We are also pursuing the development of next generation APT product development candidates for neurodevelopmental indications. These candidates include PAX-102, our proprietary intranasal formulation of suramin, as well as other new chemical entities that are more targeted and selective antagonists of particular purine receptor subtypes. We believe our lead drug candidate (suramin), if approved by the FDA, may be a significant advancement in the treatment of ASD and a potentially useful treatment for FXS, FXTAS, ME/CFS and LCS. We were formed as a Delaware limited liability company in April 2018 and converted into a Delaware corporation in April 2020. Our website address is www.paxmedica.com. The information contained on, or that can be accessed through, our website is not part of, and is not incorporated into, this prospectus. 14 Our Development Strategy Current Clinical Development Plan Our clinical development plan seeks to obtain initial U.S. approval of PAX-101 for the treatment of East African HAT, which is caused by the parasite Trypanosome brucei rhodesiense, and, using the FDA s 505(b)(2) regulatory pathway, leverage such approval, if achieved, to facilitate an accelerated development program for PAX-101 for certain neurologic indications including ASD, ME/CFS and LCS. Based on our pre-IND meeting with the FDA in March 2021 and, in part, on an analysis of the data that we have exclusively licensed from the Ministry of Health, Republic of Malawi and Lwala Hospital (Soroti, Uganda) relative to East African HAT patients treated with suramin, we believe we have created a strong development strategy that we plan to employ in seeking the approval of PAX-101 for the treatment of East African HAT. Based on our prior interactions with the FDA, including our pre-IND and Type B meeting with the FDA, we further believe that an approval, if any, in East African HAT could confer upon us the potential receipt of a priority review voucher ("PRV") by the FDA, which we could potentially monetize to fund our future clinical programs. We expect further clinical studies of PAX-101 for the treatment of ASD, FXS, FXTAS, and ME/CFS will be required and similar clinical development is needed for PAX-102 to reach the commercial stage. In November 2020, the FDA granted orphan drug designation to PAX-101 for the treatment of East African HAT. However, there can be no assurance that we will receive FDA approval for PAX-101 for the treatment of East African HAT and, even if PAX-101 is approved by the FDA, there can be no assurance that we will receive a PRV. For more information on the PRV process and how we may benefit from it, see the section of this Annual Report on Form 10-K. "Item 1. Business – Governmental Regulation - The Priority Review Voucher Program." Development Pipeline The following table summarizes our current product candidate and indication pipeline. PAX-101 (intravenous suramin) Our lead product candidate under development is PAX-101, an intravenous formulation of suramin, which we are developing for multiple indications, including East African HAT, ASD, and ME/CFS. The most advanced indication for which we are developing PAX-101 is for treatment of "Stage 1" Trypanosoma brucei rhodesiense (East African) HAT, the stage of the clinical course of HAT in which the parasite is found in the peripheral circulation, but it has not yet infiltrated the CNS. We maintain exclusively licensed worldwide rights to patient-level data on the use of suramin in the treatment of Stage 1 East African HAT, which we intend to leverage for demonstration of the safety and efficacy of PAX-101. We have met with the FDA in three formal meetings regarding the execution and development of PAX-101 for this indication. Pursuant to those conversations, and to satisfy the FDA s requirement of demonstrating substantial effectiveness, we conducted a new prospective clinical trial. We completed an analysis and presentation of retrospective data from East African HAT patients previously treated with suramin from 2000 to 2020, for which we have the exclusive license, in July 2023. In addition to these retrospective data, we will also complete preclinical and clinical safety studies to support submission of an NDA for PAX-101 s East African HAT indication. We expect that such work will be completed over the next 10 months, with the intention of filing an NDA in late 2024 or in the first half of 2025. Additionally, we are completing the development of a proprietary supply chain of drug substance and drug product which will form the basis of our NDA filing. Without establishing this supply chain, we will not be able to submit an NDA for the East African HAT indication. See "Manufacturing" for additional information about our expected timeline for establishing our supply chain. In November 2020, the FDA granted orphan drug designation to PAX-101 for the treatment of East African HAT. It is expected that PAX-101, if approved by the FDA for the East African HAT indication, will qualify for new chemical entity exclusivity (providing sole marketing rights in the United States to the Company with respect to any product that contains suramin for up to seven years), in addition to orphan drug exclusivity, and potentially a tropical disease PRV. However, even if PAX-101 is approved by the FDA for the East African HAT indication, there can be no assurance that we will receive a tropical disease PRV. 15 Phase 2 Clinical Trial Our lead neurologic indication for PAX-101 is for use in treating core symptoms of ASD. In 2021, we conducted a Phase 2 clinical trial at six sites in South Africa with respect to this indication (the "Phase 2 Trial"). The trial was a randomized, double-blind, placebo-controlled design, where we studied two doses of drug versus placebo over a 14-week treatment period. Dosing was at baseline and at the end of weeks 4 and 8. The study population included a patient population with diverse ethnicity and a mean age of approximately 8.4 years. Forty-four of the fifty-two enrolled subjects completed the study, with five withdrawals due to COVID-19 lockdowns, one for an adverse event and three for other reasons. The study evaluated a number of different clinically validated endpoints used in the assessment of the core symptoms of ASD. The primary endpoint of the study was the change between baseline and Week 14 in the Aberrant Behavior Checklist ("ABC") composite score of core symptoms ("ABC Core") including ABC-II (lethargy/social withdrawal), ABC-III (stereotypy) and ABC-V (inappropriate speech). PAX-101 10mg/kg demonstrated greater improvement through the 14-week treatment period compared to placebo in several assessment measures, including the ABC Core and the Clinical Global Impression - Global Improvement Scale ("CGI-I"). At Week 14, there was a mean improvement from baseline of 12.3 points in the ABC Core in subjects on 10 mg/kg vs. 8.4 points in subjects on placebo (p=0.37). The study was not fully powered for efficacy. However, at Week 14, the subjects treated with 10 mg/kg of PAX-101 demonstrated a mean improvement from baseline in the CGI-I overall symptom severity score of 2.8 points versus 1.7 points on placebo. This change in CGI-I was statistically significant (p=0.016). An improvement in the CGI-I overall symptom severity score of 2 points or more is generally considered to be a clinically relevant change. Certain key subpopulations demonstrated even further improvements on these and other assessments. This trial was designed as a robust dose-ranging study to confirm and expand upon the initial data from a prior-published single dose, single site, pilot study, but was not designed to demonstrate statistical significance across all efficacy endpoints. 16 The full analysis included data from primary, secondary, and exploratory endpoints evaluated in the trial, safety and laboratory data, and an analysis of the pharmacokinetic data. In July 2021, we completed a pre-IND meeting with the FDA to review the results of this trial where we agreed to obtain additional information about the pharmacokinetic profile of PAX-101 in children in different age groups. We intend to meet with the European Medicines Agency (the "EMA") and refine the program s development plan for global registration based on additional work required. We intend to seek permission from South African regulatory authorities for an additional PAX-101 study in South Africa to develop additional data in younger female subjects and other protocol refinements before submitting an IND to the FDA, which we currently expect to do in 2024 or 2025. We are also conducting pre-clinical and other required toxicologic studies to support this IND submission. Phase 3 Clinical Trial The PAX-HAT-301 study is a retrospective, non-randomized, externally controlled, interventional efficacy and safety study comparing medical records data from a cohort of patients with Stage 1 Trypanosoma Brucei Rhodesiense (S1 TBR HAT) evaluated and treated from about 2000 – 2020 at one medical site in Uganda and two medical sites in Malawi (referred to as the suramin-treated cohort), with medical records data from a cohort of patients from 1900-1910 evaluated and treated during the TBR HAT epidemic in Uganda (referred to as the natural history cohort). These records included data from a few weeks of hospitalization while they were being evaluated and the diagnosis of TBR HAT confirmed. As their conditions began to deteriorate, patients were often treated with arsenic or related compounds, sent to a Sleeping Sickness Hospital, or sent home to die with their families. The natural history records do not include long term outcomes data for many of the patients. The study was designed in consultation with the U.S. Food and Drug Administration (FDA) and to ensure that the historical control group of patients had TBR HAT (not the chronic TBG form) and were in Stage 1 of the disease. 17 The primary objective of the study was to determine whether standard of care treatment with suramin, as currently practiced in Uganda and Malawi, from 2000-2020, led to better health outcomes in patients with S1 TBR HAT, than outcomes observed in a natural history cohort from the epidemic >100 years ago. The secondary objective was to evaluate the safety and tolerability of suramin. The primary endpoint of the study was survival and not meeting any of the supportive descriptive criteria (i.e., death, progression of the disease from Stage 1 to Stage 2, or becoming "moribund" [discharged to a sleeping sickness hospital, physician or patient giving up hope, or being close to death with no hope of recovery]). An independent study adjudication committee was established to review the suramin-treated and natural history cases for study eligibility, and to confirm the clinical endpoints. The committee was comprised of three physicians experienced in the treatment of TBR HAT in Malawi and Uganda. The PAX-HAT-301 Study Results The outcomes observed in the suramin-treated cohort were both statistically significant and clinically meaningfully different from the outcomes observed in the natural history cohort. The suramin-treated patients had a far lower rate of death or progression to Stage 2 compared with the natural history cohort. In addition, many of the longer-term outcomes from the natural history cohort pointed towards death as the inevitable outcome of TBR HAT without the benefit of suramin treatment. In the study population there were 349 patients, 145 in the suramin-treated cohort and 204 patients in the natural history cohort. There were 121 suramin-treated and 42 natural history patients with sufficient data and that met all eligibility criteria for the primary analysis. The suramin-treated patients had a mean age of 31.1 years (range from 2 to 85 years) and 64% male. The natural history patients had a mean age of 22 (range from 3 to 40 years) and 79% male. Racial and ethnicity data were not available and weight was only available for about half of the suramin-treated patients. The suramin-treated patients presented with a variety of commonly reported HAT related symptoms. The most common symptoms were fever/chills, severe headache, aching joints, extreme fatigue, and swollen lymph nodes. The natural history cohort patients had presenting symptoms recorded in 27/42 (64%) of cases. The reported symptoms were similar including headache, "feeling ill", drowsiness, cough, weakness, chest pain, diarrhea, and enlarged lymph nodes. One suramin-treated patient tested positive for HIV (only 23% tested) and 16/76 (21%) of patients tested were positive for malaria. No comparable data is available for the natural history cohort. The outcomes for the two cohorts differed substantially. Of the suramin patients, 114 (94%) survived and successfully completed the treatment. Three patients (2%) had "Other" listed as the reason for stopping suramin treatment and 4 (3%) had no reason for stopping suramin treatment recorded. No patients required rescue medications for progression from Stage 1 to Stage 2. In the natural history cohort, 6 (14%) were recorded as cured, improved, or discharged. Three (7%) patients died, 10 (24%) experienced clinical worsening, and 17 (40%) achieved moribund status (near death and in terminal clinical decline). It is anticipated that if all of these patients were followed for up to 6 months, that nearly all of them would have died. The primary efficacy analysis revealed that the health outcomes in the suramin-treated cohort were statistically significantly better than those in the natural history cohort. According to the definition of the primary endpoint, the proportion of patients in the suramin-treated group that was alive and not meeting any supportive descriptive criteria of death, any clinical worsening or moribund status was 92% vs. 50% in the natural history cohort. The estimated proportion (95% CI) was 0.442 (0.277, 0.600). The two-sided p-value for the Fisher s exact test was <0.001 Type-B and Type-C Meetings for HAT-301 On October 26, 2023, we completed a type-B meeting with the FDA, where we discussed the results of our recent data from our PAX-HAT-301 study of suramin in HAT. On June 27, 2024, we completed a type-C meeting with the FDA, where we discussed our CMC regulatory guidelines for our PAX-101 candidate. We received constructive feedback which will aid in the completion of the remaining work necessary to file a New Drug Application expected in the second half of 2024. Most of the work to achieve this important milestone will focus on completing the production of commercial lots of PAX-101 under CMC regulatory guidelines, which concluded in the first half of 2024. 18 Registry Study Clinical Trial of Suramin for Management of ASD In 2017, the Suramin Autism Treatment ("SAT-1") trial, a double-blind, placebo-controlled, translational pilot study to examine the safety and activity of low-dose suramin in children with ASD, was completed by Naviaux et al. (2017) at the University of California, San Diego. The study included 10 boys aged 4-17 who lived in the San Diego, California area. None of the boys were less than the 5th percentile in weight for their age, on prescription medications, or had laboratory evidence of liver, kidney, heart, or adrenal abnormalities. Additionally, boys who lived more than 90 minutes from the testing site were excluded from the study to prevent bias due to aberrant behavior resulting from extended travel to and from the University. Boys who had ASD due to a DNA mutation or a chromosomal copy number variation were also excluded from the study. The boys parents were instructed to maintain the boys current therapies (e.g. supplements, speech, and behavioral therapies) throughout the course of the study. The trial consisted of a treatment arm of five boys and a placebo arm of five boys. All 10 boys received a 50 mg test dose of suramin in 5 mL of saline or 5 mL of saline only, followed by a 10 mL saline flush. One hour later, boys in the treatment arm received 20 mg/kg of suramin, less the 50 mg test dose, in 50mL of saline, up to a maximum of 1 g, and boys in the placebo arm received 50 mL of saline, each administered intravenously. A 10 mL saline flush followed the second dose s administration as well. In the SAT-1 study, the mean age was 9.1 years (range: 5-14 years), the mean nonverbal Leiter IQ was 80 (range: 66-92), and the mean ADOS-2 comparison score was 9.0 (range: 7-10). No serious toxicities (common terminology criteria for adverse events grades three through five) were encountered. Peripheral neuropathy was not noted in the subject patients. Free cortisol, hemoglobin, white blood cell count, platelets, liver transaminases, creatinine, and urine protein levels were not statistically significantly different among the boys in the treatment arm and those in the placebo arm. All five boys who received suramin experienced a self-limited, evanescent, asymptomatic, fine macular, patchy, morbilliform rash over 1%-20% of their body that peaked one day after infusion and disappeared without intervention between days two and four after infusion. No serious adverse events were encountered. On review by an independent data and safety monitoring board, no safety concerns were noted. Difference Difference Instruments Factor or Treatment from baseline from baseline behavior (days) (mean SD) 95% CI d N P P (mean SD) 95% CI d N P p Primary outcomes ADOS-2 Comparison 45 -1.6 0.55 -2.3 to -0.9 2.9 5 0.0028 0.038 -0.4 0.55 -1.1 to + 0.28 0.7 5 0.18 0.16 Raw 45 -4.6 1.9 -7.0. to -2.2 2.4 5 0.0062 0.039 -0.4 1.8 -2.7 to +1.9 0.22 5 0.65 0.58 Social 45 -3.2 1.9 -5.6 to -0.8 2.4 5 0.020 0.043 0.0 1.7 -2.2 to +2.2 0 5 0.99 0.71 Rest/Rep 45 -1.4 0.89 -2.5 to -0.29 1.6 5 0.025 0.059 -0.4 2.1 -3.0 to +2.2 0.19 5 0.69 0.58 EOWPVT Vocabulary 45 -4.2 -8.3 -14.50 to +6.1 -0.51 5 0.32 0.50 +2.0 4.6 -3.8 to +7.8 0.43 5 0.39 0.50 Secondary Outcomes ABC Stereotypy 7 36 2.1 -6.2 to -1.0 1.7 5 0.018 0.043 +0.4 1.9 -2.0 to +2.5 -0.21 5 0.67 0.68 Stereotypy 45 -4.0 2.3 -6.9 to -1.1 1.7 5 0.019 0.042 +1.0 4.3 4.3 to +6.3 -0.23 5 0.63 0.69 ATEC Total 7 -10 7.7 -20 to -0.46 1.3 5 0.044 0.043 +7.2 14 -10 to +25 -0.51 5 0.32 0.35 Language 7 -2.2 1.5 -4.0 to -0.36 1.4 5 0.021 0.059 0.0 4.1 -5.0 to +5.0 0 5 0.99 0.89 Sociability 7 -3.6 2.6 -6.8 to -0.36 1.4 5 0.025 0.063 -0.8 2.8 4.3 to +2.6 0.29 5 0.55 0.58 Language 45 -2.0 1.4 -2.7 to -0.49 1.4 5 0.034 0.059 -0.2 2.9 -3.8 to +3.4 0.07 5 0.88 0.79 CGI Overall ASD 45 -1.8 1.04 -3.4 to -0.15 1.7 5 0.05 n/a 0.0 0.34 -0.55 to +0.55 0 5 0.99 n/a E. Language 45 -2.0 1.04 -3.6 to -0.35 1.9 5 0.01 n/a 0.0 0.34 -0.55 to +0.55 0 5 0.99 n/a Social Inter. 45 -2.0 1.04 -3.6 to -0.35 1.9 5 0.01 n/a 0.0 0.34 -0.55 to +0.55 0 5 0.99 n/a RBQ Total 45 -3.2 5.8 -10.4 to +4.0 0.55 5 0.28 0.22 -0.8 3.3 -4.9 to 3.3 0.24 5 0.62 0.47 ADOS-2, autism diagnostic observation schedule, 2nd edition; EOWPVT, Expressive One-Word Picture Vocabulary Test; ABC, aberrant behavior checklist; ATEC, autism treatment evaluation checklist; CGI, clinical global impression survey; RBQ, repetitive behavior questionnaire; Restr/Rep, restricted or repetitive behaviors; Overall ASD Sx, overall ASD symptoms; E. Language, expressive language; Social Inter., social interaction. Analysis. ADOS, EOWPVT, ABC, ATEC, and RBQ scores were analyzed by paired analysis before and after treatment using each subject as their own control. CGI was analyzed by two-way ANOVA (symptom x time before and after treatment) with post hoc correction. Nonparametric P values were not calculated (n/a). Interpretation. ADOS, ABC, ATEC, CGI, and RBQ are severity score; negative differences from baseline reflect decreased severity, that is, improvement. EOWPVT is a performance score; negative differences reflect a decrease. (1) A positive Cohen s d reflects improvement, and a negative d reflects a decrease by convention. Cohen s d is likely an overestimate of the actual treatment effect based on the large mean differences and small standard deviations found before and after treatment in this small study. (2) p value from parametric paired t-test analysis. (3) p value from nonparametric paired Wilcoxon signed-rank sum analysis. 19 Parents reported that, after suramin treatment, the rate of language, social, behavioral, and developmental improvements increased over three weeks, then gradually decreased toward baseline over the next three weeks. ADOS-2 comparison scores at six weeks improved by an average of -1.6 +/- 0.55 points (mean +/- SD; n= 5; 95% CI= -2.3 to -0.9; Cohen s d = 2.9; P = 0.0028) (note: lower score associated with less concern). The mean ADOS comparison score in the suramin-treated group was 8.6 +/- 0.4 at baseline and 7.0 +/- 0.3 at six weeks. An improvement in ABC, Autism Treatment Evaluation Checklist, and Clinical Global Impression of Improvement scores was also noted among boys who received suramin. PAX-102 (intranasal suramin) PAX-102, a proprietary intranasal formulation of suramin, is also being developed for neurologic indications. The rationale for this program is the potential to better target the suramin molecule to the CNS, which may potentially allow us to deliver similar potency to that achieved using PAX-101 and reduce the dose needed and improve the tolerability profile of the drug, ultimately offering patients a more convenient delivery system versus intravenous infusion. We have developed a proprietary intranasal formulation, and based on our in vitro nasal membrane permeation studies using the cultured EpiAirway (Mattek) membrane model, as well as more targeted CNS delivery in vivo, we believe our intranasal formulation has the potential to demonstrate rapid and efficient uptake across the nasal membrane. We expect to move forward towards an Investigational New Drug application (an "IND") on PAX-102 pending further funding or partnerships. Suramin is not orally bioavailable and has historically been administered intravenously and at very high doses separated by a few days between infusions. Suramin intravenously administered in high doses for treatment and eradication of the parasite that causes East African HAT can cause significant side effects, including rash, nausea, vomiting, diarrhea, abdominal pain, and a feeling of general discomfort. Other side effects include skin sensations such as crawling or tingling sensations, tenderness of the palms and soles, numbness of the extremities, watery eyes, and photophobia. In addition, when administered in high doses or as a continuous infusion, suramin has been shown to cause nephrotoxicity and peripheral neuropathy. Regarding pharmacokinetics, suramin is approximately 99-98% protein bound in the serum and has a half-life of 41-78 days, with an average of 50 days. Also, it is not extensively metabolized and is eliminated by the kidneys. Despite strong early results from early animal and human studies, we believe more research is needed to provide safe and effective delivery of APTs, such as suramin, for treating neurologic conditions. We believe it may be necessary to deliver appropriate levels of the drug in brain tissue while also minimizing blood and other tissue levels. While it is difficult to deliver drugs across the blood-brain barrier (the "BBB"), which is a natural protective mechanism of most mammals, including humans, such delivery is even more challenging for higher molecular weight compounds, such as suramin. A possible route to maximize delivery across the BBB is to use intranasal delivery to provide higher levels of a drug to the upper nasal mucosa to allow for nose-to-brain transport along the olfactory and trigeminal nerves. We believe our proprietary intranasal formulations and methods of delivering suramin to mammals have been shown, in in-vivo preclinical studies, to deliver suramin to the brain in ways that may reduce systemic exposure, and our development plan calls for clinical trials to test this potential for reduced systemic exposure in humans. The PAX-101 and PAX-102 development programs in neurologic disorders may be filed with the FDA as a supplement to the initial 505(b)(2) NDA, assuming PAX-101 is approved for the treatment of East African HAT. As discussed in more detail below, a 505(b)(2) NDA is a special type of NDA that enables the applicant to rely, in part, on the FDA s findings of safety and efficacy of an existing or previously approved product, or published literature, in support of its application. 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Using a 505(b)(2) NDA, we expect to reduce the cost, time and risk that would otherwise be associated with bringing these programs to market. See "The 505(b)(2) NDA Regulatory Pathway" below for more information. Early Program in Selective APTs In addition to the PAX-101 and PAX-102 development programs, we have begun an early discovery program targeting the development of highly selective APTs. We have identified multiple compounds that are selective for certain purinergic receptor subtypes and have engaged in preclinical work with these compounds in an animal model of ASD. We expect to complete additional preclinical work and open an IND with respect to one or more of these compounds in 2025. In the future, we intend to pursue opportunities to develop products, either alone or in partnership with other pharmaceutical companies, related to these APTs. In June 2023, we entered into a Research Collaboration Agreement with PoloMar Health ("PoloMar") for Phase II clinical trial in Autism Spectrum Disorder (ASD) for emodin, is a naturally occurring anthraquinone derivative. In 2019, we completed several in vivo animal studies in a mouse model of autism and demonstrated positive results for emodin in several measures of cognition, memory, and behavior. These findings were the basis of a patent filing that was initiated that same year by the Company. PoloMar will be the sponsor of the U.S.-based trial for a potential non-prescription treatment for Autism Spectrum Disorder (ASD), and will, provide the funding for the trial. Under the terms of the agreement PoloMar retains rights to develop and commercialize any non-prescription supplement form of the product, while we retain exclusive rights to develop and commercialize a highly purified form of emodin as a prescription pharmaceutical product following FDA and other regulatory authorities guidance. 20 Our Markets Market for ASD According to the U.S. Centers for Disease Control and Prevention (the "CDC"), ASD affects between 1% and 2% of the world s population, including more than 3.5 million people in the United States. Prevalence of autism in eight-year-old U.S. children increased by approximately 316% from 2000 (1 in 150) to 2020 (1 in 36). No pharmacological therapies exist for the treatment of the core symptoms of ASD, such as lethargy/social withdrawal, stereotypy, or repetitive or ritualistic behaviors, and inappropriate speech. Pharmacological therapies that have been approved to date, such as aripiprazole and risperidone, only treat the non-core symptom of irritability associated with ASD. There are also a number of new therapies for ASD in development by small and large companies with variable levels of clinical data, although none has proven efficacy and safety in large, randomized and controlled trials. The global ASD therapeutics market is projected to grow from $2.01 billion in 2023 to $3.42 billion by 2030, at a CAGR of 7.9%, according to a research report by Fortune Business Insights. We believe a drug that can demonstrate strong safety and efficacy in the treatment of the core symptoms of ASD would generate strong market demand because there are no comprehensive treatment options available to address these important aspects of this condition. Market for FXAS and FXTAS Fragile X-associated tremor/ataxia syndrome (FXTAS) is a condition that specifically impacts Fragile X premutation carriers, typically manifesting in individuals aged 55 and above. This neurological disorder, akin to other prevalent adult-onset conditions like Amyotrophic Lateral Sclerosis (ALS or Lou Gehrig s disease), underscores its significance in the realm of neurodegenerative diseases. The estimated prevalence of FXTAS is approximately 1 in 8,000 males aged 50 and above within the general population. Despite its impact, there are currently no medications available to halt or decelerate the progression of FXTAS. Neurologists commonly resort to prescribing medications tailored to the specific symptoms exhibited by individual patients. Notably, the management of FXTAS symptoms involves the use of medications such as primidone, gabapentin, topiramate, levetiracetam, amantadine, buspirone, varenicline, and riluzole, which have demonstrated efficacy in a limited number of patients. Furthermore, in cases where FXTAS patients exhibit symptoms resembling Parkinson s disease, carbidopa/levodopa may be recommended. The absence of targeted therapies emphasizes the pressing need for continued research and the development of interventions to address the unique challenges posed by FXTAS. Market for ME/CFS Prior to the COVID-19 pandemic, little attention had been paid to a potentially related post-acute infection disorder known as ME/CFS which, in light of the recent observation and identification of LCS, has received renewed interest in the medical and patient advocacy community. Like LCS, ME/CFS sufferers have nearly identical physical symptoms which in extreme cases have been documented to last for years, resulting in affected individuals becoming house-, if not bed-bound. Suicidality is also a common concern of clinicians who care for these patients. The cause of ME/CFS is unknown but research points to the possibility that many cases of ME/CFS resulted from a prior viral infection, which may or may not have had overt physical symptoms at the time, and an immune response to this infection that continues to induce an inflammatory response, despite the lack of any virus or similar infectious invader. Although some ME/CFS sufferers can and do tolerate some ME/CFS symptoms, many seek help through various unproven diets, supplements and prescription drugs. In some cases, complex spinal fusion therapy has been shown to be beneficial for ME/CFS patients whose symptoms may be related to recovery from physical trauma. There is significant opportunity within the global ME/CFS market. ME/CFS can cause significant impairment and disabilities that have negative economic consequences at both the individual and the societal level. At least one-quarter of ME/CFS patients are house- or bed-bound at some point in their lives. The direct and indirect economic costs of ME/CFS to society have been estimated at $17 to $24 billion annually, $9.1 billion of which has been attributed to lost household and labor force productivity. 21 Market for East African HAT The market for using PAX-101 to treat East African HAT is expected to be largely restricted to Sub-Saharan Africa, where suramin is already in use for Stage 1 East African HAT. Further, we may donate product for use in this indication to the WHO, either as a replacement for current limited supplies or as a supplementary source of suramin, if the WHO requests us to do so. If we obtain a U.S. approval for PAX-101 to be used in the treatment of East African HAT, we could potentially qualify to earn a tropical disease PRV from the FDA, which we would intend to monetize to raise funds to support the later-stage development and commercialization of PAX-101 and PAX-102 in the treatment of ASD, and ME/CFS. The estimated total cost to gain FDA approval, if any, for the HAT indication and qualify for the PRV is estimated to be between $11.0 to $13.0 million, with some portion of these expenses shared across our pipeline indications and formulations programs that would extend beyond the initial HAT approval, if any. There can be no assurance that we will receive a PRV, and even if we do obtain a PRV, there can be no assurance that we will receive sufficient funds from its sale to fund the clinical and commercial development of our drug candidates. If we are unable to obtain a PRV, or if the amount we obtain from its sale is insufficient to fund our operations, we may be required to fund the later-stage development and commercialization of PAX-101 and PAX-102 in the treatment of ASD, and ME/CFS through sales of our equity or debt securities, strategic collaborations with third parties or other similar transactions. Manufacturing Activities The synthesis of PAX-101 is a complex multi-step process and involves a global supply chain. We do not own or operate manufacturing facilities for the production of PAX-101, nor do we have plans to develop our own manufacturing facility for clinical or commercial manufacture of PAX-101 in the foreseeable future. We depend on third-party Contract Manufacturers ("CMOs") and Contract Laboratories ("CLOs") to manufacture and test all our critical intermediates, as well as our active pharmaceutical ingredients. We will utilize clinical service organizations to package, label and distribute clinical trial quantities of PAX-101. In 2019 and 2020, we entered into multiple agreements with CMOs for the development and cGMP- compliant production of suramin for use in our clinical trials and to support the future commercial supply chain of PAX-101. Pursuant to these agreements, we have paid upfront fees to our CMOs and will be required to make additional payments upon various milestones throughout the project. There was no readily available source of suramin for use in clinical trials in the United States. There is currently one manufacturer of suramin, Bayer, which does not manufacture suramin on a regular basis and, when it does, generally only manufactures small quantities in response to outbreaks of HAT. We have engaged two independent contract development manufacturing organizations to develop, validate and scale our supply chain for suramin and the shelf stable drug product that is ultimately distributed to pharmacies. We completed the necessary steps to begin producing suramin in late 2023 and began the final development phase in November 2023, including the production and final release testing process, that will produce suramin for both clinical and registrational purposes. We have produced suramin API and delivered initial batches for animal testing and we anticipate delivering suramin API for final drug product development in the third quarter of 2023. Development, validation and scaling of the final drug product manufacturing was initiated in the first half of 2024 and drug product has been placed on stability testing immediately following Quality Control release. We estimate expenses required to complete the remaining to be between $1.0 million and $1.1 million. We continue to explore alternative manufacturing sources and partnerships in an effort to ensure that we will have an uninterrupted supply chain and maintain sufficient manufacturing capacity in order to meet potential demand for any of our product candidates. We plan to work with our CMOs to establish and safeguard our supply chain for any products we successfully develop. We cannot guarantee, however, that our efforts to develop and maintain such an uninterrupted supply chain will be successful and, until we have a reliable supply, our clinical trial progress will continue to be delayed, including delaying our NDA filing for the HAT indication until we have sufficient supply. Unless and until we can complete the NDA for the HAT indication, we will not be eligible for a priority review voucher. To comply with FDA requirements for approval of our pharmaceutical products, we will audit all of our CMOs and CLOs to ensure they are compliant with cGMP, including with respect to their document control procedures, manufacturing facilities, environment, and equipment, quality control procedures, quality assurance procedures, and personnel management policies (together, "Quality Systems"). These Quality Systems must be qualified and approved by the FDA prior to approval and release of product on an ongoing basis. Sales and Marketing We currently have no marketing, sales or distribution capabilities. In order to market and sell products that are approved for commercial sale, we must either develop our own sales, marketing and distribution infrastructure or collaborate with third parties that have such commercial infrastructure and relevant marketing and sales experience. We will consider the merits of developing our own sales, marketing and distribution infrastructure for the U.S. market. If we elect to develop our own sales and marketing organization, we do not intend to begin to hire sales and marketing personnel unless and until any of our product candidates are in Phase 3 clinical trials or closer to NDA submission, and we do not intend to establish our own sales organization in the United States unless and until shortly prior to FDA approval of PAX-101 or any of our other product candidates for neurologic indications. We do not intend to establish a sales organization for selling PAX-101 as a treatment for East African HAT in any market. Therefore, at the time of our anticipated commercial launch of PAX-101, assuming regulatory approval of the drug by the FDA for neurologic indications, any sales and marketing team, if we decide to have one, will have worked together for only a limited period of time. 22 In June 2023, we entered into an exclusive specialty benefit manager agreement with Vox Nova, LLC ("Vox Nova") pursuant to which Vox Nova will act as the exclusive United States distributor for PAX-101 for a period of up to seven years. Vox Nova will provide certain distribution management, pharmacy benefit management, sales and supply monitoring services to us with respect to PAX-101, in the event PAX-101 receives FDA approval. The distribution agreement also provides for an exclusivity fee payable to us of up to $2.0 million, of which we have received $0.5 million, with the remainder payable in installments based on various time and regulatory approval parameters. Competition The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies and private and public research institutions. Many of these competitors have far greater human and financial resources and may have product candidates in more advanced stages of development. Furthermore, these competitors products will likely reach the market before our product candidates. Competitors may also develop products that are more effective or safe, less expensive or that have better tolerability or provide for more convenient administration. Although we believe that our intellectual property, experience and knowledge in our areas of focus provide us with competitive advantages, these potential competitors could reduce our commercial opportunities. Competition for PAX-101 in ASD There is currently no known cure for ASD, and no FDA approved medication to treat the core symptoms of ASD. We are aware, however, of several companies that are working to develop drugs that might compete against our product candidates. Our current and potential competitors in ASD include CureMark LLC, which is in Phase 3 studies for CM-AT for ASD, Yamo Pharmaceuticals, which is in Phase 2 studies for LI-79 for ASD, GW Pharmaceuticals, which is in Phase 2 studies for Cannabidivarin for ASD, Harmony Biosciences, which is in Phase 3 studies for CBD gel for ASD, QBioMed, which is developing a preclinical asset called QBM-001 for rare pediatric nonverbal ASD, Kuzani Therapeutics, Inc., which has announced that it is in clinical development for the treatment of the core symptoms of ASD in children, and Axial Therapeutics, which is in Phase 2 studies for AB-2004 for irritability in ASD. There are two treatments that have been approved by FDA to treat the non-core symptom of irritability in ASD: Risperdal (risperidone) and Abilify (aripiprazole). Both risperidone and aripiprazole are generic medications. For more information relating to competition risks, please see "Risk Factors - General Company-Related Risks - We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively." Competition for PAX-101 in East African HAT Sanofi, DNDi and the HAT-r-ACC consortium have developed Fexinidazole Winthrop as first oral treatment of acute form of sleeping sickness (rhodesiense). They received a positive opinion is for the treatment in adults and children six years of age or older and weighing at least 20 kg, of both first-stage (haemo-lymphatic) and second-stage (meningo-encephalitic) Trypanosoma brucei (T.b.) rhodesiense sleeping sickness from the European Medicines Agency (EMA) Committee for Medicinal Products for Human Use (CHMP). In June 2024, WHO added a recommendation to use Fexinidazole to treat first and second stage HAT caused by Trypanosoma Brucei rhodesiense (TBr) in patients over 6 years old and over 20kg of body weight who have milder forms of the infection. Suramin remains on the list of recommended drugs to treat stage 1 TBr infections. Competition for PAX-101 in ME/CFS For treatment of ME/CFS, AIM ImmunoTech has an approval for rintatolimod in Argentina, and is in development for the drug in the US. Research and Development We spent approximately $1.9 million and $3.9 million during the periods ended June 30, 2024 and December 31, 2023, respectively, on research and development activities, which activities have been undertaken by our CROs and other third-party vendors. These expenses include cash and non-cash expenses related to the development of our clinical and pre-clinical programs. From time to time, as needed, we will employ consultants to support our various business and research and development activities. Intellectual Property Our commercial success depends in part on our ability to obtain and maintain proprietary protection for product candidates and any of our future product candidates, novel discoveries, product development technologies and know-how; to operate without infringing on the proprietary rights of others; and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing on or in-licensing U.S. and foreign patents and patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trademarks, trade secrets, know-how, continuing technological innovation, regulatory and marketing exclusivity such as orphan drug exclusivity, and potential in-licensing opportunities to develop and maintain our proprietary position. 23 As of the date of this prospectus, we own rights to at least four families of patent applications (discussed further in the following three paragraphs). Our patent applications related to our product development candidates currently in development are projected to expire no earlier than 2040, not including any patent term adjustments, patent term extensions, supplementary protection certificates, or other term extensions that might be available in a particular jurisdiction. We also plan to file further patent applications covering our technology and products. Additionally, we own the exclusive rights to patient data in certain East African hospitals that is necessary for our HAT NDA filing. On May 2, 2020 we filed PCT international patent Application No. PCT/US2020/031217 entitled Compositions and Methods for Treating Central Nervous System Disorders. This application claims priority to US Provisional Patent Application Serial No. 62/858,621, filed on June 7, 2019. The PCT application published as WO 2020/247127 on December 10, 2020. The PCT patent application relates to compositions and methods for treating cognitive, social, or behavioral disabilities, and neurodevelopmental disorders. These disabilities and disorders include, ASD and other central nervous system disorders such as fragile X syndrome (FXS), fragile X-associated tremor/ataxia syndrome (FXTAS), chronic fatigue syndrome (CFS), and post-traumatic stress syndrome (PTSD). The patent application also includes further embodiments of ASD selected from autistic disorder, childhood disintegrative disorder, PDD-NOS, and Asperger syndrome. This patent application also relates to compositions for delivering a therapeutically effective amount of an APT, for example suramin, and pharmaceutically acceptable salts, esters, solvates, and prodrugs of these agents. In some embodiments, the APT is delivered by intranasal administration. All designated states (all PCT treaty member countries) were selected upon filing of the PCT patent application. National and regional stage applications have been filed in and are pending in the United States, Australia, Canada, China, the European Patent Office, Israel, and Japan. The application has also been registered in Hong Kong off of the Chinese application. On October 20, 2021 we filed two PCT international patent applications. The first of these two PCT patent applications is PCT international patent Application No. PCT/US2021/055908 which is entitled Intranasal Administration of Suramin for Treating Nervous System Disorders. This application claims priority to US Provisional Patent Application Serial No. 63/104,350, filed on October 22, 2020. The PCT application published as WO 2022/087174 on April 28, 2022. This PCT patent application relates to methods and compositions for the intranasal administration of suramin for treating cognitive, social, or behavioral disabilities, and neurodevelopmental disorders. All designated states (all PCT treaty member countries) were selected upon filing of the PCT patent application. National and regional stage applications have been filed in and are pending in the United States, Australia, Canada, China, the European Patent Office, Israel, and Japan. The application has also been registered in Hong Kong off of the European Patent application. The second of these two PCT patent applications is PCT international patent Application No. PCT/US2021/055911 which is entitled Administration of Antipurinergic Compositions for Treating Nervous System Disorders. This application claims priority to US Provisional Patent Application Serial No. 63/104,357, filed on October 22, 2020. The PCT application published as WO 2022/087176 on April 28, 2022. This PCT patent application relates to methods and compositions for the administration of antipurinergic compositions for treating cognitive, social, or behavioral disabilities, and neurodevelopmental disorders. All designated states (all PCT treaty member countries) were selected upon filing of the PCT patent application. National and regional stage applications have been filed in and are pending in the United States, Australia, Canada, China, the European Patent Office, Israel, and Japan. The application has also been registered in Hong Kong off of the European Patent application. On August 22, 2022 we filed PCT international patent Application No. PCT/US2022/041050 entitled Methods for Treating Central Nervous System Disorders with Antipurinergic Agents. This application claims priority to US Provisional Patent Application Serial No. 63/236,155, filed on August 23, 2021. The PCT application published as WO 2023/027994 on March 2, 2023. The application relates to further aspects of our work for the administration of the antipurinergic agents based on pharmaco-kinetic/pharmaco-dynamic parameters and other learnings from our pre-clinical and clinical work. All designated states (all PCT treaty member countries) were selected upon filing of the PCT patent application. National and regional stage applications have been filed and are pending in the United States, Australia, Canada, China, the European Patent Office, Israel, and Japan. The deadline for a Hong Kong registration based on the European Patent Patent Office and Chinese applications is November 15, 2024 and November 28, 2024, respectively. While we seek broad coverage under our existing patent applications, there is always a risk that an alteration to our products or processes may provide sufficient basis for a competitor to avoid infringing our patent claims. In addition, patents, if granted, expire and we cannot provide any assurance that any patents will be issued from our pending or any future applications or that any potentially issued patents will adequately protect our products or product candidates. Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are granted a term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a period due to delay by the USPTO in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following the date of FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective non-provisional filing date. However, the actual protection afforded by a patent varies on a product-by- product basis, from country to country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent. 24 Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies for our products or processes, or to obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future products may have an adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference or derivation proceedings in the USPTO to determine priority of invention. We are aware of PCT international patent application PCT/US2018/017674, titled "Methods for Autism Spectrum Disorder Pharmacotherapy", which lists Perfect Daylight Limited and The Regents of the University of California as Applicants, filed on February 9, 2018, published as WO 2018/148580 on August 16, 2018, and claiming priority to U.S. provisional patent application no. 62/457,120, filed on February 9, 2017. The patent application describes compositions of antipurinergic agents, such as suramin, and methods of use for treating cognitive developmental disorders and autism spectrum disorder. From publicly available databases, we are aware that a U.S. nonprovisional patent application of this PCT patent application, U.S. application Serial No. 16/537,397, was filed in the United States and was subsequently abandoned in favor of U.S. application Serial No. 18/323,375, filed May 24, 2023, which in turn was subsequently abandoned in favor of U.S. application Serial No. 18/414,171, filed January 16, 2024, which appears to have been subsequently abandoned in favor of U.S. application Serial No. 18/820,114, which was filed on August 29, 2024 and appears to be pending as of the date of this prospectus. The European equivalent of the application was granted as EP3579836 on December 15, 2021, and was validated in Belgium, France, Germany, Great Britain, Switzerland and Liechtenstein. A Chinese application, CN201880024535.9, is also pending. Because patent applications of PCT/US2018/017674 are still pending at least in the United States and China, it is not certain if any patents will ultimately issue from these applications nor is it possible to predict the resultant claim scope of any such issued patent. We will continue to monitor the prosecution of these patent applications from publicly available documents. We are also aware of PCT international patent application PCT/US2018/017200, titled "Antipurinergic Compounds and Uses thereof," which lists CSP Pharma, Inc. as Applicant, filed on February 7, 2018, published as WO 2018/148262 on August 16, 2018, and claiming priority to U.S. provisional patent application no. 62/456,438, filed on February 8, 2017. The patent application describes compositions and methods for treating neurodevelopmental disorders. The compositions contain an APT, such as suramin, and a carrier formulated for non-intravenous administration. The neurodevelopmental disorders include ASD. From publicly available databases, we are aware that a national phase application of this PCT patent application, U.S. application Serial No. 16/484,284 was filed in the United States. However, the US Patent Office issued a Notice of Abandonment on August 12, 2021 for applicant s failure to respond to the office action of January 14, 2021. No further child applications are listed as pending. We are also aware of PCT international patent application PCT/US2017/041932, titled "Diagnostic and Methods of Treatment for Chronic Fatigue Syndrome and Autism Spectrum Disorders," which lists The Regents of the University of California as Applicant, filed on July 13, 2017, published as WO 2018/013811 on January 18, 2018, and claiming priority to U.S. provisional patent application nos. 62/ 464,369, filed on February 27, 2017 and 62/362,564, filed on July 14, 2016. The patent application describes biomarkers for diagnosing and predicting the development of chronic fatigue syndrome and methods of treating a mitochondrial disease or disorder, such as ASD, by administering an effective amount of an APT, such as suramin. Publicly available databases show no pending national or regional phase patent applications. License Agreements On October 10, 2018 and November 9, 2018, we obtained the rights to worldwide, exclusive licenses to the patient data from the Ministry of Health, Republic of Malawi (the "Malawi License Agreement") and Lwala Hospital (Soroti, Uganda) (the "Lwala License Agreement"), respectively, in connection with the treatment of East African HAT patients. Under each of the Malawi License Agreement and the Lwala License Agreement (collectively, the "License Agreements"), we obtained an exclusive worldwide license to the medical data and information (in the form of patient medical files) related to patients who have been diagnosed with and/or treated for East African HAT. We intend to use these data to support our PAX-101 regulatory filings in the United States and Europe for the treatment of Stage 1 East African HAT. Pursuant to each of the License Agreements, we pay a fee to each licensor for its services in facilitating our access to, and analysis of, these data and we are obligated to make additional payments in the future based on the level of each licensor s participation. As of the date of this prospectus, we have paid an aggregate of $32,747 under the License Agreements. Each of the License Agreements has an indefinite term, but may be terminated by each party thereto upon material breach of the other party, if such breach is not remedied by the breaching party within 30 days after being given notice of such breach by the non-breaching party. We anticipate that we will pay a total of approximately $50,000 during the life of the Malawi License Agreement, and a total of approximately $50,000 during the life of the Lwala License Agreement. 25 Governmental Regulation Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. The pharmaceutical drug product candidates that we develop or acquire must be approved by the FDA before they may be marketed and distributed in the United States. In the United States, the FDA regulates pharmaceutical products under the Federal Food, Drug, and Cosmetic Act, and implementing regulations. Pharmaceutical products are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA and related enforcement activity could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a pharmaceutical product may be marketed in the United States generally involves the following: Completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices or other applicable regulations; Submission to the FDA of an IND, which must become effective before human clinical studies may begin; Performance of adequate and well-controlled human clinical studies according to the FDA s GCP, to establish the safety and efficacy of the proposed pharmaceutical product for its intended use; Submission to the FDA of an NDA for a new pharmaceutical product; Satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the pharmaceutical product is produced, to assess compliance with cGMP, to assure that the facilities, methods and controls are adequate to preserve the pharmaceutical product s identity, strength, quality and purity; Potential FDA audit of the preclinical and clinical study sites that generated the data in support of the NDA; and FDA review and approval of the NDAs. The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources and approvals, and continued compliance is inherently uncertain. Before testing any compounds with potential therapeutic value in humans, the pharmaceutical product candidate enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the pharmaceutical product candidate. These early proof-of-principle studies are done using sound scientific procedures and thorough documentation. The conduct of the single and repeat dose toxicology and toxicokinetic studies in animals must comply with federal regulations and requirements including good laboratory practices. The sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA has concerns and notifies the sponsor. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical study can begin. If resolution cannot be reached within the 30-day review period, either the FDA places the IND on clinical hold or the sponsor withdraws the application. The FDA may also impose clinical holds on a pharmaceutical product candidate at any time before or during clinical studies for various reasons. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical studies to begin, or that, once begun, issues will not arise that suspend or terminate such clinical study. 26 Clinical studies involve the administration of the pharmaceutical product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the clinical study sponsor s control. Clinical studies are conducted under protocols detailing, among other things, the objectives of the clinical study, dosing procedures, subject selection and exclusion criteria, how the results will be analyzed and presented and the parameters to be used to monitor subject safety. Each protocol must be submitted to the FDA as part of the IND. Clinical studies must be conducted in accordance with GCP. Further, each clinical study must be reviewed and approved by an independent IRB at, or servicing, each institution at which the clinical study will be conducted. An IRB is charged with protecting the welfare and rights of study participants and considers such items as whether the risks to individuals participating in the clinical studies are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical study subject or his or her legal representative and must monitor the clinical study until completed. Human clinical studies are typically conducted in three sequential phases that may overlap or be combined: Phase 1: The pharmaceutical product is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases such as cancer, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients, with a goal of characterizing the safety profile of the drug and establishing a maximum tolerable dose ("MTD"). Phase 2: With the maximum tolerable dose established in a Phase 1 trial, the pharmaceutical product is evaluated in a limited patient population at the MTD to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases, to determine dosage tolerance, optimal dosage and dosing schedule and to identify patient populations with specific characteristics where the pharmaceutical product may be more effective. Phase 3: Clinical studies are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These clinical studies are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling. The studies must be well controlled and usually include a control arm for comparison. One or two Phase 3 studies are usually required by the FDA for an NDA approval, depending on the disease severity and other available treatment options. In some instances, an NDA approval may be obtained based on Phase 2 clinical data with the understanding that the approved drug can be sold subject to a confirmatory trial to be conducted post-approval. Post-approval studies, or Phase 4 clinical studies, may be conducted after initial marketing approval. These studies are often used to gain additional experience from the treatment of patients in the intended therapeutic indication. The FDA also may require Phase 4 studies, Risk Evaluation and Mitigation Strategies ("REMS") and post-marketing surveillance, among other things, to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product. Progress reports detailing the results of the clinical studies must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests a significant risk for human subjects. Phase 1, Phase 2 and Phase 3 clinical studies may not be completed successfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend a clinical study at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical study at its institution if the clinical study is not being conducted in accordance with the IRB s requirements or if the pharmaceutical product has been associated with unexpected serious harm to patients. Concurrent with clinical studies, companies may complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the pharmaceutical product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the pharmaceutical product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final pharmaceutical product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the pharmaceutical product candidate does not undergo unacceptable deterioration over its shelf life. The results of product development, preclinical studies and clinical studies, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the pharmaceutical product, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees. A waiver of such fees may be obtained under certain limited circumstances. The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act ("PDUFA"), the FDA has 10 months after the 60-day filing date in which to complete its initial review of a standard review NDA and respond to the applicant, and six months after the 60-day filing date for a priority review NDA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs. The review process and the PDUFA goal date may be extended by three months if the FDA requests or if the applicant otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date. 27 After the NDA submission is accepted for filing, the FDA reviews the NDA application to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product s identity, strength, quality and purity. The FDA may refer applications for novel pharmaceutical products or pharmaceutical products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During the pharmaceutical product approval process, the FDA also will determine whether a REMS is necessary to assure the safe use of the pharmaceutical product. If the FDA concludes that a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without a REMS, if required. Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites as well as the site where the pharmaceutical product is manufactured to assure compliance with GCP and cGMP. If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. In addition, the FDA will require the review and approval of product labeling. The NDA review and approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical studies are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA will issue a complete response letter if the agency decides not to approve the NDA. The complete response letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical studies. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing which involves clinical studies designed to further assess pharmaceutical product safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The 505(b)(2) NDA Regulatory Pathway Most drug products obtain FDA marketing approval pursuant to a full Section 505(b)(1) NDA or an ANDA. A third alternative is a Section 505(b)(2) NDA, which enables the applicant to rely, in part, on studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference or use, such as the FDA s findings of safety and/or effectiveness for a similar previously approved product, or published literature, in support of its application. 505(b)(2) NDAs often provide a path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the 505(b)(2) applicant can establish that reliance on the FDA s previous approval is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all, or some, of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. 28 The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Thus approval of a 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant. Expedited Development and Review Programs The FDA has various programs intended to expedite or facilitate the process for developing and reviewing new pharmaceutical products that meet certain criteria. For example, new pharmaceutical products are eligible for fast track designation if they are intended to treat a serious condition and demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. Unique to a fast track product, the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, if the FDA determines that the schedule is acceptable and if the sponsor pays any required user fees upon submission of the first section of the NDA. Any product submitted to the FDA for market, including a fast track program, may also be eligible for other FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it is intended to treat a serious condition and it offers a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new pharmaceutical product designated for priority review in an effort to facilitate the review. Additionally, accelerated approval may be available for a product intended to treat a serious condition that provides meaningful therapeutic benefit over existing treatments, which means the product may be approved on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on an intermediate clinical endpoint. As a condition of accelerated approval, the FDA may require the sponsor to perform adequate and well-controlled post-marketing clinical studies. In addition, the FDA currently requires pre-approval of promotional materials for products receiving accelerated approval, which could impact the timing of the commercial launch of the product. fast track designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process. Post-Approval Requirements Any pharmaceutical products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, cGMP compliance, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, prohibitions on promoting pharmaceutical products for uses or in patient populations that are not described in the pharmaceutical product s approved labeling (known as "off-label use"), industry-sponsored scientific and educational activities and promotional activities involving the internet. Failure to comply with FDA requirements can have negative consequences, including adverse publicity, enforcement letters from the FDA, actions by the U.S. Department of Justice and/or U.S. Department of Health and Human Services Office of Inspector General, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Although physicians may prescribe legally available pharmaceutical products for off-label uses, manufacturers may not directly or indirectly market or promote such off-label uses. We expect to rely on third parties for the production of clinical and commercial quantities of our products. Manufacturers of our products are required to comply with applicable FDA manufacturing requirements contained in the FDA s cGMP regulations. cGMP regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance of records and documentation. Pharmaceutical product manufacturers and other entities involved in the manufacture and distribution of approved pharmaceutical products are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval. 29 The Priority Review Voucher Program The FD&C Act section 524, authorizes FDA to award priority review vouchers (PRVs) to sponsors of approved tropical disease product applications that meet certain criteria. In July 2020, the FDA updated its guidance providing information on the implementation of section 524 of the FD&C Act — Tropical Disease Priority Review Vouchers Guidance for Industry. To qualify for a PRV, a sponsor s application must be for a drug or biological product for the prevention or treatment of a "tropical disease," must otherwise qualify for priority review, and must contain no active ingredient (including any salt or ester of an active ingredient) that has been approved in any other application under section 505(b)(1) of the FD&C Act or section 351 of the Public Health Services Act. While the FDA aims to complete a standard review in about 10 months, a PRV may result in the acceleration of review and approval of a product candidate by up to four months. However, despite the issuance of a PRV, the FDA is not obligated to, and may not, accelerate the timing of a review. The Food and Drug Administration Reauthorization Act of 2017 made changes to the eligibility criteria for receipt of a tropical disease priority review voucher. Applications submitted after September 30, 2017 must also contain reports of one or more new clinical investigations (other than bioavailability studies) that are essential to the approval of the application and conducted or sponsored by the sponsor. In addition, the applicant must provide in the application an attestation that such report(s) were not submitted as part of an application for marketing approval or licensure by a regulatory authority in India, Brazil, Thailand, or any country that is a member of the Pharmaceutical Inspection Convention or the Pharmaceutical Inspection Cooperation Scheme prior to September 27, 2007. Once the sponsor obtains a PRV, the voucher can be used to obtain priority review designation for a subsequent application that does not itself qualify for priority review as described in the guidance. HAT is on FDA s current list of tropical diseases. We are not aware of any clinical trial activity in East African HAT, other than the activities we are conducting. Exclusivity Under various statutes, products approved by FDA may qualify for market exclusivity. For example, orphan drug exclusivity prevents, with some exceptions, FDA approval for seven years of another product with the same active moiety for the same rare disease. Hatch-Waxman exclusivity provides new chemical entities five years of protection against FDA approval of ANDAs relying on the application of the new chemical entity. Under another form of Hatch-Waxman exclusivity, products that are not new chemical entities may obtain three years of exclusivity against approval of ANDAs relying on the application of that product. While we anticipate that we will be eligible to be awarded FDA market exclusivity for each program that we bring to market, there can be no certainty that any of our products will be eligible for or obtain any form of FDA exclusivity. Pharmaceutical Coverage, Pricing and Reimbursement Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical product candidates for which we may obtain regulatory approval. In the United States and in markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part upon the availability of reimbursement from third-party payers. Third-party payers include government payers such as Medicare and Medicaid, managed care providers, private health insurers and other organizations. The process for determining whether a payer will provide coverage for a pharmaceutical product may be separate from the process for setting the price or reimbursement rate that the payer will pay for the pharmaceutical product. Third-party payers may limit coverage to specific pharmaceutical products on an approved list, or formulary, which might not, and frequently does not include all of the FDA- approved pharmaceutical products for a particular indication. Third-party payers are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. A payer s decision to provide coverage for a pharmaceutical product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In addition, in the United States there is a growing emphasis on comparative effectiveness research, both by private payers and by government agencies. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our pharmaceutical product candidates may not be considered medically necessary or cost-effective. To the extent other drugs or therapies are found to be more effective than our products, payers may elect to cover such therapies in lieu of our products and/or reimburse our products at a lower rate. 30 The marketability of any pharmaceutical product candidates for which we may receive regulatory approval for commercial sale may suffer if the government and third-party payers fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect this will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third- party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we may receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future. International Regulation In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our future drugs. Whether or not we obtain FDA approval for a drug, we must obtain approval of a drug by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the drug in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized or mutual recognition procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The mutual recognition procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval. In addition to regulations in Europe and the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial distribution of our future drugs. Employees and Human Capital As of June 30, 2024, we had two full-time employees, one part-time employee, and two contract staff. Each of these employees is located in the United States. We are subject to local labor laws and regulations with respect to our employees in the jurisdictions in which they are employed. These laws principally concern matters such as paid annual vacation, paid sick days, length of the workday and work week, minimum wages, pay for overtime, and insurance for workers compensation. Our employees are not represented by a labor union, and it is our understanding that our relations with our employees are satisfactory. Our values – high performance, compliance, integrity and collaboration – are built on the foundation that our people and the way we treat one another promote creativity, innovation and productivity, which spur the Company s success. Providing market competitive pay and benefit programs, opportunities to participate in the success they help create, we create a culture in which all colleagues have the opportunity to thrive. MANAGEMENT Executive Officers Our executive officers and their ages as of April 15, 2024 and positions with PaxMedica are provided in the table below and in the additional biographical descriptions set forth in the text below the table. Name Age Position Howard J. Weisman 64 Chairman of the Board and Chief Executive Officer Stephen D. Sheldon 44 Chief Financial Officer and Chief Operating Officer 31 Our board of directors chooses our executive officers, who then serve at the discretion of our board of directors. Howard J. Weisman. For a brief biography of Mr. Weisman please see "Directors." Stephen D. Sheldon has served as our Chief Financial Officer since July 2022. Since January 2015, Mr. Sheldon has served as the Chief Executive Officer of Indochina Healthcare Co. Ltd., a pharmaceutical company based in Thailand. Mr. Sheldon received a Bachelor of Arts in Computer Science and Visual Arts from Bowdoin College and a Master of Business Administration in Finance from Thunderbird School of Global Management. Directors Board Composition Our board of directors currently consists of five members. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal. In accordance with the terms of our certificate of incorporation, as amended (the "Certificate of Incorporation") and our amended and restated bylaws (the "Bylaws"), our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms. Upon the expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three-year term at the annual meeting of stockholders in the year in which their term expires. Our directors are divided among the three classes as follows: The Class I directors are Zachary Rome and Charles J. Casamento; their terms will expire at the annual meeting of stockholders to be held in 2026. The Class II director is Karen LaRochelle; her term expires at this annual meeting of stockholders held in 2027. The Class III directors are Howard J. Weisman and John F. Coelho; their terms will expire at the annual meeting of stockholders to be held in 2025. Board Leadership Structure and Role of the Board in Risk Oversight: Our board of directors has determined that our current leadership structure, in which the office of the chairman of the board of directors and chief executive officer are held by one individual and one of our independent directors is appointed to be lead independent director, ensures the appropriate level of oversight, independence and responsibility is applied to all board decisions and is in the best interests of PaxMedica and its stockholders. The lead independent director responsibilities include facilitating communication with the board of directors and presides over regularly conducted executive sessions of the independent directors or sessions where the chairman and chief executive officer is not present, serves as liaison between the chairman of the board and the independent directors, has the authority to call meetings of the independent directors, and performs such other duties as the board of directors may determine from time to time. Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. While the board of directors oversees risk management, our management is responsible for our day-to-day risk management process. Our board of directors has an active role, directly and through its committee structure, in the oversight of our risk management efforts. Our board of directors satisfies this responsibility through full reports by each committee chair regarding the committee s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within our company. Our Audit Committee serves to assist the board in performing its oversight responsibilities relating to our processes and policies with respect to identifying, monitoring, assessing, reporting on, managing and controlling our business and financial risk. The Audit Committee oversees, reviews, monitors and assesses (including through regular reports by, and discussions with, management), our processes and policies for risk identification, risk assessment, reporting on risk, risk management, risk control (including with respect to risks arising from our compensation policies and practices and in connection with the business and operations of its subsidiaries) and cybersecurity risks, and the steps that management has taken to identify, assess, monitor, report on, manage and control risks, including cybersecurity risks. The Audit Committee also discusses with management the balancing of risk versus reward for us and areas of specific risk identified by management and/or the Audit Committee. Our board of directors believes that full and open communication between management and the board of directors is essential for effective risk management and oversight. 32 Board Committees Our board of directors has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. Our board of directors may establish other committees to facilitate the management of our business. The composition and functions of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Each of these committees operate under a charter that has been approved by our board of directors, which are available on our website. Audit Committee. Our Audit Committee consists of Karen LaRochelle, John Coelho and Charles J. Casamento, with Mr. Casamento serving as the Chairman of the Audit Committee. Our board of directors has determined that the directors currently serving on our Audit Committee are independent within the meaning of The Nasdaq Marketplace Rules and Rule 10A-3 under the Exchange Act. In addition, our board of directors has determined that each of Ms. LaRochelle and Mr. Casamento qualifies as an audit committee financial expert within the meaning of SEC regulations and The Nasdaq Marketplace Rules. The Audit Committee oversees and monitors our financial reporting process and internal control system, reviews and evaluates the audit performed by our registered independent public accountants and reports to the board of directors any substantive issues found during the audit. The Audit Committee is directly responsible for the appointment, compensation and oversight of the work of our registered independent public accountants. The Audit Committee reviews and approves all transactions with affiliated parties. The Audit Committee oversees, reviews, monitors and assesses (including through regular reports by, and discussions with, management), our processes and policies for risk identification, risk assessment, reporting on risk, risk management, risk control (including with respect to risks arising from our compensation policies and practices and in connection with the business and operations of its subsidiaries) and cybersecurity risks, and the steps that management has taken to identify, assess, monitor, report on, manage and control risks, including cybersecurity risks. Compensation Committee. Our Compensation Committee consists of Karen LaRochelle, John F. Coelho and Charles J. Casamento, with Ms. LaRochelle serving as the Chairman of the Compensation Committee. Our board of directors has determined that the directors currently serving on our Compensation Committee are independent under the Nasdaq listing standards and are "non-employee directors" as defined in Rule 16b-3 promulgated under the Exchange Act. The Compensation Committee provides advice and makes recommendations to the board of directors in the areas of employee salaries, benefit programs and director compensation. The Compensation Committee also reviews and approves corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other officers and makes recommendations in that regard to the board of directors as a whole. Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee consists of Karen LaRochelle, John F. Coelho, and Charles J. Casamento, with Dr. Coelho serving as the Chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee nominates individuals to be elected to the board of directors by our stockholders. The Nominating and Corporate Governance Committee considers recommendations from stockholders if submitted in a timely manner in accordance with the procedures set forth in our Bylaws and will apply the same criteria to all persons being considered. All members of the Nominating and Corporate Governance Committee are independent directors as defined under the Nasdaq listing standards. Compensation Committee Interlocks and Insider Participation None of our executive officers serves, or in the past has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or our compensation committee. None of the members of our compensation committee is, or has ever been, an officer or employee of our company. Board and Committee Meetings and Attendance Our board of directors and its committees meet regularly throughout the year, and also hold special meetings and act by written consent from time to time. During 2023 and thus far in 2024, each member of our board of directors attended all meetings of our board of directors and of all meetings of committees of our board of directors on which such member served that were held during the period in which such director served. Board Attendance at Annual Meeting of Stockholders Our policy is to invite and encourage each member of our board of directors to be present at our annual meetings of stockholders. All members of our board of directors attended our annual meeting in 2024. 33 Karen LaRochelle has served on our board of directors since July 2020. Ms. LaRochelle s career has focused on strategy and collaborations for pharmaceutical and biotechnology companies in the U.S., Europe and China including strategic collaborations, mergers and acquisitions and out-licensing. Ms. LaRochelle has served in multiple roles in the pharmaceutical industry, including as the Senior Vice President of Corporate and Business Development for WindMIL Therapeutics Inc., a biotechnology company, from January 2020 to June 2021, and the Chief Business Officer of PsiOxus Therapeutics, a biotechnology company, from October 2016 to May 2019. Ms. LaRochelle currently serves as the Chief Business Officer for Artax Biopharma Inc., a biotechnology company, a position she has held since January 2020; a Venture Partner for Advent Life Sciences LLP, a venture capital firm, a position she has held since January 2020; and as the Principal of LaRochelle Advisors, LLC, where she provides strategy and collaboration services to biotechnology companies, a position she has held since June 2013. From July 1993 to May 2013, Ms. LaRochelle worked at Bristol-Myers Squibb Co. (NYSE: BMY) in roles including Global Head of Negotiations and Head of Business Development in China, following earlier positions in alliance management, strategy, analysis and finance. Ms. LaRochelle currently serves on the Advisory Board for the Lehigh University P.C. Rossin College of Engineering. Ms. LaRochelle received her Master of Business Administration from Columbia University and a Bachelor of Science in Industrial Engineering from Lehigh University. Zachary Rome has served as a member of our board of directors since March 2019. Mr. Rome served as our Chief Operating Officer since March 2019 until August 2023. Since January 2020, Mr. Rome has been a Partner in TardiMed Sciences, LLC ("TardiMed") where he has co-founded and/or played an operating role in several life science startup companies. From February 2019 through January 2020, Mr. Rome served as a Principal at TardiMed. From February 2019 through May 2020, Mr. Rome served as the President and a member of the board of directors of Timber Pharmaceuticals, LLC (NYSE American: TMBR), a clinical stage biopharmaceutical company developing treatments for orphan dermatologic diseases which he co-founded in February 2019. From May 2020 to March 2022, Mr. Rome served as Chief Operating Officer of Timber and he served as a member of the board of directors of Timber from May 2020 until June 2022. Since August 2017, Mr. Rome has served as President of Patagonia Pharmaceuticals LLC, a specialty pharmaceutical company. Prior to that, Mr. Rome served as Patagonia s Executive Vice President from August 2015 to August 2017 and as its Vice President, Business Development from December 2013 to April 2015. From 2011 to 2013, Mr. Rome served in various roles at Ascend Laboratories, a manufacturer and marketer of generic pharmaceuticals, and Crown Laboratories, a manufacturer and marketer of over-the-counter and prescription pharmaceuticals. Mr. Rome received a Bachelor of Science in Marine Science and Biology from the University of Miami and a Master of Science for Teachers in Adolescent Science Biology from Pace University. Charles J. Casamento joined our board of directors in October 2022 and serves as our lead independent director. Mr. Casamento s career has focused on marketing, business development and executive management in pharmaceutical, biotechnology and medical products companies. He has served in leadership roles most recently as Executive Director and a Principal of the Sage Group, a health care advisory firm specializing in business development transactions, since 2007. Prior to that, Mr. Casamento founded and served as the Chief Executive Officer of Questcor Pharmaceuticals, Inc., a biopharmaceutical company, from May 1993 through July 2004. He also co-founded Indevus Pharmaceuticals, Inc. (formerly Interneuron Pharmaceuticals, Inc.), a specialty healthcare solutions company, in March 1989 and most recently served as President and Chief Executive Officer of Osteologix, Inc., a specialty pharmaceutical company, from October 2004 through April 2007. Earlier in his career, he held senior positions at Genzyme Corporation, where he served as Senior Vice President and General Manager for Pharmaceuticals from January 1986 through March 1989; American Hospital Supply Corporation, where he served as Vice President of Business Development for the Critical Care Division from January 1983 through July 1985; Johnson & Johnson, where he served as Director of New Medical Products and Acquisitions from September 1979 through January 1983; F. Hoffmann-La Roche AG (Roche), where he served as Product Development Director from May 1977 through August 1979; and Sandoz International GmbH (Sandoz), where he served in various marketing, finance and business development positions from February 1970 through May 1977. Mr. Casamento currently serves on the boards of directors of Eton Pharmaceuticals, Inc. (Nasdaq: ETON), First Wave Biopharma, Inc. (Nasdaq: FWBI), and Relmada Therapeutics, Inc. (Nasdaq: RLMD), where he is the chairman of the board of directors. At various times during his career he has served on the boards of directors of fourteen public companies. He was a director and the vice chairman of the Catholic Medical Mission Board, a large not for profit international healthcare organization. Mr. Casamento received his Master of Business Administration from Iona College and a Bachelor of Science from Fordham University s College of Pharmacy. From 1969 through 1993, Mr. Casamento was licensed to practice pharmacy in New York and New Jersey. Howard J. Weisman has served as our Chairman of the Board since August 2023 and as our Chief Executive Officer since March 2020. Prior to joining PaxMedica, from September 2016 to September 2019, Mr. Weisman was the founder and served as Executive Chairman of the board of directors of Sofregen, Inc, a clinical stage biomedical device company developing products for use in reconstructive plastic surgery. From June 2013 to February 2020, Mr. Weisman served as a member of the board of directors of Promedior, Inc., a drug development firm. From February 2012 to January 2018, Mr. Weisman served as the CEO, President and a member of the board of directors of YourBio Health, Inc., a medical device company developing and commercializing FDA cleared products for human health diagnostics. From April 2010 to January 2012, Mr. Weisman served as an independent consultant advising both investors and operators in the pharmaceutical industry. Prior to that, from October 2006 to March 2010, Mr. Weisman was the founder and served as the CEO and Chairman of EKR Therapeutics, Inc., a commercial stage specialty pharmaceuticals company. From February 2001 to March 2005, Mr. Weisman was the founder and served as the COO and a member of the board of directors of ESP Pharma, a commercial stage specialty pharmaceuticals company. Prior to founding and operating specialty pharmaceutical companies, Mr. Weisman was first employed in 1988 by Merck and Co, Inc. (NYSE: MRK) and later in 1995 by Parke Davis/Warner Lambert (now Pfizer, Inc. (NYSE: PFE)) in various sales, marketing and business development roles. Mr. Weisman holds a Bachelor of Arts in Chemistry from Rutgers University and completed graduate courses in chemistry at Princeton University before entering the pharmaceutical industry. 34 John F. Coelho joined our board of directors in May 2022. Dr. Coelho s career has focused on enterprise medical strategy for global diversified pharmaceutical and biotechnology companies with assignments in the U.S., Europe and Asia spanning multiple therapeutic areas. He has served in leadership roles most recently as Senior Vice President of Medical Affairs for Sanofi in Paris from October 2018 to April 2020, Global Medical Strategy Leader for Merck and Co in the United States and Head of Asia based in Singapore from March of 2009 to November 2018, and as Global Medical Director at Pfizer Inc. from August 1996 to March 2009. He currently serves as Senior Medical Advisor for Lactiga, a preclinical biotherapeutics company developing novel biologics for primary immune-deficiency diseases and Muvon Therapeutics, a clinical-stage biotech developing a cell-therapy platform for muscle regeneration based in Switzerland. Dr. Coelho completed his Bachelors in Dental Surgery in Lahore, Pakistan and later a residency at Boston University. He has completed a Certificate in Enterprise Leadership at Harvard University. Director Compensation Director Compensation Table The following table provides information concerning compensation awarded to, earned by and paid to each person who served as a non-employee member of our board of directors during the fiscal year ended December 31, 2023. Mr. Howard J. Weisman, Mr. Michael Derby, and Mr. Zachary Rome are not included in the table below, as Mr. Weisman is employed as our Chief Executive Officer, and Mr. Derby was employed as our Executive Chairman until August 2023, when he resigned from the Board, and therefore receive no compensation for their service as a director. Mr. Rome was an employee, and therefore received no director compensation, prior to August 2023. The compensation received by Mr. Howard J. Weisman, Mr. Michael Derby, and Mr. Zachary Rome as employees is shown in "Executive Compensation-Summary Compensation Table" below. Name Fees Earned or Paid In Cash ($) Stock Awards (1) ($) All Other Compensation($)(2) Total ($) Karen LaRochelle $56,500 $25,900 $909 $83,309 Charles Casamento $66,500 $25,900 $6,432 $98,832 John F. Coelho $51,750 $25,900 $1,822 $79,472 (1) Represents the aggregate grant date fair value of RSUs granted to each of our non-employee directors. 824 RSUs, with a grant date fair value of $25,900, were granted to each of Ms. LaRochelle, Mr. Coelho and Mr. Casamento on April 13, 2023. (2) All Other Compensation represents reimbursement for travel to attend to Company board meetings of $909, $6,432, and $1,822 respectively to Ms. LaRochell, Mr. Casamento, and Mr. Coelho. Non-Employee Director Compensation Arrangements Our non-employee director compensation policy consists of annual retainer fees and long-term equity awards. Under the policy, each director who is not an employee will be paid cash compensation as follows: Service Element Compensation Board Lead Independent Director $50,000 Board Member $35,000 Committee Additional Compensation: Chair Audit Chair $15,000 Compensation Chair $10,000 Nominating & Corporate Governance Chair $8,000 Member Audit Member $7,500 Compensation Member $5,000 Nominating & Corporate Governance Member $4,000 Beginning with the Annual Meeting, our non-employee director compensation policy provides for grants to each eligible non-employee director of awards of stock options for 15,000 shares of our common stock. The terms of each such stock option award will be set forth in a written stock option agreement between each non-employee director and us, which will generally provide for 100% vesting after one year of continued service as a director. All cash and equity awards granted under the non-employee director compensation policy will be granted under, and subject to the limits of, the 2020 Plan. We also reimburse all reasonable out-of-pocket expenses incurred by non-employee directors in attending meetings of the board of directors and committees thereof. 35 EXECUTIVE COMPENSATION Our named executive officers for 2023, which consist of our principal executive officer, the next two most highly compensated executive officers, and up to two executive officers who would have been among the next two most highly compensated executive officers but for the fact that they were not serving as executive officers as of December 31, 2023, are: Howard J. Weisman, our Chairman of the Board and Chief Executive Officer. Stephen D. Sheldon, our Chief Financial Officer and Chief Operating Officer. David W. Hough, our Former Chief Medical Officer. Michael Derby, our Former Executive Chairman. Zachary Rome, our Former Chief Operating Officer and current Director. Summary Compensation Table The following table provides information concerning compensation awarded to, earned by and paid to each of our named executive officers during 2023: Salary Non-Equity Incentive Plan Compensation Stock Awards (1) All other compensation Name and Principal Position Year ($) ($) ($) ($) Total ($) Howard J. Weisman 2023 478,125 239,075 333,024 — 1,050,224 Chief Executive Officer 2022 400,000 240,000 3,368,752 — 4,008,752 Stephen D. Sheldon 2023 325,000 125,854 185,020 — 635,874 Chief Financial Officer 2022 54,583 — 367,050 80,000(2) 581,633 David W. Hough (2) 2023 75,938 80,556(3) 69,010 41,275(4) 388,610 Former Chief Medical Officer 2022 87,500(5) — — — 87,500 Michael Derby (3) 2023 208,125 103,732 277,515 41,250(6) 671,872 Former Executive Chairman 2022 325,000 162,500 2,021,250 — 2,508,750 Zachary Rome (4) 2023 64,038 31,917 185,020 41,250(7) 363,475 Former Chief Operating Officer 2022 100,000 50,000 2,021,250 — 2,171,250 (1) Consists of RSUs issued pursuant to the Amended and Restated 2020 Omnibus Equity Incentive Plan. In accordance with SEC rules, this column reflects the aggregate grant date fair value of the RSUs granted during 2022 and 2023. These amounts have been computed in accordance with FASB ASC Topic 718. (2) Consists of consulting fees paid during 2022 prior to appointment as Chief Financial Officer in November 2022. (3) Consists of Bonus Payment earned during 2023. (4) Consists of consultant fees paid during 2023 prior to appointment as Chief Medical Officer in August 2023. (5) Consists of salary paid during 2022 prior to resignation in April 2022. (6) Consists of 50% of the consulting fees paid to TardiMed during 2023 subsequent to his resignation from the Board and as Executive Chairman in August 2023. (7) Consists of 50% of the consulting fees paid to TardiMed during 2023 subsequent to his resignation as Chief Operating Officer. 36 Narrative Disclosures to Summary Compensation Table The primary elements of compensation for our named executive officers are base salary, cash performance bonuses and equity-based compensation. These elements (and the amounts of compensation and benefits under each element) were selected because we believe they are necessary to help us attract and retain executive talent, which is fundamental to our success. These elements of compensation have historically been established by the Compensation Committee based upon their general knowledge of market conditions and is intended to reflect each executive s role and responsibilities. Below is a more detailed summary of the current executive compensation program as it relates to our named executive officers. Annual Base Salary Our Compensation Committee uses base salaries to recognize the experience, skills, knowledge and responsibilities required of our executive officers. The base salaries for our executive officers were initially established through review and negotiation at the time of hiring, and thereafter are periodically reviewed for possible increase, in each case taking into account the executive officer s qualifications, experience, scope of responsibilities and competitive market compensation paid by other companies for similar positions within the industry. The chart below reflects the annual base salary rates that were in effect as of December 31, 2023 approved by our Compensation Committee for each NEO. Base salaries are reviewed by the Compensation Committee annually based on performance and other factors. Base Salary Howard J. Weisman $525,000 Stephen D. Sheldon $365,000 David W. Hough (1) $202,500 (1) Mr. Hough was appointed as the Company s Chief Medical Officer in August 2023 and the Compensation Committee established his base salary a 202,500 effective on that date. Mr. Hough had been a consultant with the Company prior to that date. See "Summary Compensation Table" above for his total 2023 Compensation. Mr. Hough retired from the Company effective July 16, 2024. 2023 Non-Equity Incentive Plan Compensation We have an annual goal-setting and review process for our executive officers that is the basis for determining potential annual bonuses for our NEOs. Our Compensation Committee sets our annual financial objectives for the year as well as strategic and operational goals which are aligned with our strategic plan and operating budget approved by the Board. Our employment arrangements with our executive officers provide that they will be eligible for annual performance-based bonuses based on achievement of the financial, strategic and/or operational objectives established by the Compensation Committee. Pursuant to the terms of their employment agreements, the target bonus opportunities for our NEOs expressed as a percentage of annual base salary as of December 31, 2023 are: Mr. Weisman 50%, Mr. Sheldon 40% and Mr. Hough 40%. The Compensation Committee assessed Company performance for 2023 with respect to each of the performance metrics and determined achievement against those metrics. The Compensation Committee determined to award the bonus amounts to our NEOs for 2023 set forth in the Summary Compensation Table above under "Non-Equity Incentive Plan Compensation." Stock Awards There are no RSUs outstanding as of the date of this registration statement. 37 Other Benefits and Perquisites All of our full-time colleagues, including our named executive officers, are eligible to participate in a standard suite of health plans. We believe the perquisites described above are necessary and appropriate to provide a competitive compensation package to our named executive officers. Executive Employment Arrangements We have entered into employment agreements with each of our named executive officers, as further described below. Each of our named executive officers employment is "at-will" and may be terminated at any time. Mr. Weisman. On March 4, 2020, we entered into an offer letter agreement with Howard J. Weisman, pursuant to which Mr. Weisman commenced employment as our Chief Executive Officer on March 15, 2020. The letter agreement provides the following: A base salary of $400,000 per year; An annual bonus target of 50% of base salary; and A grant of Value Appreciation Rights ("VARs") (at the fair market value at the grant date) equivalent to 5% (on a fully diluted basis as of the grant date) of our common equity. In satisfaction of the VARs due to Mr. Weisman under his offer letter agreement, on May 1, 2020, we granted to Mr. Weisman stock options to purchase 42,435 shares of our common stock under the 2020 Plan, which were eligible to vest 25% on March 15, 2021, and 2.0833% on each monthly anniversary of such date thereafter. On December 22, 2020, these options were canceled in full prior to any exercise thereof. On January 1, 2022, Mr. Weisman was granted 25,981 RSUs, where the RSUs provide that 33.34% of each of the restricted stock unit grants would vest on May 1, 2022, with an additional 8.3325% of each grant vesting on August 1, 2022, and each three-month anniversary of such date thereafter, provided that if neither (i) the expiration of the 6-month period following an "initial public offering" (as defined in the award agreement, and which occurred upon the consummation of our initial public offering) nor (ii) a "change in control" (as defined in the 2020 Plan) has occurred prior to the applicable vesting date, any RSUs that would have vested shall not vest until such expiration of the 6-month period following an "initial public offering" or "change in control" occurs. Accordingly, all RSUs that would have vested, prior to the expiration of the six-month period following our initial public offering, shall vest on February 26, 2022. Vesting in all cases is subject to the grantee s continued employment with the Company or a subsidiary thereof on the applicable vesting date. In addition, such RSUs vest in full upon a termination of employment by the Company without cause, and also vest in full upon a change in control (provided that no termination of employment has occurred prior to such change in control). Mr. Weisman is also party to a customary confidentiality and intellectual property assignment agreement with us, pursuant to which, he has confirmed his understanding and agreement that any and all intellectual property and trade secrets (i) related to our business and (ii) contained in our products or systems that he has created, developed or otherwise produced or caused to be produced or delivered to us, or will so do in the future, is our property or will be assigned to us. Mr. Weisman has also agreed to take all further acts that may be necessary to transfer, perfect, and defend our ownership of such property. In August 2022 we granted Mr. Weisman 11,764 RSUs, one-third of which vest on the one-year anniversary of our initial public offering, with the remaining RSUs vesting on a quarterly basis over the following two years. The terms of the RSUs were subsequently amended to provide that, the settlement date of each restricted stock unit granted shall settle, if vested in accordance with the applicable terms of the restricted stock unit award, on or before March 1, 2023, provided that in all events any such settlements shall occur on or before March 15, 2023. Effective January 1, 2023, the Company entered into an employment agreement with Mr. Weisman, pursuant to which Mr. Weisman is eligible to receive an annual salary of $450,000 and is eligible to participate in the Company s annual bonus plan, with a target bonus of 50% of his base salary. Mr. Weisman is also eligible to participate in the 2020 Plan and shall receive a signing bonus in an amount equal to $40,000. The initial term of the Employment Agreement is two (2) years (the "Initial Term"), which may be automatically extended for successive one-year periods on each anniversary of the effective date following the Initial Term unless either party elects not to extend the employment agreement. On April 13, 2023, Mr. Weisman was granted 10,589 RSUs, where the RSUs one-third of which vest on the one-year anniversary of the grant, with the remaining RSUs vesting on a quarterly basis over the following two years. The terms of the RSUs were subsequently amended to provide that, the settlement date of each restricted stock unit granted shall settle on the day after the filing of the 10-K on March 11, 2024.These RSUs vested on March 12, 2024. 38 On August 16, 2023, Mr. Weisman was appointed as the Chairman of the Board of the Company in addition to his role as Chief Executive Officer. Mr. Weisman was then eligible to receive an annual salary of $525,000 and is eligible to participate in the Company s annual bonus plan, with a target bonus of 50% of his base salary, on a prorated basis for 2023 and in full for 2024. Mr. Weisman s employment agreement provides that if Mr. Weisman s employment is terminated by us without cause, or by him for good reason, he will receive (i) his earned but unpaid annual bonus with respect to the fiscal year ending on or preceding the date of termination, (ii) continuation of his base salary payments for twelve months following his termination of employment, and (iii) continued participation in the Company s group health plan for six months following his termination of employment, provided that he is eligible and remains eligible for COBRA coverage, in each case subject to certain conditions, including the execution of a release of all claims against the Company. Stephen D. Sheldon. On July 16, 2022, we entered into a consulting agreement with Stephen D. Sheldon, pursuant to which Mr. Sheldon commenced his engagement as our interim part-time Chief Financial Officer and Principal Accounting Officer. Pursuant to the consulting agreement, Mr. Sheldon received a grant of 883 RSUs, vesting on December 31, 2022 On November 19, 2022, we entered into an employment agreement with Mr. Sheldon, which terminated his consulting agreement. Under his Employment Agreement, which is effective as of November 1, 2022, Mr. Sheldon is eligible to receive an annual salary of $325,000 and is eligible to participate in the Company s annual bonus plan, with a target bonus of 35% of his base salary. The initial term of the employment agreement is two (2) years, which may be automatically extended for successive one-year periods on each anniversary thereafter unless either party elects not to extend his employment agreement. Pursuant to his employment agreement, Mr. Sheldon received a grant of 7,942 RSUs, which are subject to time-based vesting with one-third of the RSUs vesting on the one-year anniversary of his employment with us, followed by 8.3325% of the remaining RSUs vesting on a quarterly basis thereafter, subject to Mr. Sheldon s continuous employment with us as of such vesting dates. On April 13, 2023, Mr. Sheldon was granted 5,883 RSUs, where the RSUs one-third of which vest on the one-year anniversary of the grant, with the remaining RSUs vesting on a quarterly basis over the following two years. The terms of the RSUs were subsequently amended to provide that, the settlement date of each restricted stock unit granted shall settle on the day after the filing of the 10-K on March 11, 2024. These RSUs vested on March 12, 2024. On August 16, 2023, Mr. Sheldon was appointed as the Chief Operating Officer of the Company in addition to his role as Chief Financial Officer. Mr. Sheldon was then eligible to receive an annual salary of $365,000 and is eligible to participate in the Company s annual bonus plan, with a target bonus of 40% of his base salary, on a prorated basis for 2023 and in full for 2024. Mr. Sheldon s employment agreement provides that if his employment is terminated by us without cause, or by him for good reason, he will receive (i) his earned but unpaid annual bonus with respect to the fiscal year ending on or preceding the date of termination, (ii) continuation of his base salary payments for six months following his termination of employment, and (iii) continued participation in our group health plan for six months following his termination of employment, provided that he is eligible and remains eligible for COBRA coverage, in each case subject to certain conditions, including the execution of a release of all claims against us. Michael Derby. On June 25, 2020, we entered into an offer letter agreement with Michael Derby, pursuant to which Mr. Derby commenced employment as our Executive Chairman of the Board of Directors on July 1, 2020. The letter agreement provides the following: Part-time employment of up to 20 hours per week; A base salary of $325,000 per year; An annual bonus target of 50% of base salary; and An agreement by Mr. Derby not to compete with us in any capacity on any product candidate or product in the field of neurodevelopment as long as Mr. Derby is employed by us. The offer letter agreement with Mr. Derby has an initial two-year term, with automatic one-year renewals, unless terminated sooner by us or Mr. Derby. Pursuant to his offer letter agreement, upon a termination of employment by the Company without cause, the Company will pay Mr. Derby the maximum accrued but unpaid bonus, calculated through the date of termination, promptly following such termination. Mr. Derby resigned from the Board of Directors of PaxMedica, Inc. (the "Company") effective August 21, 2023. Mr Derby also resigned from his executive position as Executive Chairman of the Board of the Company effective August 21, 2023. 39 On April 13, 2023, Mr. Derby was granted 8,824 RSUs, where the RSUs one-third of which vest on the one-year anniversary of the grant, with the remaining RSUs vesting on a quarterly basis over the following two years. The terms of the RSUs were subsequently amended to provide that, the settlement date of each restricted stock unit granted shall settle on the day after the filing of the 10-K on March 11, 2024. These RSUs vested on March 12, 2024. Mr. David W. Hough. On November 1, 2022 we entered into a consulting agreement with David W. Hough, pursuant to which Mr. Hough commenced his engagement as our Consultant, Mr. Hough received an hourly rate of $300 and hour fore services rendered. On April 24, 2023, Mr. Hough was granted 1,765 RSUs, where the RSUs vesting on July 1, 2023. On August 16, 2023 we entered into an employment agreement with Mr. Hough, which terminated his consulting agreement. Under his Employment Agreement, which is effective as of August 16, 2023, Mr. Hough is eligible to receive an annual salary of $202,500 and is eligible to participate in the Company s annual bonus plan, with a target bonus of 40% of his base salary. The initial term of the employment agreement is two (2) years, which may be automatically extended for successive one-year periods on each anniversary thereafter unless either party elects not to extend his employment agreement. Pursuant to his employment agreement, Mr. Hough received a grant of 5,883 RSUs, which are subject to time-based vesting on a quarterly basis, subject to Mr. Hough s continuous employment with us as of such vesting dates. The terms of the RSUs were subsequently amended to provide that, the settlement date of each restricted stock unit granted shall settle on the day after the filing of the 10-K on March 11, 2024. These RSUs vested on March 12, 2024. Dr. Hough retired from his position as Chief Medical Officer of the Company effective July 16, 2024. Mr. Zachary Rome. On June 25, 2020 we entered into a Employment offer with Zachary Rome, pursuant to which Mr. Rome commenced employment as our Chief Operating Officer. The letter agreement provides the following: Part-time employment of up to 20 hours per week; A base salary of $100,000 per year; An annual bonus target of 50% of base salary; and An agreement by Mr. Rome not to compete with us in any capacity on any product candidate or product in the field of neurodevelopment as long as Mr. Rome is employed by us. The offer letter agreement with Mr. Rome has an initial two-year term, with automatic one-year renewals, unless terminated sooner by us or Mr. Derby. Pursuant to his offer letter agreement, upon termination of employment by the Company without cause, the Company will pay Mr. Rome the maximum accrued but unpaid bonus, calculated through the date of termination, promptly following such termination. Mr. Rome resigned from his executive position as Chief Operating Officer of the Company effective August 21, 2023. On April 13, 2023, Mr. Rome was granted 5,883 RSUs, where the RSUs one-third of which vest on the one-year anniversary of the grant, with the remaining RSUs vesting on a quarterly basis over the following two years. The terms of the RSUs were subsequently amended to provide that, the settlement date of each restricted stock unit granted shall settle on the day after the filing of the 10-K on March 11, 2024. These RSUs vested on March 12, 2024. Outstanding Equity Awards at Fiscal Year-End Table There are no outstanding equity incentive awards as of the date of this filing. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS There are no related party transactions as of the date this prospectus. DESCRIPTION OF CAPITAL STOCK The following is a summary of all material characteristics of our capital stock as set forth in our Certificate of Incorporation and Bylaws. The summary does not purport to be complete and is qualified in its entirety by reference to our Certificate of Incorporation and Bylaws, all of which are incorporated by reference as exhibits to the registration statement and the applicable provisions of Delaware law. 40 Authorized Capitalization Our Certificate of Incorporation, as amended (the "Certificate of Incorporation") authorizes us to issue up to 210,500,000 shares of capital consisting of 200,000,000 shares of Common Stock, 10,000,000 shares of preferred stock with a par value of $0.0001 per share, and 500,000 of shares of Series X preferred stock with a par value of $0.0001 per share (the "Series X Preferred Stock"). As of September 30, 2024, we had 10,879,170 shares of Common Stock issued and outstanding, held as of the date of this prospectus by 20 registered holders, and 45,567 shares of Series X Preferred Stock issued and outstanding. Our authorized but unissued shares of Common Stock and preferred stock are available for issuance without further action by our stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded in the future. Common Stock The following is a summary of all material characteristics of our capital stock as set forth in our Certificate of Incorporation and bylaws, as amended and restated (the "Bylaws"). The summary does not purport to be complete and is qualified in its entirety by reference to our Certificate of Incorporation and Bylaws, each of which is incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and the applicable provisions of Delaware law. Holders of our Common Stock are entitled to such dividends as may be declared by our board of directors out of funds legally available for such purpose. For a discussion of the Company s policy with regard to the payment of cash dividends, see "Dividend Policy." The shares of Common Stock are neither redeemable nor convertible. Holders of common stock have no preemptive or subscription rights to purchase any of our securities. Each holder of our Common Stock is entitled to one vote for each such share outstanding in the holder s name. No holder of common stock is entitled to cumulate votes in voting for directors. In the event of our liquidation, dissolution or winding up, the holders of our Common Stock are entitled to receive pro rata our assets, which are legally available for distribution, after payments of all debts and other liabilities. All of the outstanding shares of our Common Stock are fully paid and non-assessable. The shares of Common Stock offered by this prospectus will also be fully paid and non-assessable. Preferred Stock Our board of directors have the authority, without further action by our stockholders, to issue up to 10,000,000 shares of preferred stock in one or more classes or series and to fix the designations, rights, preferences, privileges and restrictions thereof, without further vote or action by the stockholders. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting, or the designation of, such class or series, any or all of which may be greater than the rights of common stock. The issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon our liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of our company or other corporate action. Series X Preferred Stock Holders of Series X Preferred Stock are not entitled to receive dividends with respect to their shares of Series X Preferred Stock. The Series X Preferred Stock has no voting rights, other than the right to vote with respect to any amendment of the Certificate of Designations and with respect to any other adverse change to the voting or other powers, preferences, rights, privileges or restrictions of the Series X Preferred Stock contained in the Certificate of Designations. Transfer Agent and Registrar The Company s transfer agent and registrar is Computershare, whose address is 118 Fernwood Avenue, Edison, NJ 08837. Warrants The Shares are being registered under the Securities Act and are hereby being offered pursuant to this prospectus. Accordingly, the holders may exercise the Warrants and sell the Shares issuable upon the exercise of such security pursuant to this registration statement under the Securities Act covering the resale of those shares. If a Fundamental Transaction (as defined in the Warrants) occurs, then, upon any subsequent exercise of the Warrant, the holder shall have the right to receive, for each 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 beneficial ownership limitation), the number of shares of Common Stock of the successor or acquiring corporation or of our Company, if we are is the surviving corporation, and any Alternate Consideration (as defined in the Warrants) receivable as a result of such Fundamental Transaction. 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 the Warrant following such Fundamental Transaction. Additionally, as more fully described in the form of Warrant, in the event of certain Fundamental Transactions, the holders of the Warrants will be entitled to receive consideration in an amount equal to the Black Scholes Value (as defined in the Warrants). A holder of Warrants will not have the right to exercise any portion thereof if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of a holder prior to the date of issuance, 9.99%) of the number of shares of our Common Stock outstanding immediately after giving effect to such exercise; provided, however, that upon notice to the Company, the holder may increase or decrease such beneficial ownership limitation, provided that in no event shall such beneficial ownership limitation exceed 9.99% and any increase in the beneficial ownership limitation will not be effective until 61 days following notice of such increase from the holder to us. Except as otherwise provided in the Warrants or by virtue of such holder s ownership of shares of our Common Stock, the holders of the Warrants do not have the rights or privileges of holders of our Common Stock, including any voting rights, until they exercise their Warrants, as applicable. The Warrants are not and will not be listed for trading on any national securities exchange, nor will they be quoted for trading on any over-the-counter market. Market Information For information on the principal trading market for the Common Stock, see "Prospectus Summary – Nasdaq Delisting." SELLING STOCKHOLDERS The Shares being offered by the Selling Stockholders are those issuable to the Selling Stockholders, upon exercise of the Warrants. We are registering the Shares in order to permit the Selling Stockholders to offer the Shares for resale from time to time. Except for the ownership of the Warrants and as noted below, the Selling Stockholders have not had any material relationship with us within the past three years. The table below lists the Selling Stockholders and other information regarding the beneficial ownership of the Shares by each of the Selling Stockholders. The second column lists the number of Shares beneficially owned by each Selling Stockholder, based on its ownership of the shares of Common Stock and Warrants, as of September 30, 2024, assuming exercise of the Warrants held by the Selling Stockholders on that date, without regard to any limitations on exercises. 41 The third column lists the Shares being offered by this prospectus by the Selling Stockholders. In accordance with the terms of a registration rights agreement with the Selling Stockholders, this prospectus generally covers the resale of the maximum number of shares of Common Stock issuable upon exercise of the Warrants, determined as if the outstanding Warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration rights agreement, without regard to any limitations on the exercise of the Warrants. The fourth column assumes the sale of all of the shares offered by the Selling Stockholders pursuant to this prospectus. Under the terms of the Warrants, a Selling Stockholder may not exercise the Warrants to the extent such exercise would cause such Selling Stockholder, together with its affiliates and attribution parties, to beneficially own a number of shares of Common Stock which would exceed 4.99% of our then outstanding Common Stock following such exercise, excluding for purposes of such determination shares of Common Stock issuable upon exercise of such Warrants which have not been exercised. The number of shares in the second and fourth columns do not reflect this limitation. The Selling Stockholders may sell all, some or none of their shares in this offering. See "Plan of Distribution." Name of Selling Stockholder Number of Shares of Common Stock Beneficially Owned Prior to Offering(1) Maximum Number of Shares of Common Stock to be Sold in this Offering Number of Shares of Common Stock Beneficially Owned After Offering Percentage of Shares Beneficially Owned after Offering(1) Armistice Capital, LLC(2) - 3,461,540 3,461,540 16.1% Sabby Volatility Warrant Master Fund, Ltd(3) 1,702,655 3,461,540 5,164,195 24.0% District 2 Capital Fund, LP - 961,540 961,540 4.5% Lind Global Fund II LP 47,059 961,540 1,008,599 4.7% Michael Vasinkevich(4) 138,116 113,452 251,568 1.2% Michael Mirsky(4) 40,923 33,616 74,539 * Noam Rubinstein(4) 26,923 22,115 49,038 * Craig Schwabe(4) 7,269 5,971 13,240 * Charles Worthman(4) 2,154 1,769 3,923 * * less than 1% (1) The ability to exercise the Warrants held by the Selling Stockholders is subject to a beneficial ownership limitation that, at the time of initial issuance of the Warrants was capped at 4.99% beneficial ownership of the Company s issued and outstanding Common Stock (post-exercise). These beneficial ownership limitations may be adjusted up or down, subject to providing advance notice to the Company, but in no event shall exceed 9.99%. Beneficial ownership as reflected in the selling stockholder table reflects the total number of shares potentially issuable underlying the Warrants and does not give effect to these beneficial ownership limitations. Accordingly, actual beneficial ownership, as calculated in accordance with Section 13(d) and Rule 13d-3 thereunder may be lower than as reflected in the table. (2) These Shares are directly held by Armistice Capital Master Fund Ltd., a Cayman Islands exempted company (the "Master Fund"), and may be deemed to be beneficially owned by: (i) Armistice Capital, LLC ("Armistice Capital"), as the investment manager of the Master Fund; and (ii) Steven Boyd, as the managing member of Armistice Capital. The address of the Master Fund is c/o Armistice Capital, LLC, 510 Madison Avenue , 7th Floor, New York, NY 10022. (3) Sabby Management, LLC, the investment manager to Sabby Volatility Warrant Master Fund, Ltd. ("Sabby"), has discretionary authority to vote and dispose of the Shares held by Sabby and may be deemed to be the beneficial owner of these Shares. Hal Mintz, in his capacity as manager of Sabby Management, LLC, may also be deemed to have investment discretion and voting power over the Shares held by Sabby. Sabby Management, LLC and Mr. Mintz each disclaim any beneficial ownership of these Shares. The beneficial ownership limitation described in footnote 1 above is applicable to all shares of Common Stock held by Sabby, including those held prior to this offering. (4) Each of these Selling Stockholders is affiliated with H.C. Wainwright & Co., LLC, a registered broker dealer and has a registered address of c/o H.C. Wainwright & Co., 430 Park Ave, 3rd Floor, New York, NY 10022, and has sole voting and dispositive power over the Shares held. The number of Shares beneficially owned prior to this offering consists of shares of Common Stock issuable upon exercise of certain placement agent warrants, which were received as compensation in connection with a registered offering of securities consummated by us in November 2023. The Selling Stockholders acquired these placement agent warrants in the ordinary course of business and, at the time they, the Selling Stockholders had no agreement or understanding, directly or indirectly, with any person to distribute such securities. 42 PLAN OF DISTRIBUTION Each Selling Stockholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their Shares on the principal trading market or any other stock exchange, market or trading facility on which the Common Stock is then listed or quoted for trading, or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities: ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; purchases by a broker-dealer as principal and resale by the broker-dealer for its account; an exchange distribution in accordance with the rules of the applicable exchange; privately negotiated transactions; settlement of short sales; in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security; through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; a combination of any such methods of sale; or any other method permitted pursuant to applicable law. The Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus. Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121. In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. 43 We are required to pay certain fees and expenses incurred by us incident to the registration of the Shares. We have agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. We agreed to keep this prospectus effective until the earlier of (i) the date on which the Shares may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The Shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the Shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Shares may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of our Common Stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act). LEGAL MATTERS Harris Beach PLLC will pass upon the validity of the shares of our Common Stock offered by this prospectus. EXPERTS Our balance sheets as of December 31, 2023 and 2022, and the related statements of operations, statements of stockholders deficit and cash flows for the years ended December 31, 2023 and December 31, 2022 have been audited by Marcum LLP, independent registered public accounting firm, as stated in their report which is included herein. Such financial statements have been incorporated herein by reference to our Annual Report on Form 10-K for the year ended December 31, 2023 in reliance upon the report of such firm, which includes an explanatory paragraph relating to our ability to continue as a going concern, given upon their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of Common Stock being offered by this prospectus. This prospectus, which constitutes part of the registration statement, does not include all of the information contained in the registration statement or the exhibits, schedules and amendments to the registration statement. For further information with respect to us and the securities offered hereby, we refer you to the registration statement, the documents incorporated by reference into the registration statement and to the exhibits and schedules to the registration statement. Statements contained in this prospectus or in documents incorporated by reference into this prospectus as to the contents of any contract or any other document referred to are not necessarily complete. If a contract or other document has been filed as an exhibit to the registration statement, please see the copy of the contract or other document that has been filed. Each statement in this prospectus relating to a contract or other document filed as an exhibit is qualified in all respects by the filed exhibit. We file annual, quarterly and current reports, proxy statements and other information with the Commission. Our Commission filings are available to the public over the Internet at the Commission s website at www.sec.gov and on our website at www.paxmedica.com/investors. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only. You may inspect a copy of the registration statement through the Commission s website, as provided herein. 44 Incorporation by Reference The Commission s rules allow us to "incorporate by reference" information into this prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the Commission. The information incorporated by reference is deemed to be part of this prospectus, and subsequent information that we file with the Commission will automatically update and supersede that information. Any statement contained in this prospectus or a previously filed document incorporated by reference will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or a subsequently filed document incorporated by reference modifies or replaces that statement. This prospectus and any accompanying prospectus supplement incorporate by reference the documents set forth below that have previously been filed with the Commission (but excluding any information furnished to, rather than filed with, the Commission in such documents): Our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Commission on March 11, 2024; Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024 filed with the Commission on May 13, 2024 and September 20, 2024, respectively; Our Current Reports on Form 8-K filed with the Commission on January 12, 2024, January 29, 2024, March 13, 2024, March 22, 2024, April 11, 2024, April 16, 2024, April 23, 2024, May 1, 2024, May 15, 2024, May 28, 2024, June 14, 2024, July 19, 2024, and September 6, 2024; The portions of our Proxy Statement on Schedule 14A for the 2024 Annual Meeting, filed with the Commission on April 15, 2024, that are incorporated by reference into Part III of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Commission on March 11, 2024; and The description of our Common Stock contained in Item 1 of the Registration Statement on Form 8-A (File No. 001-41475), filed with the Commission on August 10, 2022, as updated by Exhibit 4.1 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Commission on March 30, 2023, including any amendment or report filed for the purpose of updating such description,. All reports and other documents we subsequently file pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, prior to the termination of this offering, including all such documents we may file with the Commission after the date hereof and prior to the effectiveness of the registration statement, but excluding any information furnished to, rather than filed with, the Commission, will also be incorporated by reference into this prospectus and deemed to be part of this prospectus from the date of the filing of such reports and documents. You may request a free copy of any of the documents incorporated by reference in this prospectus by writing or telephoning us at the following address: PaxMedica, Inc. Attn: Chief Financial Officer 101 Arch St., 8th Floor Boston, MA 02110 (239) 216-1459 Exhibits to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus or any accompanying prospectus supplement. You may also access the documents incorporated by reference in this prospectus on our website, listed above under "Where You Can Find More Information". 45 9,023,083 Shares of Common Stock PRELIMINARY PROSPECTUS October 3, 2024 Part II Information Not Required in Prospectus Item 13. Other Expenses of Issuance and Distribution. The following table sets forth the fees and expenses, other than placement agent fees, payable in connection with the registration of the common stock hereunder. All amounts are estimates except the SEC registration fee. Amount Paid or to Be Paid SEC registration fee $153.10 Legal fees and expenses 35,000 Accounting fees and expenses 30,000 Miscellaneous 3,000 Total $65,153.10 Item 14. Indemnification of Directors and Officers. As permitted by Section 102 of the Delaware General Corporation Law, we have adopted provisions in our Certificate of Incorporation and Bylaws that limit or eliminate the personal liability of our directors for a breach of their fiduciary duty of care as a director. The duty of care generally requires that, when acting on behalf of the corporation, directors exercise an informed business judgment based on all material information reasonably available to them. Consequently, a director will not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for: any breach of the director s duty of loyalty to us or our stockholders; any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; any act related to unlawful stock repurchases, redemptions or other distributions or payment of dividends; or any transaction from which the director derived an improper personal benefit. These limitations of liability do not affect the availability of equitable remedies such as injunctive relief or rescission. Our Certificate of Incorporation also authorizes us to indemnify our officers, directors and other agents to the fullest extent permitted under Delaware law. As permitted by Section 145 of the Delaware General Corporation Law, our Bylaws provide that: we may indemnify our directors, officers, and employees to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; we may advance expenses to our directors, officers and employees in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; and the rights provided in our Bylaws are not exclusive. Our Certificate of Incorporation, as amended, and our Amended and Restated Bylaws provide for the indemnification provisions described above and elsewhere herein. We have entered into and intend to continue to enter into separate indemnification agreements with our directors and officers which may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements generally require us, among other things, to indemnify our officers and directors against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct. These indemnification agreements also generally require us to advance any expenses incurred by the directors or officers as a result of any proceeding against them as to which they could be indemnified. In addition, we have purchased a policy of directors and officers liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment in some circumstances. These indemnification provisions and the indemnification agreements may be sufficiently broad to permit indemnification of our officers and directors for liabilities, including reimbursement of expenses incurred, arising under the Securities Act. Item 15. Recent Sales of Unregistered Securities. On September 3, 2024, the Company issued the Warrants described in the prospectus included in this registration statement, pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act for a transaction not involving any public offering. II-1 Item 16. Exhibits. Exhibit No. Description of Document 3.1 Certificate of Incorporation of PaxMedica, Inc., as amended (incorporated by reference to Exhibit 3.1 to Amendment No. 10 to Form S-1 filed on August 8, 2022). 3.2 Amendment to Certificate of Incorporation of PaxMedica, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on August 30, 2022). 3.3 Amendment to Certificate of Incorporation of PaxMedica, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on October 30, 2023). 3.4 Certificate of Designations, Preferences and Rights of Series X Convertible Preferred Stock of PaxMedica, Inc. (incorporated by reference to Exhibit 3.3 to Amendment No. 10 to Form S-1 filed on August 8, 2022). 3.5 Amended and Restated Bylaws of PaxMedica, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on August 30, 2022). 3.6 First Amendment to the Amended and Restated Bylaws of PaxMedica, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on March 22, 2024). 4.1 Specimen Certificate representing shares of common stock of PaxMedica, Inc. (incorporated by reference to Exhibit 4.1 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 4.2 Form of 2022 Warrant (incorporated by reference to Exhibit 4.2 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 4.3 Form of Representative Warrant (incorporated by reference to Exhibit 4.3 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 4.4 Form of 2020 Warrant (incorporated by reference to Exhibit 4.4 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 4.6 Warrant, dated February 6, 2023, issued by PaxMedica, Inc. to Lind Global Fund II LP (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on February 7, 2023). 4.7 Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on September 6, 2024). 5.1 Opinion of Harris Beach PLLC regarding the validity of the common stock being registered.* 10.1 Form of Indemnification Agreement entered into by PaxMedica, Inc. with its Officers and Directors (incorporated by reference to Exhibit 10.1 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 10.2 PaxMedica, Inc. Amended and Restated 2020 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). II-2 10.3 Form of Nonqualified Stock Option Award under the Amended and Restated 2020 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 10.4 Form of Incentive Stock Option Award under the Amended and Restated 2020 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 10.5 Letter Agreement between PaxMedica, Inc. and Howard J. Weisman, dated March 4, 2020 (incorporated by reference to Exhibit 10.5 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 10.6 Patient Records License Agreement between Purinix Pharmaceuticals LLC and Lwala Hospital, dated November 9, 2018 (incorporated by reference to Exhibit 10.10 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 10.7 Patient Records License Agreement between Purinix Pharmaceuticals LLC and Ministry of Health, Republic of Malawi, dated October 10, 2018 (incorporated by reference to Exhibit 10.11 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 10.8 Master Services Agreement between Purinix Pharmaceuticals LLC and CRO Consulting (Pty) Limited, dated May 25, 2018. (incorporated by reference to Exhibit 10.12 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 10.9 Form of Restricted Stock Unit Grant Agreement under the Amended and Restated 2020 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.13 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 10.10 Form of 2022 Convertible Promissory Note (incorporated by reference to Exhibit 10.15 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 10.11 Form of 2022 Convertible Promissory Note Securities Purchase Agreement (incorporated by reference to Exhibit 10.16 to Amendment No. 10 to the Registration Statement on Form S-1 filed on August 8, 2022). 10.12 Purchase Agreement, dated as of November 17, 2022, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 21, 2022). II-3 10.13 Registration Rights Agreement, dated as of November 17, 2022, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on November 21, 2022). 10.14 Employment Agreement, dated as of November 19, 2022, between the Company and Stephen D. Sheldon (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on November 21, 2022). 10.15 Employment Agreement, dated as of January 1, 2023, between the Company and Howard J. Weisman (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on January 6, 2023). 10.16 Security Agreement between PaxMedica, Inc. and Lind Global Fund II LP, dated February 6, 2023 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on February 7, 2023). 10.17 Specialty Benefit Manager Agreement, effective as of June 30, 2023, by and between PaxMedica, Inc. and Vox Nova, LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on August 9, 2023). 10.18 Form of Letter Agreement re Inducement Offer to Exercise Common Stock Purchase Warrants (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on September 6, 2024). 23.1 Consent of Marcum LLP, Independent Registered Public Accounting Firm.* 23.2 Consent of Harris Beach PLLC (included in Exhibit 5.1).* 24.1 Power of Attorney (included on the signature page). 107 Calculation of Filing Fee.* * Filed herewith. Indicates management compensatory plan, contract or arrangement. Item 17. Undertakings. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Filing Fee Tables" in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (1)(i), (1)(ii) and (1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Securities and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are incorporated by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the \ No newline at end of file diff --git a/parsed_sections/prospectus_summary/2024/CIK0001831114_novusterra_prospectus_summary.txt b/parsed_sections/prospectus_summary/2024/CIK0001831114_novusterra_prospectus_summary.txt new file mode 100644 index 0000000000000000000000000000000000000000..4913e2a4d889188cce91252d40f07db2294c7a2c --- /dev/null +++ b/parsed_sections/prospectus_summary/2024/CIK0001831114_novusterra_prospectus_summary.txt @@ -0,0 +1,110 @@ +PROSPECTUS SUMMARY + +4 + +OUR COMPANY + +4 + +RISK FACTORS + +8 + +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS + +15 + +USE OF PROCEEDS + +15 + +ORGANIZATIONAL STRUCTURE + +15 + +DIVIDEND POLICY + +15 + +CAPITALIZATION + + + +SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA + + + +MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS + +16 + +BUSINESS + +16 + +MANAGEMENT + +25 + +EXECUTIVE COMPENSATION + +28 + +CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS + +30 + +PRINCIPAL STOCKHOLDERS + +32 + +SELLING SHAREHOLDERS + +33 + +PLAN OF DISTRIBUTION + +35 + +DESCRIPTION OF SECURITIES TO BE REGISTERED + +37 + +SHARES ELIGIBLE FOR FUTURE SALE + +38 + +MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK + +39 + +INTERESTS OF NAMED EXPERTS AND COUNSEL + +45 + + + + +WHERE YOU CAN FIND MORE INFORMATION + +45 + +INDEX TO FINANCIAL STATEMENTS + +F-1 + + + +2 + +Table of Contents + +You should rely only on the information contained in this prospectus and any free writing prospectus we may authorize to be delivered or made available to you. We have not, and the Selling Shareholders have not, authorized anyone to provide you with additional or different information from that contained in this prospectus and any free writing prospectus we have authorized. We, and the Selling Shareholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the shares of common stock. Our business, financial condition, results of operations and prospects may have changed since that date. + +This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. Risk Factors and Special Note Regarding Forward-Looking Statements contain additional information regarding these risks. + +DEALER PROSPECTUS DELIVERY OBLIGATION + +Through and including September 6, 2024 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, may be required to deliver a prospectus. + +