Georgi Kamburov

Arch Therapeutics Inc (OTCBB:ARTH) Plunges For The Bottom

by Georgi Kamburov July 15, 2016

Yesterday Arch Therapeutics Inc (OTCBB:ARTH, ARTH message board) got dumped to the ground. In a single session investors shifted the unprecedented for the company amount 8.73 million shares. The massive sell-off caused the stock to crash hard and by the end of the trading day ARTH had wiped 25.8% of their value closing at $0.59 per share. What could explain the state of panic that was displayed by investors?

It wasn't a new PR - the last press release issued by ARTH is now over a month old and was rather positive. On June 6 the company announced the completion of patient enrollment in its first clinical study to assess the safety and performance of the AC5 Surgical Hemostatic Device in humans. On the financial side of things ARTH is also far ahead than the vast portion of the other pennystock ventures. At the end of the first quarter of the year it had:

• $1.67 million cash
• $1.76 million total current assets
• $399 thousand total current liabilities
• ZERO revenues
• $1.25 million net loss

Taking a look at the latest SEC filings of the company, though, reveals the likely reason for the devastating drop - yesterday the S-1 registration statement from June 24 became effective. The S-1 filing covers the resale of approximately 16.5 million shares that were sold by ARTH during the May 27 private offering. The registered shares include 9.5 million issued and outstanding shares and 7 million shares underlying the company's Series E warrants that under certain circumstances can be exercised on a cashless basis.

ARTH's shareholders have already had to endure the issuance of a sizable amount of shares through the exercise of warrants. According to the subsequent events section of the quarterly report in less than a month, between April 1 and April 27, 2.6 million shares got issued at $0.20 as exercise of Series A and Series C warrants, 2.4 million shares were issued at $0.25 as exercise of Series D warrants, and 727 thousand shares were issued on a cashless basis.

While yesterday's losses were indeed massive ARTH may be able to recover. This summer the company expects to file an application for a CE mark for its AC5 device and to announce the results from its clinical trial. The red flags shouldn't be overlooked, though, and caution should be still be exercised when approaching the stock. 

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