Quarterly report pursuant to Section 13 or 15(d)


6 Months Ended
Mar. 31, 2017
Stockholders' Equity Note [Abstract]  
On September 30, 2016, the Company filed a registration statement with the SEC utilizing a “shelf” registration process, which was subsequently declared effective by the SEC on October 20, 2016 (such registration statement, the “Shelf Registration Statement”). Under the Shelf Registration Statement, the Company may offer and sell any combination of its Common Stock, warrants, debt securities, subscription rights, and/or units comprised of the foregoing to raise up to $50,000,000 in gross proceeds.
On February 20, 2017, the Company entered into Securities Purchase Agreement (the “2017 SPA”) with 6 accredited investors (collectively, the “2017 Investors”) providing for the issuance and sale by the Company to the 2017 Investors of an aggregate of 10,166,664 units at a purchase price of $0.60 per Unit in a registered offering (the “2017 Financing”). The securities comprising the units sold in the 2017 Financing were issued under the Shelf Registration Statement, and consisted of a share of Common Stock, and 0.55 of a Series F Warrant to purchase one share of Common Stock at an exercise price of $0.75 per share at any time prior to the fifth anniversary of the issuance date of the Series F Warrant subject to certain restrictions on exercise (the “2017 Warrants,” and the shares issuable upon exercise of the 2017 Warrants, collectively, the “2017 Warrant Shares”). The gross proceeds to Arch from the 2017 Financing, which closed on February 24, 2017, were approximately $6.1 million before deducting estimated offering expenses payable by the Company.
The number of shares of the Company’s Common Stock into which each of the Series F Warrants is exercisable and the exercise price therefore are subject to adjustment, as set forth in the Series F Warrants, including adjustments for stock subdivisions or combinations (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise). In addition, at anytime during the term of the Series F Warrants, the Company may reduce the then-current exercise price to any amount and for any period of time deemed appropriate by the Board of the Company. In addition, if the Company undergoes a change of control or is involved in a similar transaction, the holder may cause the Company or any successor entity to purchase its Series F Warrant for an amount of cash equal to $0.18 for each share of Common Stock underlying the Series F Warrant.
As noted above in Note 7, on September 28, 2016, the Company and MLSC entered into the Amendment. Pursuant to this Amendment, the term “Qualified Financing” was defined to mean one or more financing transactions in which the Company received, in a single transaction or series of transactions, cumulative net proceeds of not less than five million dollars ($5,000,000) at any time after October 3, 2016. On March 3, 2017 approximately $830,000 of the offering proceeds were used to satisfy the Company’s outstanding indebtedness to MLSC under the MLSC Loan Agreement.
Common Stock
At February 24, 2017, the Closing Date of the 2017 Financing, the Company issued 10,166,664 shares of Common Stock.
Derivative Liabilities
The Company accounted for the Series F Warrants relating to the aforementioned 2017 Financing in accordance with ASC 815-10, Derivatives and Hedging. Since the Company may be required to purchase its Series F Warrant for an amount of cash equal to $0.18 for each share of Common Stock the underlying Series F Warrant are not classified within stockholders’ equity, they are recorded as liabilities at fair value. They are marked to market each reporting period through the consolidated statement of operations.
On the Closing Date, the derivative liabilities were recorded at fair value of $2,996,110. Given that the fair value of the derivative liabilities were less than the total proceeds of the 2017 Financing of $6,099,998, the remaining proceeds of $3,103,888 were allocated to the Common Stock and additional paid in capital.
Fair Value Measurements Using Significant Unobservable
(Level 3)
Warrant Derivative
Beginning balance at October 1, 2016
Adjustments to estimated fair value
Ending balance at March 31, 2017
The derivative liabilities were valued as of February 24, 2017 and March 31, 2017 using the Black Scholes Model with the following assumptions:
February 24,
March 31,
Closing price per share of common stock
Exercise price per share
Expected volatility
Risk-free interest rate
Dividend yield
Remaining expected term of underlying securities (years)