UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM ~~10‑Q~~

10-Q



☒☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended ~~September~~June 30, ~~2017~~2020
OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: ~~001-3759~~001-37590

~~Cerecor Inc.~~CERECOR INC.

(Exact name of registrant as specified in its charter)



Delaware (State of incorporation)			45-0705648 (I.R.S. Employer Identification No.)
~~400 E. Pratt Street,~~540 Gaither Road, Suite ~~606~~400 ~~Baltimore,~~Rockville, Maryland ~~21202~~20850 (Address of principal executive offices)			(410) ~~522‑8707~~522-8707 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	CERC	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation ~~S‑T~~S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a ~~non‑accelerated~~non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b‑2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer ¨☐		Accelerated filer ¨ ☑
Non-accelerated filer ¨☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company þ ☑
Emerging growth company þ ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ¨☐ No þ☑

As of ~~November 6, 2017,~~August 4, 2020, the registrant had ~~26,054,857~~74,900,047 shares of common stock outstanding.

Table of Contents

CERECOR INC.

FORM 10-Q

For the Quarter Ended ~~September~~June 30, ~~2017~~2020

TABLE OF CONTENTS

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019

Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2020 and 2019

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2020 and 2019

~~Page~~

~~PART I.~~

~~FINANCIAL INFORMATION~~

~~Item 1.~~

~~Financial Statements~~

~~Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016~~

Condensed Consolidated Statements of ~~Operations~~Changes in Stockholders' Equity (Unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

~~Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2017 and 2016~~

Notes to Unaudited Condensed Consolidated Financial Statements

611

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2033

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3045

Item 4.

Controls and Procedures

~~Unregistered Sales of Equity Securities and Use of Proceeds~~Exhibits

3147

~~Item 6.~~SIGNATURES

~~Exhibits~~

3248

~~SIGNATURES~~

Table of Contents

PART I –- FINANCIAL INFORMATION

Item 1. Financial ~~Statements~~Statements.

CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets


	September 30, 2017			December 31, 2016				June 30, 2020		December 31, 2019
	(unaudited)							(unaudited)
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	23,955,397		$	5,127,958		Cash and cash equivalents	$	45,390,553	$	3,609,438
Escrowed cash receivable	3,750,803			—
Grants receivable	30,135			132,472
Accounts receivable, net							Accounts receivable, net	2,031,682		1,001,645
Other receivables							Other receivables	1,953,036		4,240,572
Inventory, net							Inventory, net	12,196		21,334
Prepaid expenses and other current assets	341,025			391,253			Prepaid expenses and other current assets	823,900		706,968
Restricted cash, current portion	29,159			11,111			Restricted cash, current portion	33,449		17,535
Investment in Aytu							Investment in Aytu	—		7,628,947
Current assets of discontinued operations							Current assets of discontinued operations	—		497,577
Total current assets	28,106,519			5,662,794			Total current assets	50,244,816		17,724,016
Property and equipment, net	34,183			43,243			Property and equipment, net	1,740,610		1,447,663
Intangible assets, net							Intangible assets, net	2,292,175		2,426,258
Goodwill							Goodwill	14,409,088		14,409,088
Restricted cash, net of current portion	62,847			62,828			Restricted cash, net of current portion	180,336		101,945
Deferred tax asset, net							Deferred tax asset, net	337,797		—
Total assets	$	28,203,549		$	5,768,865		Total assets	$	69,204,822	$	36,108,970
Liabilities and stockholders’ (deficit) equity
Liabilities and stockholders’ equity							Liabilities and stockholders’ equity
Current liabilities:							Current liabilities:
Term debt, net of discount	$	—		$	2,353,667
Accounts payable	312,514			1,010,209			Accounts payable	$	2,557,702	$	2,077,524
Accrued expenses and other current liabilities	1,290,683			947,987			Accrued expenses and other current liabilities	6,487,658		5,640,252
Income taxes payable	3,230,000			—			Income taxes payable	—		551,671
Current liabilities of discontinued operations							Current liabilities of discontinued operations	5,549,751		3,891,012
Total current liabilities	4,833,197			4,311,863			Total current liabilities	14,595,111		12,160,459
License obligations	1,250,000			1,250,000
Royalty obligation							Royalty obligation	2,000,000		—
Deferred tax liability, net							Deferred tax liability, net	—		85,981
Other long-term liabilities							Other long-term liabilities	2,031,560		1,111,965
Long-term liabilities of discontinued operations							Long-term liabilities of discontinued operations	—		1,755,000
Total liabilities	6,083,197			5,561,863			Total liabilities	18,626,671		15,113,405
Stockholders’ equity:							Stockholders’ equity:
Preferred stock—$0.001 par value; 5,000,000 shares authorized; zero shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	—			—
Common stock—$0.001 par value; 200,000,000 shares authorized; 26,054,857 and 9,434,141 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	26,055			9,434
Common stock—$0.001 par value; 200,000,000 shares authorized at June 30, 2020 and December 31, 2019; 74,900,047 and 44,384,222 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively							Common stock—$0.001 par value; 200,000,000 shares authorized at June 30, 2020 and December 31, 2019; 74,900,047 and 44,384,222 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	74,899		44,384
Preferred stock—$0.001 par value; 5,000,000 shares authorized at June 30, 2020 and December 31, 2019; 1,257,143 and 2,857,143 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively							Preferred stock—$0.001 par value; 5,000,000 shares authorized at June 30, 2020 and December 31, 2019; 1,257,143 and 2,857,143 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	1,257		2,857
Additional paid-in capital	77,167,922			70,232,651			Additional paid-in capital	199,191,022		135,238,941
Accumulated deficit	(55,073,625		)	(70,035,083		)	Accumulated deficit	(148,689,027)		(114,290,617)
Total stockholders’ equity	22,120,352			207,002			Total stockholders’ equity	50,578,151		20,995,565
Total liabilities and stockholders’ equity	$	28,203,549		$	5,768,865		Total liabilities and stockholders’ equity	$	69,204,822	$	36,108,970

See accompanying notes to the unaudited condensed consolidated financial statements.

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CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
License and other revenue $ 25,000,000
$ —
$ 25,000,000
$ —
Grant revenue 37,592
321,497
579,597
971,985
Total revenue 25,037,592
321,497
25,579,597
971,985
Operating expenses:
Research and development 964,574
4,581,605
2,411,293
9,376,633
General and administrative 2,151,859
1,703,188
4,921,269
5,989,053
Income (loss) from operations 21,921,159
(5,963,296 ) 18,247,035
(14,393,701 )
Other income (expense):
Change in fair value of warrant liability and unit purchase option liability 64
(101,246 ) (1,586 ) (57,595 )
Interest income (expense), net 29,387
(104,183 ) (53,991 ) (381,603 )
Total other income (expense) 29,451
(205,429 ) (55,577 ) (439,198 )
Net income (loss) before taxes $ 21,950,610
$ (6,168,725 ) $ 18,191,458
$ (14,832,899 )
Income tax expense 3,230,000
—
3,230,000
—
Net income (loss) after taxes $ 18,720,610
$ (6,168,725 ) $ 14,961,458
$ (14,832,899 )

Net income (loss) per common share, basic and diluted $ 0.52
$ (0.70 ) $ 0.65
$ (1.71 )

Weighted-average number of common shares - basic 21,382,683
8,756,393
14,952,391
8,685,818
Weighted-average number of common shares - diluted 21,407,702
8,756,393
14,960,032
8,685,818


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Revenues:
Product revenue, net	$	1,337,764	$	1,391,942	$	4,091,628	$	3,968,310
Total revenues, net	1,337,764		1,391,942		4,091,628		3,968,310

Operating expenses:
Cost of product sales	77,580		(1,496,677)		144,139		(744,128)
Research and development	5,916,869		3,712,596		10,684,619		7,113,785
Acquired in-process research and development	—		—		25,549,344		—
General and administrative	6,101,475		2,340,634		8,777,088		5,016,243
Sales and marketing	653,265		325,861		1,329,790		722,137
Amortization expense	403,500		334,747		834,083		669,495
Change in fair value of contingent consideration	—		(1,277,150)		—		(1,256,210)
Total operating expenses	13,152,689		3,940,011		47,319,063		11,521,322
Loss from continuing operations	(11,814,925)		(2,548,069)		(43,227,435)		(7,553,012)
Other income (expense):
Change in fair value of Investment in Aytu	(1,872,031)		—		5,207,789		—
Change in fair value of warrant liability and unit purchase option liability	2,647		18,910		13,928		(28,668)
Other income (expense), net	395,800		—		395,800		(9,400)
Interest income, net	8,711		38,412		18,501		68,632
Total other (expense) income, net from continuing operations	(1,464,873)		57,322		5,636,018		30,564
Loss from continuing operations before taxes	(13,279,798)		(2,490,747)		(37,591,417)		(7,522,448)
Income tax (benefit) expense	(453,957)		53,446		(2,610,812)		184,119
Loss from continuing operations	$	(12,825,841)	$	(2,544,193)	$	(34,980,605)	$	(7,706,567)
(Loss) income from discontinued operations, net of tax	(455,463)		(3,678,906)		582,195		(5,970,580)
Net loss	$	(13,281,304)	$	(6,223,099)	$	(34,398,410)	$	(13,677,147)

Net (loss) income per share of common stock, basic and diluted:
Continuing operations	$	(0.18)	$	(0.05)	$	(0.53)	$	(0.14)
Discontinued operations	(0.01)		(0.06)		0.01		(0.10)
Net loss per share of common stock, basic and diluted	$	(0.19)	$	(0.11)	$	(0.52)	$	(0.24)

Net (loss) income per share of preferred stock, basic and diluted:
Continuing operations	$	(0.93)	$	(0.23)	$	(2.66)	$	(0.68)
Discontinued operations	(0.03)		(0.32)		0.04		(0.53)
Net loss per share of preferred stock, basic and diluted	$	(0.96)	$	(0.55)	$	(2.62)	$	(1.21)

See accompanying notes to the unaudited condensed consolidated financial statements.

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CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

Table of Contents

Nine Months Ended September 30,
2017 2016
Operating activities
Net income (loss) $ 14,961,458
$ (14,832,899 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation 17,050
20,468
Stock-based compensation expense 852,210
1,439,194
Non-cash interest expense 20,365
134,096
Change in fair value of warrant liability and unit purchase option liability 1,586
57,595
Changes in assets and liabilities:
Grants receivable 102,337
(379,256 )
Prepaid expenses and other assets 50,228
191,527
Escrowed funds receivable (3,750,803 ) —
Restricted cash (18,067 ) (79,051 )
Accounts payable (697,695 ) 109,908
Accrued expenses and other liabilities 341,109
2,478,234
Income taxes payable 3,230,000
—
Net cash provided by (used in) operating activities 15,109,778
(10,860,184 )
Investing activities
Purchase of property and equipment (7,990 ) (25,646 )
Net cash used in investing activities (7,990 ) (25,646 )
Financing activities
Proceeds from sale of shares under common stock purchase agreements, net 1,693,498
1,000,000
Proceeds from sale of shares pursuant to private placement, net 4,650,000
—
Proceeds from sales of common stock under employee stock purchase plan, net 35,430
—
Principal payments on term debt (2,374,031 ) (2,459,493 )
Payment of financing costs (279,246 ) (1,467 )
Net cash provided by (used in) financing activities 3,725,651
(1,460,960 )
Increase (decrease) in cash and cash equivalents 18,827,439
(12,346,790 )
Cash and cash equivalents at beginning of period 5,127,958
21,161,967
Cash and cash equivalents at end of period $ 23,955,397
$ 8,815,177
Supplemental disclosures of cash flow information
Cash paid for interest $ 72,526
$ 287,841
Supplemental disclosures of noncash financing activities
Accrued financing costs $ —
$ 101,728


	Six Months Ended June 30,
	2020		2019
Operating activities
Net loss	$	(34,398,410)	$	(13,677,147)
Adjustments to reconcile net loss used in operating activities:
Depreciation and amortization	878,949		2,203,423
Impairment of intangible assets	—		1,449,121
Stock-based compensation	3,901,897		1,123,402
Acquired in-process research and development	25,549,344		—
Deferred taxes	(423,778)		18,870
Amortization of inventory fair value associated with acquisition of TRx and Avadel's pediatric products	—		40,240
Change in fair value of Investment in Aytu	(5,207,789)		—
Change in fair value of warrant liability and unit purchase option liability	(13,928)		28,668
Change in value of Guarantee	(1,755,000)		—
Change in fair value of contingent consideration	—		(811,948)
Changes in assets and liabilities:
Accounts receivable, net	(532,460)		297,267
Other receivables	(1,851,867)		5,326,000
Inventory, net	9,138		452,931
Prepaid expenses and other assets	(23,782)		664,454
Accounts payable	82,674		(666)
Income taxes payable	288,329		(639,784)
Accrued expenses and other liabilities	(815,014)		(6,313,686)
Lease liability, net	17,510		—
Net cash used in operating activities	(14,294,187)		(9,838,855)
Investing activities
Proceeds from sale of Investment in Aytu, net	12,836,736		—
Net cash paid in merger with Aevi	(1,250,650)		—
Purchase of property and equipment	—		(256,926)
Net cash provided by (used in) investing activities	11,586,086		(256,926)
Financing activities
Proceeds from underwritten public offering, net	35,427,963		8,975,960
Proceeds from registered direct offering, net	5,136,184		—
Proceeds from sale of shares pursuant to common stock private placement, net	3,887,991		—
Proceeds from exercise of stock options and warrants	92,342		256,816
Proceeds from shares purchased through employee stock purchase plan	132,910		127,537
Restricted Stock Units withheld for taxes	(93,869)		(18,057)
Payment of contingent consideration	—		(379,255)
Payment of long-term debt	—		(48,684)
Net cash provided by financing activities	44,583,521		8,914,317
Increase (decrease) in cash, cash equivalents and restricted cash	41,875,420		(1,181,464)
Cash, cash equivalents, and restricted cash at beginning of period	3,728,918		10,746,756
Cash, cash equivalents, and restricted cash at end of period	$	45,604,338	$	9,565,292
Supplemental disclosures of cash flow information
Cash paid for interest	$	—	$	525,000
Cash paid for taxes	$	316,000	$	852,025
Supplemental disclosures of non-cash activities
Issuance of common stock in Aevi Merger	$	15,495,578	$	—
Leased asset obtained in exchange for new operating lease liability	$	376,448	$	743,025

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:

Table of Contents


	June 30,
	2020		2019

Cash and cash equivalents	$	45,390,553	$	9,386,865
Restricted cash, current	33,449		26,265
Restricted cash, non-current	180,336		152,162
Total cash, cash equivalents and restricted cash	$	45,604,338	$	9,565,292

See accompanying notes to the unaudited condensed consolidated financial statements.

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CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)


	Common stock				Preferred Stock						Additional paid-in		Accumulated	Total stockholders’
	Shares	Amount		Shares	Amount		capital		deficit		equity
Three Months Ended June 30, 2020
Balance, March 31, 2020	59,560,252	$	59,560	1,257,143	$	1,257	$	160,935,648	$	(135,407,723)	$	25,588,742
Issuance of shares of common stock in underwritten public offering, net of offering costs	15,180,000	15,180			—		35,412,783		—		35,427,963
Exercise of stock options and warrants	25,071	25			—		18,110		—		18,135
Restricted Stock Units vested during period	111,667	111			—		(111)		—		—
Restricted Stock Units withheld for taxes	(35,279)	(35)			—		(93,834)		—		(93,869)
Shares purchased through employee stock purchase plan	58,336	58			—		132,852		—		132,910
Stock-based compensation		—			—		2,785,574		—		2,785,574
Net loss		—			—		—		(13,281,304)		(13,281,304)
Balance, June 30, 2020	74,900,047	$	74,899	1,257,143	$	1,257	$	199,191,022	$	(148,689,027)	$	50,578,151

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	Common stock				Preferred Stock						Additional paid-in		Accumulated	Total stockholders’
	Shares	Amount		Shares	Amount		capital		deficit		equity
Six Months Ended June 30, 2020
Balance, December 31, 2019	44,384,222	$	44,384	2,857,143	$	2,857	$	135,238,941	$	(114,290,617)	$	20,995,565
Conversion of preferred stock to common stock	8,000,000	8,000		(1,600,000)	(1,600)		(6,400)		—		—
Issuance of shares related to Aevi Merger	3,893,361	3,894			—		15,491,684		—		15,495,578
Issuance of shares pursuant to registered direct offering, net of offering costs	1,306,282	1,306			—		5,134,878		—		5,136,184
Issuance of shares pursuant to common stock private placement, net of offering costs	1,951,219	1,951			—		3,886,040		—		3,887,991
Issuance of shares of common stock in underwritten public offering, net of offering costs	15,180,000	15,180			—		35,412,783		—		35,427,963
Exercise of stock options and warrants	50,239	50			—		92,292		—		92,342
Restricted Stock Units vested during period	111,667	111			—		(111)		—		—
Restricted Stock Units withheld for taxes	(35,279)	(35)			—		(93,834)		—		(93,869)
Shares purchased through employee stock purchase plan	58,336	58			—		132,852		—		132,910
Stock-based compensation		—			—		3,901,897		—		3,901,897
Net loss		—			—		—		(34,398,410)		(34,398,410)
Balance, June 30, 2020	74,900,047	$	74,899	1,257,143	$	1,257	$	199,191,022	$	(148,689,027)	$	50,578,151

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	Common stock				Preferred Stock						Additional paid-in		Accumulated	Total stockholders’
	Shares	Amount		Shares	Amount		capital		deficit		equity
Three Months Ended June 30, 2019
Balance, March 31, 2019	42,753,659	$	42,754	2,857,143	$	2,857	$	128,747,037	$	(105,672,118)	$	23,120,530
Exercise of stock options and warrants	43,125	43			—		162,596		—		162,639
Restricted Stock Units vested during period	61,250	61			—		(61)		—		—
Restricted Stock Units withheld for taxes	(3,723)	(4)			—		(18,053)		—		(18,057)
Shares purchased through employee stock purchase plan	43,940	44			—		127,493		—		127,537
Stock-based compensation		—			—		526,709		—		526,709
Net loss		—			—		—		(6,223,099)		(6,223,099)
Balance, June 30, 2019	42,898,251	$	42,898	2,857,143	$	2,857	$	129,545,721	$	(111,895,217)	$	17,696,259


	Common stock					Preferred Stock						Additional paid-in		Accumulated	Total stockholders’
	Shares	Amount		Shares		Amount		capital		deficit		equity
Six Months Ended June 30, 2019
Balance, December 31, 2018	40,804,189	$	40,804	$	2,857,143	$	2,857	$	119,082,157	$	(98,218,070)	$	20,907,748
Issuance of shares of common stock in underwritten public offering, net of offering costs	1,818,182	1,818				—		8,974,142		—		8,975,960
Exercise of stock options and warrants	74,413	74				—		256,742		—		256,816
Restricted Stock Units vested during period	161,250	162				—		(162)		—		—
Restricted Stock Units withheld for taxes	(3,723)	(4)				—		(18,053)		—		(18,057)
Shares purchased through employee stock purchase plan	43,940	44				—		127,493		—		127,537
Stock-based compensation		—				—		1,123,402		—		1,123,402
Net loss		—				—		—		(13,677,147)		(13,677,147)
Balance, June 30, 2019	42,898,251	$	42,898	$	2,857,143	$	2,857	$	129,545,721	$	(111,895,217)	$	17,696,259

See accompanying notes to the unaudited condensed consolidated financial statements.

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CERECOR INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

1. Business

Cerecor Inc. (the ~~“Company”~~"Company" or ~~“Cerecor”~~"Cerecor") is a biopharmaceutical company ~~that is developing innovative drug candidates for commercialization, license or sale to make~~focused on becoming a ~~difference~~leader in the lives of patients with neurologic and psychiatric disorders. The Company’s operations since inception have been limited to organizing and staffing the Company, acquiring rights to and developing certain product candidates, business planning and raising capital.

~~Liquidity~~

The Company's financial statements have been prepared on an accrual basis. The Company has not generated any product revenues and has not yet achieved profitable operations from commercialization. There is no assurance that profitable operations will ever be achieved, and if achieved, could be sustained on a continuing basis.

Prior to the quarter ended September 30, 2017, the Company had incurred recurring operating losses since inception. For the nine months ended September 30, 2017, the Company generated net income of $15.0 million and positive cash flows from operations of $15.1 million. In August 2017, the Company sold all of its rights to a prior product candidate, CERC-501, to Janssen Pharmaceuticals, Inc. (“Janssen”) in exchange for initial gross proceeds of $25.0 million, of which$3.75 million was deposited into a twelve-month escrow to secure certain indemnification obligations, as well as a potential future $20.0 million regulatory milestone payment. The terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of ~~CERC-501.~~treatments for rare pediatric and orphan diseases. The Company is advancing an emerging clinical-stage pipeline of innovative therapies that address unmet patient needs within rare pediatric and orphan diseases. The Company's pediatric rare disease pipeline includes CERC-801, CERC-802 and CERC-803 ("CERC-800 compounds"), which are therapies for inherited metabolic disorders known as Congenital Disorders of Glycosylation ("CDGs"). The U.S. Food and Drug Administration ("FDA") granted Rare Pediatric Disease Designation ("RPDD") and Orphan Drug Designation ("ODD") to all 3 CERC-800 compounds, thus potentially qualifying the Company to receive a Priority Review Voucher ("PRV") upon approval of each new drug application ("NDA"). The Company is also developing CERC-002, CERC-006 and CERC-007. CERC-002 is an anti-LIGHT (Lymphotoxin-like, exhibits Inducible expression, and competes with HSV Glycoprotein D for HVEM, a receptor expressed by T lymphocytes) monoclonal antibody being developed for the treatment of COVID-19 acute respiratory distress syndrome ("ARDS") and Pediatric-onset Crohn's Disease. CERC-006 is a dual mTOR inhibitor being developed for the treatment of complex Lymphatic Malformations and has been granted ODD and RPDD by the FDA, thus potentially qualifying the Company to receive a PRV upon approval of an NDA. CERC-007 is an anti-IL-18 monoclonal antibody being developed for the treatment of autoimmune inflammatory diseases such as Adult Onset Stills Disease ("AOSD") and Multiple Myeloma.

The Company continues to explore strategic alternatives for its commercialized product, Millipred^®, an oral prednisolone indicated across a wide variety of inflammatory conditions. The Company has been in discussions with Simon Pedder, a former member of its Board of Directors, about potentially transferring its non-core neurology pipeline assets, CERC-301 and CERC-406, to a new company formed by Dr. Pedder, although it has not agreed to binding terms, and any such transaction might not happen until the second half of 2020, if at all.

On June 11, 2020, the Company closed on an underwritten public offering of 15,180,000 shares of its common stock (inclusive of 1,980,000 shares that were sold pursuant to the underwriter’s full exercise of its option to purchase additional shares of Cerecor’s common stock) for net proceeds of approximately $35.4 million.

On February 3, 2020, the Company consummated its two-step merger (the "Merger") with Aevi Genomic Medicine, Inc. ("Aevi") in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the "Merger Agreement") dated December 5, 2019. The Merger consideration included stock valued at approximately $15.5 million, resulting in the issuance of approximately 3.9 million shares of Cerecor common stock to Aevi stockholders, forgiveness of a $4.1 million loan that Cerecor loaned Aevi in December 2019 (the "Aevi Loan"), and contingent value rights ("CVRs") for up to an additional $6.5 million in subsequent payments based on development milestones. As part of the Merger, Cerecor acquired the rights to CERC-002, CERC-006 and CERC-007, expanding Cerecor's pipeline to six clinical stage assets being developed for rare pediatric and orphan diseases. Effective upon the consummation of the Merger, Cerecor entered into an employment agreement with Aevi Chief Executive Officer Mike Cola for him to serve as Cerecor's Chief Executive Officer and an employment agreement with Aevi Chief Scientific Officer Dr. Garry Neil for him to serve as Cerecor's Chief Medical Officer, and appointed Mike Cola and Dr. Sol Barer to the Company's Board of Directors. Dr. Neil was promoted to Cerecor's Chief Scientific Officer in March 2020. See Note 6 for more information.

During the fourth quarter of 2019, the Company entered into, and closed, an asset purchase agreement (the "Aytu Purchase Agreement") with Aytu BioScience, Inc. (“Aytu”) to sell the Company’s rights, title and interest in, assets relating to its pediatric portfolio, namely Aciphex^®Sprinkle™, Cefaclor for Oral Suspension, Karbinal™ ER, Flexichamber™, Poly-Vi-Flor^® and Tri-Vi-Flor™ (the "Pediatric Portfolio"), as well as the corresponding commercial infrastructure consisting of the right to offer employment to Cerecor’s sales force and the assignment of supporting commercial contracts (the "Aytu Divestiture"). Aytu paid consideration of $4.5 million in cash and approximately 9.8 million shares of Aytu convertible preferred stock (the "Investment"), and assumed certain of the Company’s liabilities, including the Company’s payment obligations payable to Deerfield CSF, LLC of $15.1 million and other liabilities of $11.0 million. The Company recognized a gain of $8.0 million upon the closing of the Aytu Divestiture for the year ended December 31, 2019. As a result of the sale of the Pediatric Portfolio, the Pediatric Portfolio met all conditions required in order to be classified as discontinued operations. Therefore, operating results from the Pediatric Portfolio are reported within income (loss) from discontinued operations, net of tax for all periods presented. In addition, assets and liabilities related to the Pediatric Portfolio are reported as assets and liabilities of discontinued operations in the accompanying condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019. See Note 3 for more information regarding the Aytu Divestiture and its accounting treatment, including the nature of the Company's involvement subsequent to the divestiture.

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Cerecor was incorporated and commenced operation in 2011 and completed its initial public offering in October 2015.

Liquidity

In June 2020, the Company closed an underwritten public offering of 15,180,000 shares of its common stock (inclusive of 1,980,000 shares that were sold pursuant to the underwriter’s full exercise of its option to purchase additional shares of Cerecor’s common stock) for net proceeds of approximately $35.4 million. In March 2020, the Company entered into a securities purchase agreement with its largest stockholder, Armistice Capital, LLC ("Armistice"), pursuant to which the Company sold 1,951,219 shares of the Company’s common stock for net proceeds of approximately $3.9 million. In February 2020, the Company closed a registered direct offering with institutional investors of 1,306,282 shares of the Company's common stock for net proceeds of approximately $5.1 million. See Note 9 for more information regarding these financings. Additionally, in April 2020, the Company converted its shares of Aytu preferred stock that were acquired in the fourth quarter of 2019 and subsequently sold that common stock, which generated net proceeds of approximately $12.8 million. As of ~~September~~June 30, ~~2017, the Company~~2020, Cerecor had ~~an accumulated deficit of $55.1 million and a balance of $24.0~~$45.4 million in cash and cash equivalents.

In order to meet its cash flow needs, the Company applies a disciplined decision-making methodology as it evaluates the optimal allocation of the Company's resources between investing in the Company's existing pipeline assets and acquisitions or in-licensing of new assets. For the six months ended June 30, 2020, Cerecor generated a net loss of $34.4 million and negative cash flow from operations of $14.3 million. As of June 30, 2020, Cerecor had an accumulated deficit of $148.7 million.

The accompanying condensed consolidated financial statements have been prepared assuming the Company ~~anticipates operating~~will continue as a going concern; however, the Company expects to incur additional losses ~~to continue for~~in the ~~foreseeable~~ future ~~due to, among other things, costs related to its preclinical programs, additional clinical development of its product candidates, business development and costs associated~~in connection with its ~~organizational infrastructure. The Company~~research and development activities and will require ~~substantial~~ additional financing to fund its operations and to continue to execute its business strategy. The Company plans to ~~meet~~use its current cash on hand, the anticipated cash flows from the Company's profits from Millipred product sales and/or the potential proceeds from a possible out-license or sale of Millipred to a third party to offset costs related to its pipeline assets, business development, and costs associated with its organizational infrastructure; however, Cerecor expects to continue to incur significant expenses and operating losses for the immediate future as it continues to invest in the Company's pipeline assets. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise additional equity and/or debt capital, ~~requirements primarily through~~sell assets and/or obtain government funding; however, there can be no assurance that it will be able to do so nor that such activities will generate sufficient amounts, if any, on terms acceptable to the Company.

Over the long term, the Company's ultimate ability to achieve and maintain profitability will be dependent on, among other things, the development, regulatory approval, and commercialization of its pipeline assets, and the potential sale of any PRVs it receives, in order to support its cost structure and pipeline asset development.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements included in this Quarterly Report were issued. To alleviate these conditions, the Company is evaluating the potential out-licensing or sale of Millipred, its non-core neurology pipeline assets and/or some combination of rights to future PRV sales, equity or debt financings, collaborations, orother out-licensing arrangements, strategic alliances, federal and private grants, marketing, other distribution or licensing arrangements, ~~and in~~or the longer term, revenue from product sales to the extent its product candidates receive marketing approval and are commercialized. There can be no assurance, however, that the Company will be successful in obtaining financing at the level needed to sustain operations and develop its product candidatessale of current or ~~on terms acceptable to the Company, or that the Company will obtain approvals necessary to market its products or achieve profitability or sustainable positive cash flow.~~future assets. If the Company ~~fails to raise capital~~raises additional funds through collaborations, strategic alliances or ~~enter into any such~~licensing arrangements ~~it will~~with third parties, the Company might have to ~~further delay, scale back~~relinquish valuable rights to its technologies, future revenue streams, research programs or ~~discontinue the development of one or more of its~~ product ~~candidates or cease its operations altogether.~~

~~In April 2017~~candidates. If the Company ~~received $5.0 million~~is not able to secure adequate additional funding, the Company may be forced to make reductions in ~~gross proceeds pursuant~~spending, extend payment terms with suppliers, liquidate assets where possible or suspend or curtail planned programs. Due to ~~a securities purchase agreement with Armistice Capital Master Fund Ltd (“Armistice”). The Company has~~ the uncertainty regarding future financings and/or other potential options to raise additional ~~cash through an equity distribution agreement~~funds, management has concluded that substantial doubt exists with ~~Maxim Group LLC ("Maxim Group")~~respect to the Company’s ability to continue as ~~described~~a going concern within one year after the date that the financial statements in ~~Note 8.~~this Quarterly Report were issued.

~~The Company expects its cash on hand at September 30, 2017 to fund future expenses through at least December 31, 2018.~~

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ~~(“GAAP”~~("GAAP"). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates ("ASU") of the Financial Accounting Standards Board ("FASB").

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the Company’s financial position, results of operations, and cash flows. The condensed consolidated balance sheet at December 31, ~~2016~~2019 has been derived from audited

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financial statements at that date. The interim results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to instructions, rules, and regulations prescribed by the United States Securities and Exchange Commission ~~(“SEC”~~("SEC"). Certain prior period amounts have been reclassified to conform to the current year presentation, as described below.

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The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited condensed consolidated financial statements are read in conjunction with the December 31, ~~2016~~2019 audited consolidated financial statements.

~~Use~~Significant Accounting Policies

During the six months ended June 30, 2020, there were no significant changes to the Company’s summary of ~~Estimates~~significant accounting policies contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 11, 2020, except for the policy related to the Payroll Protection Program Loan and the recently adopted accounting standards described below.

Payroll Protection Program Loan

The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") provides stimulus measures, including the Payroll Protection Loan Program ("PPP"), to provide certain small businesses with liquidity to support their operations (such as to retain employees and maintain payroll and lease payments) during the COVID-19 pandemic. Cerecor received a $0.4 million PPP Loan during the second quarter of 2020. PPP Loans have a 1% fixed annual interest rate and mature in two years, however are eligible for forgiveness under certain conditions. If there is reasonable assurance that the PPP Loan will be forgiven, the Company may elect to account for the loan either as debt under ASC 470 or as a government grant. If accounted for as a government grant, the Company may elect to present the loan as either a credit in the income statement within other income or as reduction to the related expense. As discussed in Note 14, as of June 30, 2020, the Company believes it meets the criteria for forgiveness including having incurred the related expenses prior to June 30, 2020. Therefore, the Company elected to recognized the PPP Loan as other income within the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2020.

Recently Adopted Accounting Pronouncements

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). This guidance applies to all entities and impacts how entities account for credit losses for most financial assets and other instruments. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods therein.

Upon adoption of the new standard on January 1, 2020, the Company began recognizing an allowance using a forward-looking approach to estimate the expected credit loss related to financial assets. The Company began monitoring the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in the customers’ credit profiles. Over 95% of sales were generated from three major industry wholesalers for the three and six months ended June 30, 2020. Additionally, pursuant to the new standard, at each reporting period, the Company adjusts the Guarantee liability through earnings based on expected credit losses in accordance with Topic 326. The Company evaluated the impact of the adoption of this standard on its financial statements, concluding there was no significant impact on the Company's results of operations, financial position, cash flows or disclosures.

Fair Value Measurements

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This new standard modifies certain disclosure requirements on fair value measurements. This new standard became effective for the Company on January 1, 2020. The Company evaluated the impact of the adoption of this new standard on its financial statements, concluding there was no significant impact.

Income Tax Simplification

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In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740)(ASU 2019-12)", which provides final guidance that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation that is applicable to the Company, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences among other changes. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects early adoption must adopt all the amendments in the same period. The Company elected to early adopt the ASU 2019-12 as of January 1, 2020. Management concluded that the adoption of the new standard did not have a material impact to income taxes reported on the financial statements for the three and six months ended June 30, 2020.

3. Aytu Divestiture

Overview of Sale of Pediatric Portfolio and Related Commercial Infrastructure to Aytu BioScience

On October 10, 2019, the Company entered into the Aytu Purchase Agreement to sell the Company’s rights, title and interest in assets relating to its Pediatric Portfolio, namely Aciphex^®Sprinkle™, Cefaclor for Oral Suspension, Karbinal™ ER, Flexichamber™ , Poly-Vi-Flor^® and Tri-Vi-Flor™ as well as the corresponding commercial infrastructure consisting of the right to offer employment to Cerecor’s sales force and the assignment of supporting commercial contracts. The Aytu Divestiture closed on November 1, 2019. Aytu paid consideration of $4.5 million in cash and approximately 9.8 million shares of Aytu convertible preferred stock, and assumed certain of the Company’s liabilities, including the Company’s payment obligations payable to Deerfield CSF, LLC of $15.1 million and certain other liabilities of $11.0 million primarily related to contingent consideration, Medicaid rebates and sales returns. In addition, Aytu assumed future contractual obligations under existing license agreements associated with the Pediatric Portfolio. Armistice, a significant stockholder of the Company and Armistice's Chief Investment Officer, Steve Boyd, serves on each company's board of directors.

Upon closing the Aytu Divestiture, Cerecor terminated all of its sales force personnel, which included those offered employment by Aytu, as well as any remaining sales force personnel. Additionally, Cerecor retained all rights to Millipred^®. Pursuant to a transition services agreement entered into between Aytu and Cerecor, Aytu is managing Millipred^®commercial operationsfor a monthly fee of $12,000 for up to 18 months or until the Company establishes an independent commercial infrastructure for the product.

Deerfield Guarantee

On November 1, 2019, in conjunction with the closing of the Aytu Divestiture, the Company entered into a Guarantee in favor of Deerfield CSF, LLC ("Deerfield"), which guarantees the payment by Aytu of the assumed liabilities to Deerfield, which includes the debt obligation ("Fixed Payment Guarantee") and the contingent consideration related to future potential royalties on Avadel's pediatric products ("Deferred Payment Guarantee"), collectively referred to as the "Guarantee". Additionally, on November 1, 2019, the Company entered into a Contribution Agreement with Armistice and Avadel that governs contribution rights and obligations of the Company, Armistice and Avadel with respect to amounts that are paid by Armistice and Avadel to Deerfield under certain guarantees made by Armistice and Avadel to Deerfield.

The debt obligation assumed by Aytu consists of fixed monthly payments to Deerfield of $0.1 million until January 2021 and an additional balloon payment of $15.0 million to Deerfield on January 31, 2021. In May 2020, Aytu paid the $15.0 million balloon payment to Deerfield before it came due, thus satisfying that portion of the debt obligation assumed as part of the divestiture. Therefore, Cerecor's Fixed Payment Guarantee will end on January 31, 2021, upon the final monthly payment of $0.1 million. The contingent consideration assumed by Aytu consists of quarterly deferred payments equal to 15% of net sales of certain Pediatric Portfolio or at least $0.3 million paid in arrears each quarter until the earlier of (i) February 5, 2026, or (ii) when $12.5 million in aggregate deferred payments have been paid to Deerfield. Of the contingent consideration, $3.2 million was paid to Deerfield prior to the Aytu Divestiture and therefore as of November 1, 2019, Aytu was responsible for the remaining $9.3 million. Aytu is required to pay an amount equal to at least $0.1 million per month. Cerecor's Deferred Payment Guarantee will end upon the earlier of (i) February 5, 2026, or (ii) upon $12.5 million in aggregate deferred payments has been paid to Deerfield. Cerecor is required to make payment under the Guarantee upon demand by Deerfield, which Deerfield can demand at any time if all or any part of the fixed payments and/or deferred payments are not paid by Aytu when due or upon breach of a covenant. As of June 30, 2020, the estimated maximum potential amount of future payments under the Guarantee was $9.0 million, consisting of $0.6 million for the Fixed Payment Guarantee and $8.4 million for the Deferred Payment Guarantee (utilizing the $0.3 million per quarter minimum payment).

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The fair value of the Guarantee, which relates to the Company's obligation to make future payments if Aytu defaults, was determined at the time of the divestiture as the difference between (i) the estimated fair value of the debt and contingent payments, respectively, using Cerecor's estimated cost of debt and (ii) the estimated fair value of the debt and contingent payments, respectively, using Aytu's estimated cost of debt. Subsequent to the close of the Aytu Divestiture, at each reporting period, the value of the Guarantee is determined based on the expected credit loss of the Guarantee with changes recorded in (loss) income from discontinued operations, net of tax within the consolidated statements of operations. In 2020, Aytu's credit rating significantly improved as a result of recent developments to Aytu's business, including but not limited to, recent financings and expansion of its revenue products that substantially enhanced Aytu's cash position and its ability to meet its financial commitments. Based on these facts, management concluded that the expected credit loss of the Guarantee was de minimis as of March 31, 2020 and June 30, 2020. Therefore, 0 change in value was recognized in income from discontinued operations, net of tax within the accompanying condensed consolidated statement of operations for the three months ended June 30, 2020 and a $1.8 million gain on the change in value was recognized in income from discontinued operations, net of tax within the accompanying condensed consolidated statement of operations for the six months ended June 30, 2019.

Discontinued Operations

As a result of the sale of the Pediatric Portfolio, the operating results from the Pediatric Portfolio are reported as (loss) income from discontinued operations, net of tax in the accompanying condensed consolidated statements of operations. Accordingly, the accompanying condensed consolidated financial statements for the three and six months ended June 30, 2020 and 2019 and as of December 31, 2019 reflect the operations and related assets and liabilities of the Pediatric Portfolio as a discontinued operation.

The following tables summarizes the assets and liabilities of the discontinued operations as of June 30, 2020 and December 31, 2019:


	June 30, 2020		December 31,
	(unaudited)		2019
Assets
Current assets:
Accounts receivable, net	$	—	$	497,577
Total current assets of discontinued operations	$	—	$	497,577

Liabilities
Current liabilities:
Accounts payable	$	—	$	387,975
Accrued expenses and other current liabilities	5,549,751		3,503,037
Total current liabilities of discontinued operations	5,549,751		3,891,012
Other long-term liabilities	—		1,755,000
Total long-term liabilities of discontinued operations	$	—	$	1,755,000

Cerecor retains continuing involvement with the divested Pediatric Portfolio related to future sales returns made after November 1, 2019 of sales of the Pediatric Portfolio prior to the close date of the Aytu Divestiture and the Deerfield Guarantee (discussed in detail above).

Pursuant to the Aytu Purchase Agreement, Aytu assumed sales returns of the Pediatric Portfolio made after the closing date of November 1, 2019 and primarily relating to sales prior to November 1, 2019 only to the extent such post-Closing sales returns exceed $2.0 million and are less than $2.8 million (in other words, Aytu will only assume $0.8 million of such returns). Therefore, Cerecor is liable for future sales returns of the Pediatric Portfolio sold prior to November 1, 2019 in excess of the $0.8 million assumed by Aytu. As of June 30, 2020, the Company estimated its sales return reserve from discontinued operations to be $1.6 million, which is included above in accrued expenses and other current liabilities from discontinued operations. Changes in the Company's estimate of sales returns related to the Pediatric Portfolio is included within discontinued operations on the statement of operations and is shown within product sales, net in the table summarizing the results of discontinued operations below. In future periods, as additional information becomes available to the Company, the Company expects to recognize expense (or a benefit) related to actual sales returns of the Pediatric Portfolio in excess (or less than) the returns reserve recorded as of November 1, 2019, which will be recognized within discontinued operations. The Company expects this involvement to continue until sales returns are no longer accepted on sales of the Pediatric Portfolio made prior to November 1, 2019, which, in line with the products' return policies,

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returns on these products may be accepted through 2023. The remaining liability within accrued expenses and other liabilities of discontinued operations as of June 30, 2020 largely relates to cash Cerecor collected on behalf of Aytu for post-divestiture sales of the Pediatric Portfolio, which will be remitted to Aytu. The collection of accounts receivable from Cerecor to Aytu was fully transitioned to Aytu during the second quarter of 2020.

The following table summarizes the results of discontinued operations for the three and six months ended June 30, 2020 and 2019:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Product revenue, net	$	(455,463)	$	3,057,462	$	(1,172,805)	$	5,892,537

Operating expenses:
Cost of product sales	—		1,354,855		—		2,550,199
General and administrative	—		41,374		—		82,747
Sales and marketing	—		2,610,990		—		5,323,616
Amortization expense	—		744,099		—		1,488,199
Impairment of intangible assets	—		1,449,121		—		1,449,121
Change in fair value of contingent consideration	—		284,800		—		444,261
Total operating expenses	—		6,485,239		—		11,338,143
Other (expense) income:
Change in value of Guarantee	—		—		1,755,000		—
Interest expense, net	—		(238,158)		—		(476,316)
Total other (expense) income	—		(238,158)		1,755,000		(476,316)
(Loss) income from discontinued operations before tax	(455,463)		(3,665,935)		582,195		(5,921,922)
Income tax expense	—		12,971		—		48,658
(Loss) income from discontinued operations, net of tax	$	(455,463)	$	(3,678,906)	$	582,195	$	(5,970,580)

The ~~preparation of financial statements in conformity~~significant non-cash operating items from the discontinued operations for the six months ended June 30, 2020 and 2019 are contained below. There were no non-cash investing items from the discontinued operations for the six months ended June 30, 2020 and 2019.


	Six Months Ended June 30,
	2020		2019
Operating activities
Amortization	$	—	$	1,488,199
Impairment of intangible assets	—		1,449,121
Stock-based compensation, excluding amount included within gain on sale of Pediatric Portfolio	—		202,330
Change in fair value of contingent consideration liability	—		444,261
Change in value of Guarantee	(1,755,000)		—

4. Revenue from Contracts with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, other comprehensive income and related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to clinical trial accruals, the warrant liability and the unit purchase option liability. Customers

The Company ~~bases~~generates substantially all of its ~~estimates on historical experience~~revenue from sales of prescription drugs to its customers. Revenue from sales of prescription drugs was $1.3 million and ~~other market‑specific or other relevant assumptions that it believes~~$1.4 million for the three months ended June 30, 2020 and 2019, respectively. Revenue from sales of prescription drugs was $4.1 million and $4.0 million for the six months ended June 30, 2020 and 2019, respectively.

As is typical in the pharmaceutical industry, the Company sells its prescription drugs in the United States primarily through wholesale distributors and a specialty contracted pharmacy. Wholesale distributors account for substantially all of the Company’s net

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product revenues and trade receivables. In addition, the Company earns revenue from sales of its prescription drugs directly to ~~be reasonable under~~retail pharmacies. For the ~~circumstances. Actual results may differ~~three months ended June 30, 2020, the Company’s three largest customers accounted for approximately 50%, 30%, and 18% of the Company's total net product revenues from ~~those estimates or assumptions.~~sale of prescription drugs from continuing operations. For the six months ended June 30, 2020, the Company’s three largest customers accounted for approximately 44%, 29%, and 26% of the Company's total net product revenues from sale of prescription drugs from continuing operations.

5. Net Loss Per Share

~~Net Income (Loss) Per Share, Basic and Diluted~~

~~Earnings~~The Company computes earnings per share ~~are computed~~("EPS") using the two-class method. The two-class method of computing ~~earnings per share~~EPS is an earnings allocation formula that determines ~~earnings per share~~EPS for common stock and any participating securities according to dividends declared ~~(whether paid or unpaid)~~ and participation rights in undistributed earnings. ~~Shares~~The Company has two classes of stock outstanding, common stock and preferred stock. The preferred stock was issued in December 2018, upon Armistice exercising warrants to acquire an aggregate of 2,857,143 shares of the ~~unexercised warrants issued in~~Series B Convertible Preferred Stock ("convertible preferred stock"). The convertible preferred stock has the same rights and preferences as the Company’s common stock, other than being non-voting, and is convertible into shares of common stock on a 1-for-5 ratio. During the first quarter of 2020, Armistice ~~Private Placement transaction are considered participating securities because these warrants contain a non-forfeitable right to dividends irrespective~~converted 1.6 million shares of ~~whether the warrants are ultimately exercised.~~Series B Convertible Preferred Stock into 8.0 million shares of Cerecor's common stock. Under the two-class method, ~~earnings per common share~~the convertible preferred stock is considered a separate class of stock for ~~the~~EPS purposes and therefore basic and diluted EPS is provided below for both common stock and ~~participating warrants are~~preferred stock.

EPS for common stock and EPS for preferred stock is computed by dividing the sum of distributed earnings ~~to common shareholders~~ and undistributed earnings ~~allocated to common shareholders~~for each class of stock by the ~~weighted-average~~weighted average number of shares outstanding for each class of ~~Common~~ stock ~~and participating warrants outstanding~~ for the period. In applying the two-class method, undistributed earnings are allocated to common stock and ~~participating warrants~~preferred stock based on the ~~weighted-average~~weighted average shares outstanding during the ~~period.~~period, which assumes the convertible preferred stock has been converted to common stock.

Diluted net (loss) income ~~(loss)~~ per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. Common stock equivalents include: (i) outstanding stock options ~~issued under the Company's Long-Term Incentive Plans~~and restricted stock units, which are included under the "treasury stock method" when ~~dilutive,~~dilutive; (ii) common stock to be issued upon the assumed conversion of the Company's unit purchase option (the "UPO") shares issued in 2015 to the underwriters of the Company's initial public offering ("IPO"), which are included under the "if-converted method" when ~~dilutive,~~dilutive; and (iii) common stock to be issued upon the exercise of outstanding warrants, which are included under the "treasury stock method" when dilutive. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses. In ~~addition,~~periods of net loss, losses are ~~not~~ allocated to the participating ~~securities.~~

~~Cash and Cash Equivalents~~

~~The Company considers all highly liquid investments with an original maturity of three months or less when purchased~~security only if the security has not only the right to ~~be cash equivalents. The carrying amounts reported~~participate in earnings, but also a contractual obligation to share in the ~~balance sheets for cash and cash equivalents are valued at cost, which approximates their fair value.~~Company's losses.

~~Escrowed Cash Receivable~~

On August 14. 2017, the Company sold all of its rights to CERC-501 to Janssen in exchange for initial gross proceeds of $25.0 million, of which $3.75 million was deposited into a twelve month escrow to secure certain indemnification obligations to Janssen Pharmaceuticals, Inc. The Company evaluates its escrowed cash receivable balance each reporting period and establishes a reserve for amounts deemed uncollectible. No reserve was recorded as of September 30, 2017.

~~Restricted Cash~~

The Company established the Employee Stock Purchase Plan in 2016. Eligible employees can purchase common stock through accumulated payroll deductions at such times as are established by the Plan administrator. At September 30, 2017, $29,200 of deposits had been made by employees for potential future stock purchases.

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In 2016 the Company entered into a bank services pledge agreement with Silicon Valley Bank. In exchange for receiving business credit card services from Silicon Valley Bank, the Company deposited $50,000 as collateral with Silicon Valley Bank. This amount will remain deposited with Silicon Valley Bank for the duration the business credit card services are used by the Company. In addition, the Company has deposited $13,000 with the landlord of the Company's office space as a security deposit. These deposits are recorded as restricted cash, net of current portion on the balance sheet at September 30, 2017.

~~Concentration of Credit Risk~~

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company maintains a portion of its cash and cash equivalent balances in the form of a money market account with a financial institution that management believes to be credit worthy. The Company has no financial instruments with off‑balance sheet risk of loss.

~~Debt and Equity Issuance Costs~~

The Company may record debt and equity discounts in connection with raising funds through the issuance of convertible notes or equity instruments. These discounts may arise from (i) the receipt of proceeds less than the face value of the convertible notes or equity instruments, (ii) allocation of proceeds to beneficial conversion features and/or (iii) recording derivative liabilities related to embedded features. For debt instruments, these costs are amortized over the life of the debt to interest expense utilizing the effective interest method. For equity instruments, these costs are netted against the gross proceeds received from the issuance of the equity.

~~Property and Equipment~~

Property and equipment consists of computers, office equipment, and furniture and is recorded at cost. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred. Property and equipment are depreciated on a straight‑line basis over their estimated useful lives. The Company uses a life of four years for computers and software, and five years for equipment and furniture. Upon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.

~~License and Other Revenue~~

The Company recognizes revenues from collaboration, license or other research or sale arrangements when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue from potential future milestones, if substantive, is recognized when the milestone is achieved and the payment is due and collectible.

~~Grant Revenue Recognition~~

~~The Company recognizes grant revenue when there is (i) reasonable assurance of compliance with the conditions of the grant and (ii) reasonable assurance that the grant will be received.~~

~~Research and Development~~

Research and development costs are expensed as incurred. These costs include, but are not limited to, employee‑related expenses, including salaries, benefits and stock‑based compensation of research and development personnel; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies; the cost of acquiring, developing and manufacturing clinical trial materials; other supplies; facilities, depreciation and other expenses, which include direct and allocated expenses for rent, utilities and insurance; and costs associated with preclinical activities and regulatory operations.

Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors, such as clinical research organizations, with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be.

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~~Comprehensive Loss~~

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non‑owner sources. Comprehensive loss was equal to net loss for all periods presented.

~~Income Taxes~~

~~The Company accounts for income taxes under the asset and liability method in accordance with ASC 740,~~ ~~Income Taxes~~ (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Deferred tax assets primarily include net operating loss and tax credit carry-forwards, accrued expenses not currently deductible and the cumulative temporary differences related to certain research and patent costs. Certain tax attributes, including net operating losses and research and development credit carryforwards, may be subject to an annual limitation under Sections 382 and 383 of the Internal Revenue Code (the "Code"). See Note 10 for further information. The portion of any deferred tax asset for which it is more likely than not that a tax benefit will not be realized must then be offset by recording a valuation allowance. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. The amount for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that the Company believes is more likely than not to be realized upon ultimate settlement of the position.

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2017, the Company does not believe any material uncertain tax positions are present.

~~Stock‑Based Compensation~~

~~The Company applies the provisions of ASC 718,~~ ~~Compensation—Stock Compensation~~ (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock‑based awards made to employees and non‑employees, including employee stock options, in the statements of operations.

For stock options issued to employees and members of the board of directors for their services on the board of directors, the Company estimates the grant date fair value of each option using the Black‑Scholes option pricing model. The use of the Black‑Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk‑free interest rates and expected dividend yields of the common stock. For awards subject to service‑based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock‑based compensation expense equal to the grant date fair value of stock options on a straight‑line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.

For stock options issued to non‑employees, the Company initially measures the options at their grant date fair values and revalues as the underlying equity instruments vest and are recognized as expense over the earlier of the period ending with the performance commitment date or the date the services are completed in accordance with the provisions of ASC 718 and ASC 505‑50, ~~Equity‑Based Payments to Non‑Employees~~ ~~(“ASC 505‑50”).~~

~~Clinical Trial Expense Accruals~~

As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate trial expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research

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organizations and other third‑party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period.

~~Segment Information~~

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision‑making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one operating segment. All long‑lived assets of the Company reside in the United States.

~~Recent Accounting Pronouncements~~

~~In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014‑9,~~ ~~Revenue From Contracts With Customers~~ (“ASU 2014‑9”). Pursuant to this update, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, ~~Revenue From Contracts With Customers(Topic 606)~~, which delays the effective date of ASU 2014-9 by one year. As a result, ASU 2014-9 will be effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted for annual reporting periods beginning after December 15, 2016. In March 2016, the FASB issued ASU No. 2016-8, ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~ ~~(“ASU 2016-8”) and ASU No. 2016-10,~~ ~~Revenue From Contracts With Customers (Topic 606): Identifying Performance Obligations and Licensing~~ ~~(“ASU 2016-10”), and in May 2016 the FASB issued ASU No. 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients~~ (“ASU 2016-12”), each of which clarify the guidance in ASU 2014-9 and have the same effective date as the original standard. The Company has substantially completed it's assessment of the impact of adoption of ASU 2014-9, ASU 2016-8, ASU 2016-10, or ASU 2016-12 on the financial statements, and the impact is not expected to be significant. The Company plans to adopt the new standard effective January 1, 2018. The Company continues to monitor additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may impact the Company’s current conclusions.

~~In February 2016, the FASB issued ASU No. 2016-2,~~ ~~Leases (Topic 842).~~ ~~This guidance revises existing practice related to accounting for leases under ASC 840,~~ ~~Leases~~ (“ASC 840”) for both lessees and lessors. The new guidance in ASU 2016-2 requires lessees to recognize a right-of-use asset and a lease liability for nearly all leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating leases or capital leases. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while capital leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its financial statements.

~~In March 2016, the FASB issued ASU No. 2016-9,~~ ~~Improvements to Employee Share-Based Payment Accounting.~~ The guidance is intended to simplify several areas of accounting for share-based compensation, including income tax impacts, classification on the statement of cash flows and forfeitures. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted. The new guidance was adopted by the Company effective January 1, 2017 and its adoption did not have any impact on its financial position, results of operations or cash flows. In connection with adoption, the Company has elected to account for forfeitures as they occur as opposed to being estimated at the time of grant and revised.

~~In August 2016, the FASB issued ASU No. 2016-15~~ ~~Statement of Cash Flows~~, Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which reduces existing diversity in the classification of certain cash receipts and cash payments on the statements of cash flows. ASU 2016-15 I effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Restricted Cash. The guidance is intended to address the diversity~~

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that currently exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The new standard requires that entities show the changes in the total of cash and cash equivalents, restricted cash and restricted cash equivalents on the statement of cash flows and no longer present transfers between cash and cash equivalents, restricted cash and restricted cash equivalents on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its financial statements.

~~3. Net Income (Loss) Per Share of Common Stock, Basic and Diluted~~

The following table sets forth the computation of basic and diluted net (loss) income ~~(loss)~~ per share of common stock and preferred stock for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019, which includes both classes of participating securities:


	Three Months Ended
	June 30, 2020
	Common stock						Preferred stock
	Continuing Operations		Discontinued Operations		Continuing Operations		Discontinued Operations
Numerator:
Allocation of undistributed net loss	$	(11,659,008)	$	(414,027)	$	(1,166,833)	$	(41,436)
Denominator:
Weighted average shares	62,806,926		62,806,926		1,257,143		1,257,143
Basic and diluted net loss per share	$	(0.18)	$	(0.01)	$	(0.93)	$	(0.03)

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Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Basic income (loss) per share:
Net income (loss) $ 18,720,610
$ (6,168,725 ) $ 14,961,458
$ (14,832,899 )
Undistributed earnings (loss) allocable to common shares $ 18,720,610
$ (6,168,725 ) $ 14,961,458
$ (14,832,899 )

Weighted average shares, basic
   Common stock 21,382,683
8,756,393
14,952,391
8,685,818
   Participating warrants 14,285,714
—
8,163,265
—
35,668,397
8,756,393
23,115,656
8,685,818
Basic income (loss) per share:
   Common shares $ 0.52
$ (0.70 ) $ 0.65
$ (1.71 )
   Participating warrants $ 0.52
$ —
$ 0.65
$ —

Diluted income (loss) per share:
Net income (loss) $ 11,222,732
$ (6,168,725 ) $ 9,677,838
$ (14,832,899 )
Net income (loss) reallocated 5,256
—
1,746
—
Undistributed earnings (loss) allocable to common shares $ 11,227,988
$ (6,168,725 ) $ 9,679,584
$ (14,832,899 )

Weighted average number of shares - basic 21,382,683
8,756,393
14,952,391
8,685,818
Effect of dilutive securities:
   Stock options 25,019
—
7,641
—
   Underwriters' unit purchase option —
—
—
—
      Potentially dilutive shares 25,019
—
7,641
—
Weighted average number of shares - diluted 21,407,702
8,756,393
14,960,032
8,685,818

Diluted income (loss) per share $ 0.52
$ (0.70 ) $ 0.65
$ (1.71 )


	Three Months Ended
	June 30, 2019
	Common stock						Preferred stock
	Continuing Operations		Discontinued Operations		Continuing Operations		Discontinued Operations
Numerator:
Allocation of undistributed net loss	$	(1,907,520)	$	(2,758,276)	$	(636,673)	$	(920,630)
Denominator:
Weighted average shares	42,801,045		42,801,045		2,857,143		2,857,143
Basic and diluted net loss per share	$	(0.05)	$	(0.06)	$	(0.23)	$	(0.32)


	Six Months Ended
	June 30, 2020
	Common stock						Preferred stock
	Continuing Operations		Discontinued Operations		Continuing Operations		Discontinued Operations
Numerator:
Allocation of undistributed net (loss) income	$	(31,098,910)	$	517,591	$	(3,881,695)	$	64,604
Denominator:
Weighted average shares	58,370,843		58,370,843		1,457,143		1,457,143
Basic and diluted net (loss) income per share	$	(0.53)	$	0.01	$	(2.66)	$	0.04


	Six Months Ended
	June 30, 2019
	Common stock						Preferred stock
	Continuing Operations		Discontinued Operations		Continuing Operations		Discontinued Operations
Numerator:
Allocation of undistributed net loss	$	(5,752,395)	$	(4,456,606)	$	(1,954,172)	$	(1,513,974)
Denominator:
Weighted average shares	42,052,100		42,052,100		2,857,143		2,857,143
Basic and diluted net loss per share	$	(0.14)	$	(0.10)	$	(0.68)	$	(0.53)

~~Shares which~~ The following outstanding securities have been excluded from the computation of diluted ~~per share amounts because their effect would~~weighted shares outstanding for the three months ended June 30, 2020 and 2019, as they could have been ~~antidilutive, include~~anti-dilutive:


	Three and Six Months Ended
	June 30,
	2020	2019
Stock options	9,363,265	5,476,547
Warrants on common stock	4,024,708	4,024,708
Restricted Stock Units	155,833	278,750
Underwriters' unit purchase option	40,000	40,000

6. Asset Acquisition

Aevi Merger

On February 3, 2020, the ~~following:~~

Company consummated its two-step merger with Aevi, in accordance with the terms of the Merger Agreement dated December 5, 2019, by and between Cerecor, Genie Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Cerecor (“Merger Sub”), Second Genie Merger Sub, LLC (“Second Merger Sub”), a Delaware limited liability company

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and wholly owned subsidiary of Cerecor, and Aevi. On February 3, 2020, Merger Sub merged with and into Aevi, with Aevi as the surviving corporation, and as part of the same transaction, Aevi then merged with and into Second Merger Sub, with Second Merger Sub as the surviving entity. The surviving entity from the second merger was renamed Aevi Genomic Medicine, LLC and is disregarded as an entity separate from Cerecor for U.S. federal income tax purposes. Cerecor retained its public reporting and current NASDAQ listing status. Effective upon the consummation of the Merger, Cerecor entered into an employment agreement with Aevi CEO Mike Cola for him to serve as Cerecor's Chief Executive Officer and an employment agreement with Aevi CSO Dr. Garry Neil for him to serve as Cerecor's Chief Medical Officer, and appointed Mike Cola and Dr. Sol Barer to the Company's Board of Directors. Dr. Neil was promoted to Cerecor's Chief Scientific Officer in March 2020. Additionally, the Company extended employment agreements to seven other individuals who were previously employed by Aevi.

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Stock options 2,384,560 1,828,441 2,401,938 1,828,441
Warrants 4,661,145 7,400,934 4,661,145 7,400,934
Unit purchase option shares 40,000 40,000 40,000 40,000

The Merger consideration included stock valued at approximately $15.5 million, resulting in the issuance of approximately 3.9 million shares of Cerecor common stock to Aevi stockholders, forgiveness of a $4.1 million loan that Cerecor loaned Aevi in December 2019 contingent value rights for up to an additional $6.5 million in subsequent payments based on certain development milestones, payable in either shares of the Company's common stock or in cash at the election of the Company, and transaction costs of $1.5 million.

The fair value of the common stock transferred at closing was approximately $15.5 million using the Company's closing stock price on February 3, 2020. The assets acquired consisted primarily of $24.0 million of acquired in-process research and development ("IPR&D"), $0.3 million of cash and $0.7 million of assembled workforce. The Company assumed net liabilities of $5.1 million. The Company recorded this transaction as an asset purchase as opposed to a business combination as management concluded that substantially all the value received was related to one group of similar identifiable assets which was the IPR&D for two early phase therapies for rare and orphan diseases (CERC-006 and CERC-007). The Company considered these assets similar due to similarities in the risks of development, stage of development, regulatory pathway, patient populations and economics of commercialization. The fair value of the IPR&D was immediately recognized as acquired in-process research and development expense in the Company's consolidated statement of operations because the IPR&D asset has no alternate use due to the stage of development. The $1.5 million of transaction costs incurred were recorded to acquired IPR&D expense. The assembled workforce asset was recorded to intangible assets and will be amortized over an estimated useful life of two years.

4. The contingent consideration of up to an additional $6.5 million relates to 2 future development milestones. The first milestone is the enrollment of a patient in a Phase II study related to CERC-002 for use in Pediatric Onset Crohn's Disease, CERC-006 or CERC-007 prior to February 3, 2022. If this milestone is met, the Company is required to make a milestone payment of $2.0 million. The second milestone is the receipt of a NDA approval for either CERC-006 or CERC-007 from the FDA on or prior to February 3, 2025. If this milestone is met, the Company is required to make a milestone payment of $4.5 million. All milestones are payable in either shares of the Company's common stock or cash, at the election of the Company. The contingent consideration related to the development milestones will be recognized if and when such milestones are probable and can be reasonably estimated. As of the consummation of the Merger on February 3, 2020 and as of June 30, 2020, 0 contingent consideration related to the development milestone has been recognized. The Company will continue to monitor the development milestones at each reporting period.

7. Fair Value Measurements

ASC No. 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value standard also establishes a three‑level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:

•Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.

•Level 2—inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model‑derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.

•Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability.

At September 30, 2017 and December 31, 2016, the Company’s financial instruments included cash and cash equivalents, restricted cash, accounts payable, accrued expenses and other current liabilities, term debt (prior to its payoff in August 2017), the term loan warrant liability and the underwriters’ unit purchase option liability. The carrying amounts reported in the accompanying financial statements for cash and cash equivalents, restricted cash, accounts payable, and accrued expenses and other current liabilities approximate their respective fair values because

Table of ~~the short‑term nature of these accounts.~~Contents

The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company’s assets and liabilities that are measured at fair value on a recurring basis:


	June 30, 2020
	Fair Value Measurements Using
	Quoted prices in		Significant other		Significant
	active markets for		observable		unobservable
	identical assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)
Assets
Investments in money market funds*	$	43,800,469	$	—	$	—
Investment in Aytu	$	—	$	—	$	—
Liabilities
Warrant liability**	$	—	$	—	$	20
Unit purchase option liability**	$	—	$	—	$	106

September 30, 2017
Fair Value Measurements Using

Quoted prices in
active markets for
identical assets
(Level 1)

Significant other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)
Assets
Investments in money market funds* $ 23,715,016
$ —
$ —
Liabilities
Warrant liability $ —
$ —
$ 531
Unit purchase option liability $ —
$ —
$ 6,607

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December 31, 2016
Fair Value Measurements Using

Quoted prices in
active markets for
identical assets
(Level 1)

Significant other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)
Assets
Investments in money market funds* $ 4,758,539
$ —
$ —
Liabilities
Warrant liability $ —
$ —
$ 5,501
Unit purchase option liability $ —
$ —
$ 51


	December 31, 2019
	Fair Value Measurements Using
	Quoted prices in		Significant other		Significant
	active markets for		observable		unobservable
	identical assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)
Assets
Investments in money market funds*	$	2,240,230	$	—	$	—
Investment in Aytu	$	—	$	7,628,947	$	—
Liabilities
Warrant liability**	$	—	$	—	$	3,460
Unit purchase option liability**	$	—	$	—	$	10,594

*Investments in money market funds are reflected in cash and cash equivalents on the accompanying ~~Balance Sheets.~~condensed consolidated balance sheets.

**Warrant liability and UPO liability are reflected in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets.

As of June 30, 2020 and December 31, 2019, the Company’s financial instruments included cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other current liabilities, warrant liability, and the underwriters' unit purchase option liability. The carrying amounts reported in the accompanying condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, and other current liabilities approximate their respective fair values because of the short-term nature of these accounts.

Level 2 Valuation

As part of the consideration for the Aytu Divestiture, Aytu issued to Cerecor 9,805,845 shares of Aytu Series G Convertible Preferred Stock (the "Aytu Series G Preferred Stock" or "Aytu Preferred Stock"). Subsequent to the initial measurement, at each reporting period, the Investment in Aytu was remeasured at the current fair value with the change in fair value recorded to other income, net in the accompanying statements of operations.

In April 2020, Cerecor was permitted to convert the Aytu Preferred Stock into 9,805,845 shares of Aytu’s common stock (the "Aytu Common Shares"), and subsequently sold all of the Aytu Common Shares in a series of transactions in April, pursuant to an effective registration statement, which generated net proceeds of approximately $12.8 million. The sale resulted in a realized gain of $5.2 million, which was recognized in change in fair value of Investment in Aytu within the accompanying condensed consolidated statement of operations for the six months ended June 30, 2020.

Level 3 Valuation

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The tables presented below are a summary of changes in the fair value of the Company’s Level 3 valuations for the warrant liability, ~~(which relates to~~UPO liability and contingent consideration for the six months ended June 30, 2020 and 2019:


	Warrant		Unit purchase		Contingent
	liability		option liability		consideration		Total
Balance at December 31, 2019	$	3,460	$	10,594	$	—	$	14,054
Change in fair value	(3,440)		(10,488)		—		(13,928)
Balance at June 30, 2020	$	20	$	106	$	—	$	126


	Warrant		Unit purchase		Contingent
	liability		option liability		consideration		Total
Balance at December 31, 2018	$	2,950	$	7,216	$	1,256,210	$	1,266,376
Change in fair value	8,570		20,098		(1,256,210)		(1,227,542)
Balance at June 30, 2019	$	11,520	$	27,314	$	—	$	38,834

In 2014, the Company issued warrants to purchase 625,208 shares of convertible preferred stock. Upon the closing of the Company's initial public offering ("IPO") in October 2015, these warrants became warrants to purchase 22,328 shares of common stock, in accordance with their terms. The warrants expire in October 2020. The warrants represent a freestanding financial instrument that is indexed to an obligation, which the Company refers to as ~~part of~~ the ~~term loan agreement)~~warrant liability. The warrant liability is ~~marked‑to‑market~~marked-to-market each reporting period with the change in fair value recorded to other income, ~~(expense)~~net in the accompanying statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity. The fair value of the warrant liability is estimated using a ~~Black‑Scholes~~Black-Scholes option-pricing model. The significant assumptions used in preparing the option pricing model for valuing the warrant liability as of ~~September~~June 30, ~~2017,~~2020, include (i) volatility of ~~65%~~74.2%, (ii) risk free interest rate of ~~1.63%~~0.16%, (iii) strike price ~~($8.40),~~of $8.40, (iv) fair value of common stock ~~($0.85),~~of $2.60, and (v) expected life of ~~3.1~~0.3 years.

The underwriters’ ~~unit purchase option (the “UPO”)~~UPO was issued to the underwriters of the ~~Company’s initial public offering (“IPO”)~~Company's IPO in 2015 and provides the underwriters the option to purchase up to a total of 40,000 units. The units underlying the UPO will be, immediately upon exercise, separated into shares of common stock, underwriters’ Class A warrants and underwriters’ Class B warrants (such warrants together referred to as the Underwriters’ Warrants). The Underwriters’ Warrants ~~are~~were warrants to purchase shares of common stock. The Class B warrants expired in April 2017 and the Class A warrants expired in October 2018, while the UPO expires in October 2020. The Company classifies the UPO as a liability, as it is a freestanding marked-to-market derivative instrument that is precluded from being classified in stockholders’ equity. The UPO liability is ~~marked‑to‑market~~marked-to-market each reporting period with the change in fair value recorded to other income, ~~(expense)~~net in the accompanying statements of operations until the UPO is exercised, ~~expire~~expires or other facts and circumstances lead the UPO to be reclassified to stockholders’ equity. The fair value of the UPO liability is estimated using a Black-Scholes option-pricing ~~model within a Monte Carlo simulation model framework.~~model. The significant assumptions used in preparing the simulation model for valuing the UPO as of ~~September~~June 30, ~~2017,~~2020, include (i) volatility ~~range~~ of ~~65% to 75%~~74.2%, (ii) risk free interest rate ~~range~~ of ~~0.74% to 1.63%~~0.16% , (iii) unit strike price ~~($7.48),~~of $7.47, (iv) ~~underwriters’ Class A warrant strike price ($5.23), (v) underwriters’ Class B warrant strike price ($4.49), (vi)~~ fair value of underlying equity ~~($0.85)~~of $2.60, and (v) expected life of 0.3 years.

The Company's historical business acquisition of TRx Pharmaceuticals, LLC ("TRx") in November 2017 (the "TRx Acquisition") involved the potential for future payment of consideration that is contingent upon the achievement of operational and commercial milestones. The fair value of contingent consideration was determined at the acquisition date utilizing unobservable inputs such as the estimated amount and timing of projected cash flows, the probability of success (achievement of the contingent event) and the risk-adjusted discount rate used to present value the probability-weighted cash flows. Subsequent to the acquisition date, at each reporting period, the contingent consideration liabilities were remeasured at the current fair value with changes recorded in the consolidated statement of operations.

The consideration for the TRx Acquisition included certain potential contingent payments. First, pursuant to the TRx Purchase Agreement, the Company would have been required to pay $3.0 million to the sellers if the gross profit related to TRx products equaled or exceeded $12.6 million in 2018. The Company did not achieve this contingent event in 2018 and therefore 0 value was assigned to the contingent payout as of December 31, 2018. Additionally, the Company was required to pay the following: (1) $2.0 million upon the transfer of the Ulesfia NDA to the Company ("NDA Transfer Milestone"), and ~~(vii) optimal exercise point~~(2) $2.0 million upon FDA approval of ~~immediately prior~~a new dosage of Ulesfia ("FDA Approval Milestone"). However, as part of the settlement the Company entered into during the second quarter of 2019 with Lachlan Pharmaceuticals, an Irish company controlled by the previous owners of TRx, the Company gave up its right to sell Ulesfia, except for a limited amount of inventory on hand until that inventory is sold or expired. As a result, the settlement released the Company from the potential contingent payments related to the ~~expiration~~NDA Transfer Milestone and FDA Approval Milestone and therefore 0 value was assigned to the 2 milestones as of June 30, 2020 or as of June 30, 2019.

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Effective upon the consummation of the ~~underwriters’ Class B warrants,~~Aevi Merger during the first quarter of 2020, Cerecor entered into an employment agreement with Aevi CEO Mike Cola for him to serve as Cerecor's Chief Executive Officer and an employment agreement with Aevi CSO Dr. Garry Neil for him to serve as Cerecor's Chief Medical Officer. Additionally, the Company extended employment agreements to seven other individuals who were previously employed by Aevi. As a result, the Company recognized an assembled workforce intangible asset of $0.7 million which ~~occurred on April 20, 2017.~~

~~The table presented below~~ is a ~~summary of changes~~Level 3 non-recurring fair value measurement. The Company utilized the replacement cost method to estimate the fair value of the ~~Company’s Level 3 warrant liability~~assembled workforce, which considers the costs Cerecor would have incurred to replace a comparable workforce to the workforce acquired from Aevi. Such costs include, but are not limited to, recruiting costs, training costs and ~~unit purchase option liability for the nine months ended September 30, 2017:~~cost of lost productivity. The replacement costs were estimated based on a percentage of each employee's salary. The assembled workforce intangible asset will be amortized over a useful life of two years.

Warrant
Liability

Unit purchase
option liability
Total
Balance at December 31, 2016 $ 5,501
$ 51
$ 5,552
Change in fair value (4,970 ) 6,556
1,586
Balance at September 30, 2017 $ 531
$ 6,607
$ 7,138

NoNaN other changes in valuation techniques or inputs occurred during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and no2019. NaN transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020 and 2019.

5.8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of June 30, 2020 and December 31, 2019 consisted of the following:


	As of
	June 30, 2020		December 31, 2019
Research and development expenses	$	1,899,830	$	920,901
Compensation and benefits	1,670,669		1,591,964
General and administrative	912,943		360,016
Sales and marketing	212,807		120,056
Sales returns and allowances	1,144,427		2,284,175
Medicaid rebates	101,458		118,271
Lease liability, current	431,543		155,815
Other	113,981		89,054
Total accrued expenses and other current liabilities	$	6,487,658	$	5,640,252

~~Table~~During the first quarter of ~~Contents~~

September 30,
2017 December 31,
2016
Compensation and benefits $ 524,409
$ 272,601
Research and development expenses 452,139
315,937
General and administrative 306,997
160,116
Accrued interest —
193,781
Warrant and UPO liability 7,138
5,552
Total accrued expenses and other current liabilities $ 1,290,683
$ 947,987

~~6. License Agreements~~

~~Lilly CERC-611 License~~

~~On September 22, 2016,~~2020, the Company ~~entered into~~and an exclusive license agreement with Eli Lilly and Company (“Lilly”) pursuant to which the Company received exclusive, global rights to develop and commercialize CERC-611, previously referred to as LY3130481, a potent and selective Transmembrane AMPA Receptor Regulatory Proteins (“TARP”) γ-8-dependent ~~α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid~~ (“AMPA”) receptor antagonist. The terms of the license agreement provide for an upfront payment of $2.0 million, of which $750,000 was due within 30 days of the effective date of the license agreement, and the remaining balance of $1.25 million is due after the first subject is dosed with CERC-611 in a multiple ascending dose study and is recorded as license obligations on the balance sheet at September 30, 2017. Additional payments may be due upon achievement of development and commercialization milestones, including the first commercial sale. Upon commercialization, the Company is obligated to pay Lilly milestone payments and a royalty on net sales.

~~Merck CERC-301 License~~

In 2013, the Company entered into an exclusive license agreement with Merck & Co., Inc. (“Merck”) pursuant to which Merck granted the Company rights relating to certain small molecule compounds. In consideration of the license, the Company may be required to make initial payments totaling $1.5 million upon the achievement of certain milestones. Pursuant to the license agreement the Company paid an initial payment of $750,000, and upon achievement of acceptance by the United States Food and Drug Administration, or FDA, of Merck pre-clinical data and FDA approval of a Phase 3 clinical trial the Company will pay an additional $750,000. Additional payments may be due upon achievement of development and regulatory milestones, including the first commercial sale. Upon commercialization, the Company is obligated to pay Merck milestone payments and royalties on net sales.

~~Lilly CERC-501 License~~

On August 14. 2017, the Company sold all of its rights to CERC-501 to Janssen in exchange for initial gross proceeds of $25.0 million, of which $3.75 million was deposited into a twelve month escrow to secure certain indemnification obligations to Janssen (see Note 11). In addition to the initial proceeds, the terms of the agreement provide for a potential future $20 million regulatory milestone payment. Further, the terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of CERC-501.

~~Merck CERC-406 License~~

~~In 2013, the Company~~executive entered into a ~~separate exclusive license~~separation agreement ~~with Merck pursuant to~~in which ~~Merck granted~~the executive resigned his employment at the Company ~~certain rights~~effective June 30, 2020. Following June 30, 2020, the former executive will receive continued payments of his base salary for a total of nine months, which resulted in ~~small molecule compounds which are known to inhibit~~an accrual of $0.3 million recognized in accrued expenses and other current liabilities on the ~~activity~~Company's accompanying condensed consolidated balance sheet as of ~~COMT. In consideration~~June 30, 2020 and is shown within the compensation and benefits line above.

Additionally, during the second quarter of ~~the license,~~2020, the Company ~~made a $200,000 upfront payment to Merck. Additional payments may be due upon the achievement of development~~ and ~~regulatory milestones. Upon commercialization of a COMT product, the Company is required to pay Merck royalties on net sales.~~

~~7. Term Loan~~

~~In August 2014, the Company~~an executive entered into a ~~$7.5~~separation agreement in which the executive resigned his employment effective April 24, 2020. The former executive serves as an advisor to the Company's Board of Directors and will continue to serve in such role until December 2021 or until terminated by either party upon thirty days' written notice. The former executive will receive $0.8 million ~~secured term loan from~~in severance, which will be paid over 18 months beginning when his role as advisor to the Board ends. The Company recognized a finance company. The loan was secured by a lien on all of the Company’s assets, excluding intellectual property, which was subject to a negative pledge. The loan contained certain additional nonfinancial covenants. In connection with the loan agreement, the Company’s cash and investment accounts were subject to account control agreements with the finance company that gave the finance company the right to assume control of the accounts$0.8 million severance accrual in ~~the event of a loan default. Loan defaults were defined in the loan agreement and~~

~~Table of Contents~~

~~included, among others, the finance company’s determination that there was a material adverse change in the Company’s operations. Interest~~other long-term liabilities on the ~~loan was at a rate of the greater of 7.95%, or 7.95% plus the prime rate as reported in~~ ~~The Wall Street Journal~~ ~~minus 3.25%. On August 1, 2017, the term loan matured and the Company made a final payment of $494,231 which included a termination fee of $187,500. Debt consisted of the following~~Company's accompanying condensed consolidated balance sheet as of ~~September~~June 30, ~~2017 and December 31, 2016:~~2020.

9. Capital Structure

September 30, 2017 December 31,
2016
Term loan $ —
$ 2,374,031
Less: debt discount —
(20,364 )
Term Loan, net of debt discount $ —
$ 2,353,667

~~Interest expense, which includes amortization of a discount and~~ According to the accrual of a termination fee, was approximately $1,000 and $110,000 for the three months ended September 30, 2017 and 2016, respectively, and $95,000 and $404,000 for the nine months ended September 30, 2017 and 2016, respectively, in the accompanying statements of operations.

~~8. Capital Structure~~

~~On October 20, 2015, the Company filed an~~Company's amended and restated certificate of incorporation, ~~in connection with the closing of its IPO. The amended and restated certificate of incorporation authorizes~~ the Company is authorized to issue ~~two~~2 classes of stock, common stock and preferred ~~stock, and eliminates all references to the previously existing series of preferred~~ stock. At ~~September~~June 30, ~~2017,~~2020, the total number of shares of capital stock the Company was authorized to issue was 205,000,000 of which 200,000,000 was common stock and 5,000,000 waspreferred stock. All shares of common andpreferred stock have a par value of $0.001 per share.

On ~~April 27, 2017,~~December 26, 2018, the Company ~~further amended its amended and restated certificate of incorporation in connection with the closing of the Armistice Private Placement with the filing of~~filed a Certificate of Designation of Preferences ~~Rights and Limitations~~ of Series AB Non-Voting Convertible Preferred Stock (“("Series AB Convertible Preferred ~~Stock”~~Stock" or "convertible preferred stock") of Cerecor Inc. (the “Certificate of ~~Designation”~~Designation of the Series B Preferred Stock”). classifying and designating the rights, preferences and privileges of the Series B Convertible Preferred Stock. The Certificate of Designation of the Series B Convertible Preferred Stock authorized ~~the issuance~~2,857,143 shares

Table of ~~4,179~~Contents

of convertible preferred stock. The Series B Convertible Preferred Stock converts to shares of ~~Series A Preferred Stock to Armistice with a stated value of $1,000 per share, convertible into 11,940,000 shares of the Company’s~~ common stock aton a ~~conversion price of $0.35 per share. On July 6, 2017, Armistice converted all of its outstanding shares of Series A Preferred Stock into common stock. Subsequent to~~1-for-5 ratio and has the ~~conversion of Armistice’s Series A Preferred Stock into~~same rights, preferences, and privileges as common stock ~~Armistice has a majority~~other than it holds no voting ~~control over the Company.~~rights.

Common Stock

~~Initial Public Offering~~June 2020 Financing

On ~~October 20, 2015,~~June 11, 2020, the Company closed an IPO of its units. Each unit consisted of one share of common stock, one Class A warrant to purchase one share of common stock at an exercise price of $4.55 per share and one Class B warrant to purchase one-half share of common stock at an exercise price of $3.90 per full share (the “units”). The Class A warrants expire on October 20, 2018 and the Class B warrants expired on April 20, 2017 (the "Class B Expiration Date.") The closing of the IPO resulted in the sale of 4,000,000 units at an initialunderwritten public offering ~~price~~ of $6.50 per unit for gross proceeds of $26.0 million. The net proceeds of the IPO, after underwriting discounts, commissions and expenses, and before offering expenses, to the Company were approximately $23.6 million. On November 13, 2015, the units separated into common stock, Class A warrants and Class B warrants and began trading separately on the NASDAQ Capital Market. On the Class B Expiration Date, the Class B warrants ceased trading on the NASDAQ Capital Market. No Class B warrants were exercised prior to the Class B Expiration Date.

On November 23, 2015, the underwriter of the IPO exercised its over-allotment option for 20,000 shares of common stock, 551,900 Class A warrants to purchase one share of common stock and 551,900 Class B warrants to purchase one-half share of common stock for additional gross proceeds of $135,319.

~~The common stock and accompanying Class A warrants and Class B warrants have been classified to stockholders’ equity in the Company’s balance sheet.~~

~~Underwriter’s Unit Purchase Option~~

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The underwriter of the IPO received, for $100 in the aggregate, the right to purchase up to a total of 40,000 units (or 1% of the units sold in the IPO) exercisable at $7.48 per unit (or 115% of the public offering price per unit in the IPO). The units underlying the UPO will be, immediately upon exercise, separated into shares of common stock and the Underwriters’ Warrants such that, upon exercise, the holder of a UPO will not receive actual units but will instead receive the shares of common stock and Underwriters’ Warrants, to the extent that any portion of the Underwriters’ Warrants underlying such units have not otherwise expired. The exercise prices of the underwriters’ Class A warrants and underwriter’s Class B warrants underlying the UPO are $5.23 and $4.49, respectively. The UPO may be exercised for cash or on a cashless basis, at the holder’s option, and expires on October 14, 2020; however, following the expiration of underwriters’ Class B warrants on April 20, 2017, the UPO is exercisable only for shares of common stock and underwriters’ Class A warrants at an exercise price of $7.475 per unit; provided further, that, following the expiration of underwriters’ Class A warrants on October 20, 2018, the UPO will be exercisable only for shares of common stock at an exercise price of $7.47. The Company classified the UPO as a liability as it is a freestanding marked-to-market derivative instrument that is precluded from being classified in stockholders’ equity. The fair value of the UPO is re-measured each reporting period and the change in fair value is recognized in the statement of operations (see Note 4).

~~The Aspire Capital Transaction~~

On September 8, 2016, the Company entered into a common stock purchase agreement (the “Purchase Agreement”) with Aspire Capital, pursuant to which Aspire Capital committed to purchase up to an aggregate of $15.0 million of shares of the Company’s common stock over the 30-month term of the Purchase Agreement. Upon execution of the Purchase Agreement, the Company issued and sold to Aspire Capital 250,000 shares of common stock at a price per share of $4.00, for gross proceeds of $1.0 million. Additionally, as consideration for Aspire Capital entering into the Purchase Agreement, the Company issued 175,000 shares of common stock as a commitment fee. The net proceeds of the Aspire Capital transaction, after offering expenses, to the Company were approximately $1,900,000 for the year ended December 31, 2016. As of December 31, 2016, the Company had sold 763,998 shares of common stock to Aspire Capital under the Purchase Agreement. During the nine months ended September 30, 2017, the Company sold an additional 965,165 shares of common stock to Aspire Capital under the terms of the Purchase Agreement for gross proceeds of approximately $789,000. As of the date of this Quarterly Report on Form 10-Q, the Company does not have any remaining shares available to issue under the purchase agreement. The Company may not issue any additional shares of common stock to Aspire Capital under the Purchase Agreement unless shareholder approval is obtained.

~~The Maxim Group Equity Distribution Agreement~~

On January 27, 2017, the Company entered into an Equity Distribution Agreement with Maxim Group LLC ("Maxim"), as sales agent, pursuant to which the Company may offer and sell, from time to time, through Maxim, up to $12,075,338 in shares of its common stock. The Company has no obligation to sell any of the shares, and may at any time suspend offers under the Equity Distribution Agreement.

~~As of the September 30, 2017, the Company had sold 1,336,433~~ 15,180,000 shares of its common stock ~~through Maxim under~~(inclusive of 1,980,000 shares that were sold pursuant to the ~~Equity Distribution Agreement for gross proceeds~~underwriter’s full exercise of~~$938,000 and the Company has the potential~~ its option to ~~sell up to approximately~~ ~~$2.9 million~~ inpurchase additional shares of ~~its~~Cerecor’s common ~~stock~~ ~~under~~stock) for net proceeds of approximately $35.4 million. Armistice participated in the ~~registration statement~~offering by purchasing 2,000,000 shares of common stock, on ~~Form S-3.~~the same terms as all other investors. Additionally, certain of the Company's officers participated in the offering by purchasing an aggregate of 110,000 shares of common stock, on the same terms as all other investors.

~~Armistice Private Placement~~March 2020 Financing

On ~~April 27, 2017,~~March 17, 2020, the Company entered into a securities purchase agreement with Armistice pursuant to which ~~Armistice purchased $5.0 million of~~ the ~~Company’s securities, consisting of 2,345,714~~Company sold 1,951,219 shares of the Company’s common stock atfor net proceeds of approximately $3.9 million.

February 2020 Financing

On February 6, 2020, the Company closed a ~~purchase price~~registered direct offering with certain institutional investors for the sale by the Company of ~~$0.35 per share and 4,179~~1,306,282 shares of ~~Series A Preferred Stock at a price of $1,000 per share. The Company received $4.65 million in~~the Company's common stock for net proceeds ~~from~~of approximately $5.1 million. Armistice participated in the ~~Armistice Private Placement. The number of~~offering by purchasing 1,256,282 shares of common stock ~~that were purchased~~from the Company, on the same terms as all other investors.

Aevi Merger

On February 3, 2020, under the terms of the Aevi Merger noted above in Note 6, the ~~private placement constituted approximately 19.99%~~Company issued 3.9 million shares of common stock.

September 2019 Armistice Private Placement

On September 4, 2019, the Company entered into a securities purchase agreement with Armistice, pursuant to which the Company sold 1,200,000 shares of the Company’s ~~outstanding~~common stock for net proceeds of approximately $3.7 million.

March 2019 Common Stock Offering

On March 8, 2019, the Company closed on an underwritten public offering of common stock for 1,818,182 shares of common stock ~~immediately prior~~of the Company for net proceeds of approximately $9.0 million. Armistice participated in the offering by purchasing 363,637 shares of common stock of the Company, on the same terms as all other investors.

Voting

The common stock is entitled to 1 vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors, and does not have cumulative voting rights. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election.

Dividends

The holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by the board of directors out of legally available funds.

Liquidation

In the event of the Company’s liquidation, dissolution or winding up, holders of the Company’s common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all debts and other liabilities.

Rights and Preferences

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Holders of the Company’s common stock have 0 preemptive, conversion or subscription rights, and there are 0 redemption or sinking fund provisions applicable to the ~~closing~~Company’s common stock.

Common Stock Warrants

At June 30, 2020, the following common stock warrants were outstanding:


Number of shares	Exercise price		Expiration
underlying warrants	per share		date
22,328*	$	8.40	October 2020
2,380*	$	8.68	May 2022
4,000,000	$	12.50	June 2024
4,024,708

*Accounted for as a liability instrument (see Note 7)

Convertible Preferred Stock

December 2018 Armistice Private Placement

On December 27, 2018, the Company entered into a series of transactions as part of a private placement with its largest stockholder, Armistice, whose Chief Investment Officer, Steve Boyd, is a Cerecor director, in order to generate cash to continue to develop its pipeline assets and for general corporate purposes. The transactions are considered one transaction for accounting purposes. As part of the transaction, the Company exchanged common stock warrants issued on April 27, 2017 to Armistice ~~Private Placement. Armistice also received warrants~~tofor the purchase of up to 14,285,714 shares of the Company’s common stock at an exercise price of $0.40 per ~~share. Under~~share (the "original warrants") for like-kind warrants to purchase up to 2,857,143 shares of the ~~terms~~Company's newly designated Series B Convertible Preferred Stock with an exercise price of $2.00 per share (the "exchanged warrants"). Armistice immediately exercised the exchanged warrants and acquired an aggregate of 2,857,143 shares of the convertible preferred stock. Net proceeds of the transaction were approximately $5.7 million for the year ended December 31, 2018. In order to provide Armistice an incentive to exercise the exchanged warrants, the Company also entered into a securities purchase agreement with Armistice in December 2018 pursuant to which the ~~Series A Preferred Stock were not convertible into~~Company issued warrants for 4,000,000 shares of common stock and the warrants were not exercisable until the Company received approval of the private placement by the Company’s shareholders as required by the rules and regulations of the NASDAQ Capital Market. The Company received shareholder approval for this transaction on June 30, 2017, at which time the warrants became exercisable and the Series A Preferred Stock became convertible into common stock.

~~Table of Contents~~

As multiple instruments were issued in a single transaction, the Company initially allocated the issuance proceeds among the preferred stock, common stock and warrants using the relative allocation method. As the warrants were determined to be indexed to the Company’s stock, and would only be settled in common shares, entirely in the control of the Company with a term of 5.5 years and an exercise price of $12.50 per share (the "incentive warrants").

During the ~~warrant instrument was accounted for as an equity instrument. Fair value~~first quarter of 2020, Armistice converted 1,600,000 shares of Series B Convertible Preferred Stock (of its 2,857,143 million shares of convertible preferred stock) into 8,000,000 shares of Cerecor's common stock.

Voting

Holders of the ~~warrants was initially determined upon issuance using~~Company's convertible preferred stock are not entitled to vote.

Dividends

The holders of convertible preferred stock are entitled to receive dividends, if any, as may be declared from time to time by the ~~Black-Scholes Model (level 3 fair value measurement). Armistice converted all~~board of directors out of legally available funds.

Liquidation

In the event of the ~~Series A Preferred Stock into 11,940,000~~Company’s liquidation, dissolution or winding up, holders of the Company’s convertible preferred stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all debts and other liabilities.

Rights and Preferences

Each share of convertible preferred stock converts to shares of common stock on ~~July 6, 2017.~~a 1-for-5 ratio. There are no other preemptive or subscription rights and there are 0 redemption or sinking fund provisions applicable to the Company’s common stock.

~~Common Stock Warrants~~

~~At September 30, 2017, the following common stock purchase warrants were outstanding:~~

Number of shares Exercise price Expiration
underlying warrants per share date
80,966 $ 28.00
August 2018
4,551,900 $ 4.55
October 2018
40,000* $ 5.23
October 2018
3,571 $ 28.00
December 2018
22,328* $ 8.40
October 2020
2,380 $ 8.68
May 2022
14,285,714 $ 0.40
June 2022
18,986,859

* Accounted for as a liability instrument (see Note 4)

9.10. Stock-Based Compensation

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2016 Equity Incentive Plan

On April 5, 2016, the Company’s board of directors adopted the 2016 Equity Incentive Plan (the “2016 Plan”) as the successor to the 2015 Omnibus Plan (the “2015 Plan”). The 2016 Plan was approved by the Company’s stockholders and became effective on May 18, 2016 (the “2016 Plan Effective Date”).

As of the 2016 Plan Effective Date, no additional grants will be made under the 2015 Plan or the 2011 Stock Incentive Plan (the “2011 Plan”), which was previously succeeded by the 2015 Plan effective October 13, 2015. Outstanding grants under the 2015 Plan and 2011 Plan will continue in effect according to their terms as in effect under the applicable plan.

Upon the 2016 Plan Effective Date, the 2016 Plan reserved and authorized up to 600,000 additional shares of common stock for issuance, as well as 464,476 unallocated shares remaining available for grant of new awards under the 2015 Plan. An Amended and Restated 2016 Equity Incentive Plan (the "2016 Amended Plan") was approved by the Company's stockholders in May 2018, which increased the share reserve by an additional 1.4 million shares. A Second Amended and Restated 2016 Equity Incentive Plan (the "2016 Second Amended Plan") was approved by the Company's stockholders in August 2019, which increased the share reserve by an additional 850,000 shares. A Third Amended and Restated Equity Incentive Plan (the "2016 Third Amended Plan") was approved by the Company's stockholders in June 2020 which increased the share reserve by an additional 2,014,400 shares. During the term of the 2016 Third Amended Plan, the share reserve will automatically increase on the first trading day in January of each calendar year ~~beginning in 2017,~~ by an amount equal to 4% of the total number of outstanding shares of common stock of the Company on the last trading day in December of the prior calendar year. ~~On January 1, 2017, the shares reserved for issuance increased by 377,365.~~ As of ~~September~~June 30, ~~2017,~~2020, there were ~~483,214~~3,464,032 shares available for future issuance under the 2016 Third Amended Plan.

~~The~~ Option grants expire after ten years. Employee options typically vest over three or four years. Employees typically receive a new hire option grant, as well as an annual grant in the first or second quarter of each year. Options granted to directors typically vest over one or three years. Directors may elect to receive stock options in lieu of board compensation, which vest immediately. For stock options granted to employees and non-employee directors, the estimated grant date fair market value of the Company’s ~~stock‑based~~stock-based awards is amortized ratably over the ~~employees’~~individuals’ service periods, which is the period in which the awards vest. Stock-based compensation expense includes expense related to stock options, restricted stock units and employee stock purchase plan shares. The amount of stock-based compensation expense recognized for the three and six months ended June 30, 2020 and 2019 was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Research and development	$	390,506	$	120,709	$	772,275	$	178,085
General and administrative	2,307,998		196,211		2,987,598		665,336
Sales and marketing	87,070		56,823		142,024		77,651
Total stock-based compensation, continuing operations	2,785,574		373,743		3,901,897		921,072
Total stock-based compensation, discontinued operations	—		152,966		—		202,330
Total stock-based compensation	$	2,785,574	$	526,709	$	3,901,897	$	1,123,402

Stock options with service-based vesting conditions

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The Company has granted awards that contain service-based vesting conditions. The compensation cost for these options is recognized on a straight-line basis over the vesting periods. A summary of option activity for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 is as follows:


	Options Outstanding
	Number of shares	Weighted average exercise price per share		Weighted average grant date fair value per share		Weighted average remaining contractual term (in years)
Balance at December 31, 2019	4,180,606	$	4.80	$	2.67	7.9
Granted	5,165,956	$	3.52	$	2.24
Exercised	(50,239)	$	1.84	$	1.22
Forfeited	(629,300)	$	3.26	$	1.95
Expired	(303,758)	$	5.30	$	3.03
Balance at June 30, 2020	8,363,265	$	4.13	$	2.45	7.8

Exercisable at June 30, 2020	2,719,729	$	4.67	$	2.60	5.1

In February 2020, the Company granted options to purchase 2.4 million shares of common stock as inducement option grants, pursuant to NASDAQ Listing Rule 5635(c)(4), to certain executives who joined the Company in connection with the Aevi Merger. In

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Options Outstanding

Number of
shares

Weighted‑average
exercise price

Fair value of
options
granted

Weighted average
remaining
contractual term
(in years)
Balance, December 31, 2016 1,849,359
$ 5.57

Granted 578,611
$ 0.74
$ 301,743

Forfeited (18,391 ) $ 5.63

Balance, September 30, 2017 2,409,579
$ 4.41
8.12
Exercisable at September 30, 2017 1,467,463
$ 5.25
7.65
March 2020, our Chief Executive Officer entered into an amended employment agreement in which his base salary in cash was reduced from an annual rate of $450,000 to an annual rate of $35,568 (the "Reduction"). In consideration for the Reduction, on a quarterly basis, the Company grants stock options, which vest immediately (the "Salary Options"), for the purchase of a number of shares of the Company’s common stock with a total value (based on the Black-Scholes valuation methodology) based on a pro rata total annual value of $414,432 of the foregone salary. Finally, in April 2020, the Company granted options with service-based vesting conditions as part of its annual grant to employees.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. As of June 30, 2020, the aggregate intrinsic value of options outstanding was $0.7 million. The aggregate intrinsic value of options currently exercisable as of June 30, 2020 was $0.6 million. There were 844,978 options that vested during the six months ended June 30, 2020 with a weighted average exercise price of $4.96 per share. The total grant date fair value of shares which vested during the six months ended June 30, 2020 was $2.3 million.

The Company recognized stock-based compensation expense of $1.7 million and $2.5 million related to stock options with service-based vesting conditions for the three and six months ended June 30, 2020, respectively. At June 30, 2020, there was $11.1 million of total unrecognized compensation cost related to unvested service-based vesting condition awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 3.2 years.

Stock options with market-based vesting conditions

The Company has granted options that contain market-based vesting conditions. The following table summarizes the Company's market-based option activity for the six months ended June 30, 2020:


	Options Outstanding
	Number of shares	Weighted average exercise price per share		Weighted average remaining contractual term (in years)	Aggregate intrinsic value (1)
Balance at December 31, 2019	300,000	$	4.98	9.4
Granted	1,000,000	$	3.29	10
Forfeited	(300,000)
Balance at June 30, 2020	1,000,000	$	3.29	10

Exercisable at June 30, 2020	500,000				$	45,000

(1) The aggregate intrinsic value in the above table represents the total pre-tax amount that a participant would receive if the option had been exercised on the last day of the respective fiscal period. Options with a market value less than its exercise value are not included in the intrinsic value amount.

During the second quarter of 2020, 300,000 unvested market-based stock options were forfeited as a result of the resignation of an executive during the quarter. The forfeiture resulted in the reversal of the full expense previously recognized to date on this award of $0.4 million, which was recorded to general and administrative expense for the three and six months ended June 30, 2020.

On June 18, 2020, the Company granted its recently appointed Chairman of the Board an option to purchase 1,000,000 shares of Company common stock with market-based vesting conditions. 500,000 of the shares vested immediately on the date of grant with an exercise price of the closing stock price on the date of grant of $2.51. 250,000 of the shares vest upon the Company's common stock reaching a 50% premium to the stock price on June 18, 2020 and will have an exercise price of the stock at that time and 250,000 of the shares vest upon the Company's common stock reaching a 75% premium to the stock price on June 18, 2020 and will have an exercise price of stock at that time. Each vesting tranche represents a unique requisite service period and therefore the compensation cost for each vesting tranche is recognized on a straight-line basis over its respective vesting period.

The Company recognized stock-based compensation expense of $0.5 million and $0.6 million related to stock options with market-based vesting conditions for the three and six months ended June 30, 2020, respectively, which includes the reversal of the former Executive Chairman's forfeited options and the expense related to the market-based options granted during the quarter. At June 30, 2020, there was $0.7 million of total unrecognized compensation cost related to unvested market-based vesting conditions awards. This compensation cost is expected to be recognized over a weighted-average period of 0.7 years.

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Stock-based compensation assumptions

The following table shows the assumptions used to compute stock-based compensation expense for stock options granted to employees and members of the board of directors under the Black-Scholes valuation model for the six months ended June 30, 2020:


Service-based options
Expected dividend yield						—%
Expected volatility						69.9% - 79.9%
Expected life (in years)						1.75 - 6.25
Risk-free interest rate						0.19% - 1.48%

Restricted Stock Units

The Company has granted restricted stock units ("RSU") to certain employees. The Company measures the fair value of the restricted awards using the stock price on the date of the grant. The restricted shares typically vest annually over a four-year period beginning on the first anniversary of the award. The following table summarizes the Company's RSU activity for the six months ended June 30, 2020:


	RSUs Outstanding
	Number of shares	Weighted average grant date fair value
Unvested RSUs at December 31, 2019	267,500	$	4.92
Granted	—
Vested	(111,667)	$	4.93
Unvested RSUs at June 30, 2020	155,833	$	4.91

The Company recognized stock-based compensation expense of $0.6 million and $0.8 million related to RSUs for the three and six months ended June 30, 2020, respectively. At June 30, 2020, there was $43,202 of total unrecognized compensation cost related to the RSU grants. This compensation cost is expected to be recognized over a weighted-average period of 2.0 years.

Employee Stock Purchase Plan

On April 5, 2016, the Company’s board of directors approved the 2016 Employee Stock Purchase Plan (the “ESPP”). The ESPP was approved by the Company’s stockholders and became effective on May 18, 2016 (the “ESPP Effective Date”).

Under the ESPP, eligible employees can purchase common stock through accumulated payroll deductions at such times as are established by the administrator. The ESPP is administered by the compensation committee of the Company’s board of directors. Under the ESPP, eligible employees may purchase stock at ~~95%~~85% of the lower of the fair market value of a share of the Company’s common stock (i) on the first day of an offering period or (ii) on the purchase date. Eligible employees may contribute up to 15% of their earnings during the offering period. The Company’s board of directors may establish a maximum number of shares of the Company’s common stock that may be purchased by any participant, or all participants in the aggregate, during each offering or offering period. Under the ESPP, a participant may not ~~purchase more than 10,000 shares during any purchase period or~~ accrue rights to purchase more than $25,000 of the fair market value of the Company’s common stock for each calendar year in which such right is outstanding.

Upon the ESPP Effective Date, the ~~ESPP~~Company reserved and authorized up to 500,000 shares of common stock for ~~issuance.~~issuance under the ESPP. On January 1 of each calendar year, the aggregate number of shares that may be issued under the ESPP shall automatically ~~increase~~increases by a number equal to the lesser of (i) 1% of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding calendar year, and (ii) 500,000 shares of the Company’s common stock, or (iii) a number of shares of the Company’s common stock as determined by the Company’s board of directors or compensation committee. ~~Employees purchased 20,000~~The number of shares ~~during 2016 and 33,406 shares during the nine months ended September 30, 2017.~~were increased by 443,842 on January 1, 2020. As of ~~September~~June 30, ~~2017, 540,935~~2020, 1,504,388 shares remained available for issuance.

In accordance with the guidance in ASC 718-50,Employee ~~Share~~Stock Purchase Plans ~~(“ASC 718-50”)~~, the ability to purchase shares of the

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Company’s common stock at the lower of the offering date price or the purchase date price represents an option and, therefore, the ESPP is a compensatory plan under this guidance. Accordingly, stock-based compensation expense is determined based on the option’s grant-date fair value and is recognized over the requisite service period of the option. The Company used the Black-Scholes valuation model and recognized stock-based compensation expense of ~~$20,886~~$54,590 and ~~$69,492~~$0.1 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.

~~Stock‑based compensation~~

11. Income Taxes

The Company recognized an income tax benefit of $0.5 million and $2.6 million for the three and six months ended June 30, 2020, respectively. The benefit recognized was a result of a current year tax law change and the ability of the Company to now carry back certain losses due to the CARES Act. The tax provisions within the CARES Act included temporary changes regarding the utilization and five year carry back of losses generated in 2018, 2019 and 2020, temporary changes regarding interest deductions, technical corrections from prior tax legislation related to qualified improvement property, and various other measures. In the second quarter of 2020, the Company filed a refund claim with the Internal Revenue Service related to its 2017 tax liability by carrying back losses not previously claimed. In June 2020, the state of Maryland issued a report announcing that the state decoupled from the CARES Act loss carryback provisions for the 2020 year only, but carrybacks are presently allowed under current law for 2018 and 2019. As a result, the Company recognized a $2.2 million benefit in the first quarter of 2020 related to the federal tax carryback and an additional $0.5 million in the second quarter of 2020 related to the Maryland tax carryback. The Company intends to file a claim related to the Maryland tax liability during the third quarter of 2020. The expense recognized for the three and ~~nine~~six months ended ~~September~~June 30, 2019 of $0.1 million and $0.2 million, respectively, was a result of interest on an unpaid tax liability related to the 2017 tax year and ~~2016 was as follows:~~state taxes.

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Research and development $ 41,323
$ 43,861
$ 123,883
$ 95,013
General and administrative 222,924
243,913
728,327
1,344,181
Total stock-based compensation $ 264,247
$ 287,774
$ 852,210
$ 1,439,194

~~10. Income Taxes~~

12. Leases

The ~~provision for income taxes was $3.2 million~~Company currently occupies 2 leased properties, both of which serve as administrative office space. The Company determined that both leases are operating leases based on the lease classification test performed at lease commencement.

The annual base rent for the ~~nine months ended September 30, 2017. The effective tax rate for the nine-month period ended September 30, 2017 was 17.76% as compared to 0% for the corresponding period~~Company's corporate headquarters located in ~~the~~

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~~prior year. The increase in the rate~~Rockville, Maryland (the "Headquarters' Lease") is ~~attributable to changes in projected income~~as well as limitations on the utilization of NOL carryforwards as described below for the year primarily due to the sale of CERC-501. In addition, the Company was able to utilize net operating loss ("NOL") carryforwards of $2.7 million, which were previously$161,671, subject to ~~a valuation allowance, to offset a portion of projected income for the year considering Internal Revenue Code Section 382 limitations.~~

As of December 31, 2016 the Company had $52.2 million of federal and Maryland state NOL carryforwards that will begin to expire in 2031. As of December 31, 2016 the Company also had $1.8 million and $57,000 of federal and Maryland state research and development credits, respectively, that will begin to expire in 2018. The NOL and research and development credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards are also subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three‑year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. Considering ownership changes that took place previously as well as during 2017 including the Armistice transaction, the Company is completing an analysis under Section 382 of the Code, and has initially determined the utilization of the NOLs and other tax attributes will be limited on a go forward basis. Approximately $2.7 million of NOL carryforwards will be available in 2017 and the Company will be able to utilize the NOL carryforwards to offset a portion of projected income for the year. Upon completion of the analysis by year end, to the extent there is a limitation, which could be significant, there would be a reduction in the deferred tax assets with an offsetting reduction in the valuation allowance, with no impact on current period income tax expense.

In assessing the realizability of the remaining net deferred tax assets, the Company considers all relevant positive and negative evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. Other than the amount of NOL that is available to offset net income generated through September 30, 2017 there was a full valuation allowance against the net deferred tax assets as of September 30, 2017 and December 31, 2016.

~~11. Commitments and Contingencies~~

~~Office Lease~~

The Company’s corporate office space, which is leased under an operating lease, is located in Baltimore, Maryland. The lease provided for three months of rent abatement and includes escalating rent payments. Rent expense is recognized on a straight‑line basis2.5% increases over the term of the lease. ~~Rent~~The lease provided for a rent abatement for a period of 12 months following the Company's date of occupancy. The lease has an initial term of 10 years from the date the Company makes its first annual fixed rent payment, which occurred in January 2020. The Company has the option to extend the lease 2 times, each for a period of five years, and may terminate the lease as of the sixth anniversary of the first annual fixed rent payment, upon the payment of a termination fee. As of the lease commencement date, it was not reasonably certain that the Company will exercise the renewal periods or early terminate the lease and therefore the end date of the lease for accounting purposes is January 31, 2030. The Company entered into a sublease for additional administrative office space in Chesterbrook, Pennsylvania in May 2020 (the "Chesterbrook Lease"). The annual base rent for the Chesterbrook Lease is $280,185. The lease expires in November 2021. The weighted average remaining term of the operating leases at June 30, 2020 was 7.7 years.

Supplemental balance sheet information related to the leased property is as follows:


	As of
	June 30, 2020		December 31, 2019
Property and equipment, net	$	1,056,441	$	718,626

Accrued expenses and other current liabilities	$	431,543	$	155,815
Other long-term liabilities	1,191,560		1,111,965
Total operating lease liabilities	$	1,623,103	$	1,267,780

The operating lease right-of-use ("ROU") assets are included in property and equipment and the lease liabilities are included in accrued expenses and other current liabilities and other long-term liabilities in our condensed consolidated balance sheets. The Company utilized a weighted average discount rate of 7.2% to determine the present value of the lease payments.

The components of lease expense for the ~~office lease amounted to approximately $125,000 for the nine~~three and six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019 were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Operating lease cost*	$	87,199	$	39,534	$	141,708	$	94,140

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*Includes short-term leases, which are immaterial.

The following table shows a maturity analysis of the operating lease liability as of June 30, 2020:



	Undiscounted Cash Flows
July 1, 2020 through December 31, 2020	$	220,689
2021	426,346
2022	173,748
2023	178,092
2024	182,544
2025	187,108
Thereafter	813,638
Total lease payments	$	2,182,165
Less implied interest	(559,062)
Total	$	1,623,103

13. Commitments and Contingencies

Litigation

Litigation - General

The Company may become party to various contractual disputes, litigation, and potential claims arising in the ordinary course of business. The Company currently does not believe that the resolution of such matters will have a material adverse effect on its financial position or results of operations except as otherwise disclosed in this report.

TRx 2018 Target Gross Profit Dispute

As part of the TRx Acquisition, pursuant to the TRx Purchase Agreement, the Company was required to pay $3.0 million to the former TRx owners if the gross profit, as defined in the TRx Purchase Agreement, related to TRx products equaled or exceeded $12.6 million in 2018. The Company believes it did not achieve this contingent event in 2018 and therefore, no amount is due to the former TRx owners. However, during the second quarter of 2019, the former TRx owners disputed the Company's calculation of gross profit under the TRx Purchase Agreement, arguing the Company met the $12.6 million target in 2018. Pursuant to the ~~terms~~TRx Purchase Agreement, the dispute was submitted to an independent accounting firm for resolution during the third quarter of ~~such lease,~~2019. The dispute was resolved on October 8, 2019, with the ~~Company’s future lease obligation~~independent accounting firm ruling in favor of the Company.

However, on December 19, 2019, Cerecor received a letter from an attorney on behalf of the former TRx owners dated December 18, 2019 that enclosed a draft complaint seeking relief against Cerecor and one of the members of its board of directors. The parties met for a pre-lawsuit mediation in June 2020, however no resolution was reached. As of the date of this filing, no lawsuit has been filed. The proposed complaint indicates that the former TRx owners would seek the following relief: (a) $3.0 million on the grounds that commercially reasonable efforts to sell the acquired TRx products would have resulted in the gross profit earn-out target being reached; (b) that the $3.0 million amount be trebled as a result of Cerecor's alleged improper conduct; (c) $9.2 million as a result of alleged losses resulting from the alleged improper treatment of the former TRx owners as affiliates; and (d) the removal of any restrictions on the former TRx owners shares of common stock in Cerecor. Cerecor disputes that the former TRx owners are entitled to the relief sought and intends to vigorously defend against any lawsuit filed on behalf of the former TRx owners. A loss in this matter is possible in a range of $0 to $18.2 million. As a loss in this matter is not considered probable, there has been no accrual recorded as ~~follows:~~of June 30, 2020.

Karbinal Royalty Make-Whole Provision

Year ending December 31,
2017* $ 39,433
2018 158,716
$ 198,149

* Three months remaining in 2017

~~Obligations to Contract Research Organizations and External Service Providers~~

~~The Company has entered into agreements with contract research organizations and other external service providers for services, primarily~~On February 16, 2018, in connection with the ~~clinical trials~~acquisition of Avadel's pediatric products, the Company entered into a supply and ~~development~~distribution agreement with TRIS Pharma (the "Karbinal Agreement"). As part of this agreement, the ~~Company’s product candidates.~~Company had an annual minimum sales commitment, which is based on a commercial year that spans from August 1 through July 31, of 70,000 units through 2033. The Company was ~~contractually obligated~~required to pay TRIS a royalty make whole payment (“Make-Whole Payments”) of $30 for ~~up to approximately $1.2 million of future services~~each unit under ~~these agreements as of September 30, 2017. The Company’s actual contractual obligations will vary depending upon several factors, including~~ the ~~progress and results of the underlying services.~~

70,000 units annual minimum sales commitment through 2033.

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As a part of the Aytu Divestiture, which closed on November 1, 2019, the Company assigned all payment obligations, including the Make-Whole Payments, under the Karbinal Agreement (collectively, the "TRIS Obligations") to Aytu. However, under the original license agreement, the Company could ultimately be liable for TRIS Obligations to the extent Aytu fails to make the required payments. The future Make-Whole Payments to be made by Aytu are unknown as the amount owed to TRIS is dependent on the number of units sold.

Millipred License and Supply Agreement

The Company has a License and Supply Agreement for Millipred with Watson Laboratories, Inc., which is now part of Teva Pharmaceutical Industries Ltd. ("Teva"). Pursuant to the License and Supply Agreement, the Company is required to make license payments of $75,000 in February and August of each year through April 2021, and purchase inventory on an ad-hoc basis. The License and Supply Agreement expires on April 1, 2021, however if neither party terminates the agreement prior to April 1, 2021, then the agreement will automatically renew for successive one-year periods. Effective upon the consummation of the Merger, Cerecor appointed Dr. Sol Barer to the Company's Board of Directors. Dr. Barer also serves as Teva's Chairman of the Board.

Possible Future Milestone Proceeds for Out-Licensed Compounds

CERC-611 License Assignment

On August 8, 2019, the Company entered into an assignment of license agreement (the "Assignment Agreement") with ES Therapeutics, LLC ("ES Therapeutics"), a wholly-owned subsidiary of Armistice, a significant stockholder of the Company. Pursuant to the Assignment Agreement, the Company assigned and transferred its rights, title, interest, and obligations with respect to CERC-611 to ES Therapeutics. The Company initially licensed the compound from Eli Lilly Company ("Lilly") in September 2016. Under the Assignment Agreement, Armistice paid the Company an upfront payment of $0.1 million. The Company recognized the payment as license and other revenue for the year ended December 31, 2019. The Assignment Agreement also provides for: (a) a $7.5 million milestone payment to the Company upon cumulative net sales of licensed products reaching $750.0 million; and (b) a $12.5 million milestone payment to the Company upon cumulative net sales of licensed products reaching $1.3 billion. The Assignment Agreement also released the Company of obligations related to CERC-611, including the $1.3 million contingent payment to Lilly upon the first subject dosage of CERC-611 in a multiple ascending dose study. The Assignment Agreement also releases the Company from additional potential future payments due to Lilly upon achievement of certain development and commercialization milestones, including the first commercial sale, and milestone payments and royalty on net sales upon commercialization of the compound.

CERC-501 Sale to Janssen

In August 2017, the Company sold its worldwide rights to CERC-501 to Janssen Pharmaceuticals, Inc. ("Janssen") in exchange for initial gross proceeds of $25.0 million. There is a potential future $20.0 million regulatory milestone payment to the Company upon acceptance of an NDA for any indication. The terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of CERC-501.

Related Party and Acquisition Related Contingent Liabilities

CERC-006 Royalty Agreement with Certain Related Parties

As discussed in detail in Note 6, on February 3, 2020, the Company consummated a Merger with Aevi. Effective upon the closing of the Merger, Cerecor entered into an employment agreement with Mike Cola for him to serve as Cerecor's Chief Executive Officer and with Dr. Garry Neil for him to serve as Cerecor's Chief Medical Officer.

Prior to Cerecor entering into the Merger Agreement, in July 2019, Aevi entered into a royalty agreement with Mike Cola, our current Chief Executive Officer, Joseph J. Grano, Jr., Kathleen Jane Grano, Joseph C. Grano, The Grano Children's Trust, Joseph C. Grano, trustee and LeoGroup Private Investment Access, LLC on behalf of Garry A. Neil, our current Chief Medical Officer (collectively, the "Investors") in exchange for a one-time aggregate payment of $2 million (the "Royalty Agreement"). Collectively, the Investors will be entitled to an aggregate amount equal to a low-single digit percentage of the aggregate net sales of Astellas Pharma Inc.'s second generation mTORC1/2 inhibitor, CERC-006. At any time beginning three years after the date of the first public launch of CERC-006, Cerecor may exercise, at its sole discretion, a buyout option that terminates any further obligations under the Royalty Agreement in exchange for a payment to Investors of an aggregate of 75% of the net present value of the royalty payments. A majority of the independent members of the board of directors and the audit committee of Aevi approved the Royalty Agreement.

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Cerecor assumed this Royalty Agreement upon closing of the Merger with Aevi and it is recorded within royalty obligation within the Company's accompanying condensed consolidated balance sheet as of June 30, 2020. Because there is a significant related party relationship between the Company and the Investors, the Company treated its obligation to make royalty payments under the Royalty Agreement as an implicit obligation to repay the funds advanced by the Investors. As the Company makes royalty payments in accordance with the Royalty Agreement, it will reduce the liability balance. At the time that such royalty payments become probable and estimable, and if such amounts exceed the liability balance, the Company will impute interest accordingly on a prospective basis based on such estimates, which would result in a corresponding increase in the liability balance.

Aevi Merger possible future milestone payments

As detailed in Note 6, on February 3, 2020, the Company consummated its merger with Aevi, thus acquiring the rights to three early stage compounds for rare and orphan diseases (CERC-002, CERC-006 and CERC-007) and one other preclinical orphan disease compound, CERC-005. Consideration for the transaction included approximately 3.9 million shares of Cerecor common stock to Aevi stockholders, forgiveness of a $4.1 million loan that Cerecor loaned Aevi in December 2019, and certain contingent development milestones worth up to an additional $6.5 million.

The contingent consideration of up to an additional $6.5 million relates to 2 future development milestones. The first milestone is the enrollment of a patient in a Phase II study related to CERC-002 for use in Pediatric Onset Crohn's Disease, CERC-006 or CERC-007 prior to February 3, 2022. If this milestone is met, the Company is required to make a milestone payment of $2.0 million. The second milestone is the receipt of a NDA approval for either CERC-006 or CERC-007 from the FDA on or prior to February 3, 2025. If this milestone is met, the Company is required to make a milestone payment of $4.5 million. All milestones are payable in either shares of the Company's common stock or cash, at the election of the Company.

The contingent consideration related to the development milestones will be recognized if and when such milestones are probable and can be reasonably estimated. As of the consummation of the Merger on February 3, 2020 and as of June 30, 2020, 0 contingent consideration related to the development milestone has been recognized. The Company will continue to monitor the development milestones at each reporting period.

Ichorion Asset Acquisition possible future milestone payments

On September 24, 2018, the Company acquired Ichorion Therapeutics, Inc. (the "Ichorion Acquisition") thus acquiring 3 compounds for inherited metabolic disorders known as CDGs (CERC-801, CERC-802 and CERC-803) and 1 other preclinical orphan disease compound, CERC-913, for the treatment of mitochondrial DNA Depletion Syndrome. Consideration for the transaction included approximately 5.8 million shares of the Company’s common stock (adjusted for estimated working capital) and certain contingent development milestones worth up to an additional $15.0 million. The Company recorded this transaction as an asset acquisition.

The contingent consideration of up to an additional $15.0 million relates to 3 future development milestones for the acquired compounds. The first milestone is the first product being approved for marketing by the FDA on or prior to December 31, 2021. If this milestone is met, the Company is required to make a milestone payment of $6.0 million. The second milestone is the second product being approved for marketing by the FDA on or prior to December 31, 2021. If this milestone is met, the Company is required to make a milestone payment of $5.0 million. The third milestone is a protide molecule being approved by the FDA on or prior to December 31, 2023. If this milestone is met, the Company is required to make a milestone payment of $4.0 million. All milestones are payable in either shares of the Company's common stock or cash, at the election of the Company.

The contingent consideration related to the development milestones will be recognized if and when such milestones are probable and can be reasonably estimated. As of June 30, 2020, 0 contingent consideration related to the development milestone has been recognized. The Company will continue to monitor the development milestones at each reporting period.

14. Payroll Protection Program Loan

The CARES Act provides stimulus measures, including the Payroll Protection Loan Program ("PPP"), to provide certain small businesses with liquidity to support their operations during the COVID-19 pandemic. Cerecor received a $0.4 million PPP Loan during the second quarter of 2020. PPP Loans have a 1% fixed annual interest rate and mature in two years, however are eligible for forgiveness under certain conditions. Cerecor used the loaned funds during the second quarter of 2020 to retain employees and maintain payroll and lease payments, as specified under the Paycheck Protection Program Rule. The Company believes it meets the criteria for forgiveness and plans to submit an application for forgiveness with its lender in the second half of 2020. Once approved by the lender, the lender will submit the forgiveness application to the Small Business Administration (the "SBA") for ultimate

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approval. The SBA has 90 days from receipt to approve or reject the forgiveness application. The Company incurred the related expense prior to June 30, 2020 and recognized the PPP Loan of $0.4 million as other income within the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2020.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and the information incorporated herein by reference contain forward-looking statements that involve a number of risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “might,” “will,” “plans,” “intends,” “estimates,” “could,” “should,” “would,” “continue,” “seeks,” “aims,” “projects,” “predicts,” “pro forma,” “anticipates,” “potential” or other similar words (including their use in the negative), or by discussions of future matters such as the ~~receipt of the escrowed initial gross proceeds amount or the potential future regulatory milestone payment from Janssen, the~~ development of product candidates or products, potential attributes and benefits of product candidates, the expansion of Cerecor's drug portfolio, Cerecor's ability to identify new indications for it's current portfolio and new product candidates that could be in-licensed, technology enhancements, possible changes in legislation, and other statements that are not historical. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II – Item 1A, “Risk Factors,” as well as in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March ~~10, 2017~~11, 2020, and in our other filings with the SEC. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, ~~2016~~2019 appearing in our Annual Report on Form 10-K filed with the SEC on March ~~10, 2017.~~11, 2020.

Overview

~~We are~~ Cerecor Inc. (the "Company" or "Cerecor") is a biopharmaceutical company focused on becoming a leader in development and commercialization of treatments for rare pediatric and orphan diseases. The Company is advancing an emerging clinical-stage pipeline of innovative therapies that ~~is developing innovative drug candidates~~address unmet patient needs within rare pediatric and orphan diseases. The Company's pediatric rare disease pipeline includes CERC-801, CERC-802 and CERC-803 ("CERC-800 compounds"), which are therapies for either commercialization, license or sale to make a difference in the lives of patients with neurologic and psychiatric disorders. Our lead drug candidate is CERC-301, which we currently intend to explore as a novel treatment for orphan neurologic indications. We also have two pre-clinical stage compounds, CERC-611 and CERC-406.

~~Our portfolio of product candidates is summarized below:~~

~~CERC-301: Orphan Neurologic Diseases.~~ ~~CERC‑301 belongs to a class of compounds~~inherited metabolic disorders known as ~~antagonists~~Congenital Disorders of Glycosylation ("CDGs"). The U.S. Food and Drug Administration ("FDA") granted Rare Pediatric Disease Designation ("RPDD") and Orphan Drug Designation ("ODD") to all three CERC-800 compounds, thus potentially qualifying the ~~N‑methyl‑D‑aspartate, or NMDA, receptor,~~Company to receive a Priority Review Voucher ("PRV") upon approval of each new drug application ("NDA"). The Company is also developing CERC-002, CERC-006 and CERC-007. CERC-002 is an anti-LIGHT (Lymphotoxin-like, exhibits Inducible expression, and competes with HSV Glycoprotein D for HVEM, a receptor subtype of the glutamate neurotransmitter system that is responsible for controlling neurologic adaptation. We believe CERC‑301 specifically blocks the NMDA receptor subunit 2B, or NR2B. Given its specific mechanism of action and demonstrated tolerability profile, we believe CERC-301 may be well suited to address unmet medical needs in neurologic indications. We are now embarking on a pre-clinical and clinical program to explore the use of CERC-301 in orphan neurologic conditions.

~~CERC-611: Adjunctive Treatment of Partial-Onset Seizures in Epilepsy.~~ ~~CERC-611 is a potent and selective transmembrane AMPA receptor regulatory proteins, or TARP, 8-dependent~~ á -amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid, or AMPA, receptor antagonist, or inhibitor. TARPs are a recently discovered family of proteins that have been found to associate with, and modulate the activity of, AMPA receptors. TARP 8-dependent AMPA receptors are localized primarily in the hippocampus, a region of the brain with importance in complex partial seizures and particularly relevant to seizure origination and/or propagation. We believe CERC-611 may be the first drug candidate to selectively target and functionally block region-specific AMPA receptors after oral dosing, which we believe may improve the efficacy and side effect profile of CERC-611 over current anti-epileptics. We intend to develop CERC-611 as an adjunctive therapy for the treatment of partial-onset seizures, with or without secondarily generalized seizures, in patients with epilepsy.

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~~CERC-406: Residual Cognitive Impairment.~~ CERC-406 is a preclinical candidate from our proprietary platform of compounds that inhibit catechol-O-methyltransferase, or COMT, within the brain, which we refer to as our COMTi platform. We believe CERC‑406 may have the potential to beexpressed by T lymphocytes) monoclonal antibody being developed for the treatment of ~~residual cognitive impairment symptoms.~~

COVID-19 acute respiratory distress syndrome ("ARDS") and Pediatric-onset Crohn's Disease. CERC-006 is a dual mTOR inhibitor being developed for the treatment of complex Lymphatic Malformations and has been granted ODD and RPDD by the FDA, thus potentially qualifying the Company to receive a PRV upon approval of an NDA. CERC-007 is an anti-IL-18 monoclonal antibody being developed for the treatment of autoimmune inflammatory diseases such as Adult Onset Stills Disease ("AOSD") and Multiple Myeloma.

~~We plan both~~ The Company continues to ~~evaluate our current portfolio~~explore strategic alternatives for ~~potential new indications~~its commercialized product, Millipred^®, an oral prednisolone indicated across a wide variety of inflammatory conditions. The Company has been in discussions with Simon Pedder, a former member of its Board of Directors, about potentially transferring its non-core neurology pipeline assets, CERC-301 and ~~to identify potential new product candidates and / or commercialized assets.~~

~~At September 30, 2017, we had $24.0 million in cash and cash equivalents and $4.8 million in current liabilities. In August 2017, we sold all of our rights~~CERC-406, to a ~~prior product candidate, CERC-501,~~new company formed by Dr. Pedder, although it has not agreed to ~~Janssen in exchange~~binding terms, and any such transaction might not happen until the second half of 2020, if at all.

Recent Developments

On June 11, 2020, the Company closed an underwritten public offering of 15,180,000 shares of its common stock (inclusive of 1,980,000 shares that were sold pursuant to the underwriter’s full exercise of its option to purchase additional shares of Cerecor’s common stock) for ~~initial gross~~net proceeds of ~~$25.0 million,~~approximately $35.4 million. Armistice Capital, LLC ("Armistice"), whose Chief Investment Officer Steve Boyd is a Cerecor director, participated in the offering by purchasing 2,000,000 shares of ~~which $3.75 million~~common stock, on the same terms as all other investors. Additionally, certain of the Company's officers participated in the offering by purchasing an aggregate of 110,000 shares of common stock, on the same terms as all other investors.

Research and Development Update

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In July 2020, the Company announced that the first patient was ~~deposited~~enrolled in a proof-of-concept trial evaluating the safety and efficacy of the anti-LIGHT monoclonal antibody, CERC-002, in patients with COVID-19 cytokine storm-induced ARDS. The proof-of-concept, randomized, multicenter, double-blind, placebo-controlled trial will enroll approximately 82 subjects hospitalized with COVID-19 ARDS. The primary objective of the study is to demonstrate that treatment with CERC-002 results in fewer instances of respiratory failure and death versus the standard of care. Top-line data is expected in the fourth quarter of 2020. Prior to enrollment, in May 2020, the Company received clearance from the FDA to proceed with the proof-of-concept trial. The scientific rationale for the proof-of-concept trial is supported by recent biomarker data demonstrating elevated levels of LIGHT in patients hospitalized with COVID-19 cytokine storm-induced ARDS.

In May 2020, Cerecor entered into ~~a twelve month escrow~~an Amended and Restated Clinical Development and Option Agreement (the "New CDOA") with Kyowa Kirin Co., Ltd., formerly known as Kyowa Hakko Kirin Co., Ltd ("KKC") relating to ~~secure~~the development and potential commercialization of CERC-002 in the treatment of COVID-19 ARDS. The New CDOA grants Cerecor an additional option to obtain exclusive rights for the development, manufacture and commercialization of CERC-002 in the treatment, prevention, and diagnosis of acute lung injury ("ALI") and ARDS, for an initial license fee in the low single-digit millions of dollars upon exercise of the option. The New CDOA includes additional terms, such as certain ~~indemnification obligations to Janssen, as well as a potential future $20.0 million~~ regulatory milestone ~~payment.~~payments and profit sharing specifically related to CERC-002 in the ARDS/ALI Field.

We will need additional funding to complete the development of any of our existing product candidates or any new product candidates we decide to pursue. We intend to seek future funding for our development programs and operations from further offerings of equity or debt securities, non-dilutive financing arrangements such as federal grants, collaboration agreements or out-licensing arrangements. However, we may be unable to raise additional funds or enter into such other agreements or transactions on favorable terms, or at all. If we fail to raise capital or enter into such other arrangements or transactions, we may experience a significant delay, scale-back or discontinue the development of one or more of our product candidates or be forced to cease our operations altogether.

~~We were incorporated in Delaware in 2011 and commenced operations in~~During the second quarter of ~~2011. Since inception, our operations have included organizing~~2020, the Company concluded its CDG FIRST trial, which was a retrospective trial evaluating the use of monosaccharide replacement therapy in PGMI-CDG, MPI-CDG and ~~staffing our company, business planning, raising capital~~LADII-CDG. The Company plans to use data from this trial to inform future trial design and ~~developing our product candidates. We have no products approved~~endpoints for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research, development and other expenses related to our ongoing operations. We have incurred losses in each period since our inception. As of September 30, 2017 we had an accumulated deficit of $55.1 million. We expect to incur significant expenses and operating lossesforthcoming pivotal trials for the ~~foreseeable future as we continue~~CERC-800s.

During the ~~development and clinical trials~~first quarter of ~~our product candidates.~~

~~We have financed our operations primarily through a public offering, private placements of our common stock and convertible preferred stock,~~2020, the issuance of debt and the sale of our rights to CERC-501. Our ability to become and remain profitable depends on our ability to generate product revenue. We do not expect to generate any product revenue unless, and until, we obtain marketing approvalCompany paused its Phase 1b open-label, multi-center, dose-escalation proof-of-concept study for ~~and commercialize, any of our product candidates. There can be no assurance as to whether or when we will achieve profitability.~~

~~Components of Operating Results~~

~~Revenue~~

To date, we have primarily derived revenue from the sale of CERC-501 and research grants from the National Institutes of Health. We have not generated any revenue from commercial product sales to date. We will not generate any commercial revenue, if ever, until one of our product candidates receives marketing approval and we successfully commercialize such product candidates.

In April 2016, we received a research and development grant from the National Institute on Drug Abuse, or NIDA, at the National Institutes of Health to provide additional resources for the period from May 2016 through April 2017 for a Phase 2 clinical trial for CERC-501. Additionally, in July 2016, we received a research and development grant from the National Institute on Alcohol Abuse and Alcoholism, or NIAAA, at the National Institutes of Health to provide additional resources for the period of July 2016 through August 2017 to progress the development of CERC-501CERC-002 for the treatment of ~~alcohol use disorder. We recognize revenue under grants~~Pediatric-onset Crohn's Disease due to a moratorium placed on endoscopy as a result of COVID-19. The Company resumed this trial in ~~earnings on a systemic basis~~July 2020.

In the third quarter of 2020, the FDA granted ODD and RPDD to CERC-006. There are numerous benefits associated with receipt of ODD, which include seven-year marketing exclusivity (upon FDA approval) in the ~~period the related expenditures~~United States, exemption of FDA application fees and tax credits for ~~which the grants are intended to compensate are incurred.~~qualified clinical trials. RPDD provides potential eligibility for receipt of a PRV upon approval of an NDA.

~~In August 2017, we sold all of~~The following chart summarizes key information about our rights to a prior product candidate, CERC-501, to Janssen Pharmaceuticals, Inc., or Janssen, in exchange for initial gross proceeds of $25.0 million, of which $3.75 million was deposited into a twelve-month escrow to secure certain indemnification obligations, as well as a potential future $20.0 million regulatory milestone payment. The terms of the agreement provide that Janssen will assume ongoing clinical trialsemerging clinical-stage rare disease pipeline and ~~be responsible for any new~~anticipated research & development ~~and commercialization of CERC-501.~~milestones:

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~~Research and Development Expenses~~

Our ~~research~~Strategy

Our strategy for increasing shareholder value includes:

•Advancing our pipeline of compounds through development and ~~development expenses consist primarily of costs incurred developing, testing~~to regulatory approval;

•Acquiring or licensing rights to targeted, complementary differentiated preclinical and ~~seeking marketing approval for our product candidates. These costs include both external costs, which are study‑specific costs,~~clinical stage assets;

•Developing the go-to-market strategy to quickly and ~~internal research~~effectively market, launch, and ~~development costs, which are not directly allocated to our product candidates.~~

~~External costs include:~~

~~expenses incurred under agreements with third‑party contract research organizations and investigative sites that conduct our clinical trials, preclinical studies and regulatory activities;~~

~~payments made to contract manufacturers for drug substance and acquiring, developing and manufacturing clinical trial materials; and~~

~~payments related to acquisitions~~distribute each of our ~~product candidates~~assets that receive marketing approval;

•Opportunistically out-licensing rights to indications or geographies; and ~~preclinical platform, milestone payments, and fees associated with the prosecution and maintenance~~

•Opportunistically out-licensing rights or sale of ~~patents.~~non-core assets.

~~Internal costs include:~~

~~personnel‑related expenses, including salaries, benefits and stock‑based compensation expense;~~Results of Operations

~~consulting costs related to our internal research and development programs;~~

~~allocated facilities, depreciation and other expenses, which include rent and utilities, as well as other supplies; and~~

~~product liability insurance.~~

~~Research~~During the fourth quarter of 2019, the Company sold to Aytu BioScience its rights, titles and ~~development costs are expensed as incurred. We record costs for some development activities, such as clinical trials, based on an evaluation of the progress~~interest in, assets relating to ~~completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to us by our vendors.~~

We track external costs by program and subsequently by product candidate once a product candidate has been selected for development. Product candidates in later stage clinical development generally have higher research and development expenses than those in earlier stages of development, primarily due to the increased size and duration of the clinical trials.

~~As of September 30, 2017, we had four full-time employees who were primarily engaged in research and development.~~

~~General and Administrative Expenses~~

General and administrative expenses consist primarily of professional fees, patent costs and salaries, benefits and related costs for executive and other personnel, including stock‑based compensation and travel expenses. Other general and administrative expenses include facility‑related costs, communication expenses and professional fees for legal, including patent‑related expenses, consulting, tax and accounting services, insurance, depreciation and general corporate expenses.

~~Interest Expense, Net~~

~~Net interest expense is primarily related to interest payments pursuant to the terms of our term debt facility entered into in August 2014,~~its Pediatric Portfolio as well as the ~~amortization~~corresponding commercial infrastructure consisting of the ~~debt discounts~~right to offer employment to Cerecor’s sales force and ~~premiums and deferred financing fees in connection with such term debt facility. We made~~ the ~~final payment under this facility on August 1, 2017.~~

~~Income Tax Expense~~

~~Income tax expense was incurred during the quarter ended September 30, 2017~~assignment of supporting commercial contracts, retaining as our only commercial product, Millipred, an oral prednisolone indicated across a wide variety of inflammatory conditions (the "Aytu Divestiture"). As a result, ~~of our net income for~~ the ~~same period.~~

~~Critical Accounting Policies and Significant Judgments and Estimates~~

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~~This discussion and analysis of our financial condition and~~Pediatric Portfolio met all conditions required in order to be classified as discontinued operations. Accordingly, unless otherwise noted, the following section focuses on results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions, including those related to clinical and preclinical trial expenses and stock‑based compensation. Actual results may differ from ~~these estimates under different assumptions or conditions.~~continuing operations only for all periods discussed.

While our significant accounting policies are more fully described in Note 2 to the audited financial statements appearing at the end of our Annual Report on Form 10-K, we believe the following accounting policies are critical to the portrayal of our financial condition and results. We have reviewed these critical accounting policies and estimates with the audit committee of our board of directors.

~~License and Other Revenue~~

We recognize revenues from collaboration, license or other research or sale arrangements when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

~~Grant Revenue Recognition~~

We recognize grant revenue when there is (i) reasonable assurance of compliance with the conditions of the grant and (ii) reasonable assurance that the grant will be received. We recognize revenue under grants in earnings on a systemic basis in the period the related expenditures for which the grants are intended to compensate are incurred.

~~Results of Operations~~

Comparison of the Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

~~License and Other~~Product Revenue, net

~~On August 14. 2017, we sold CERC-501 to Janssen in exchange for initial gross proceeds~~

Table of $25.0 million, of which $3.75 million was deposited into a twelve month escrow to secure certain indemnification obligations to Janssen. In addition to the initial proceeds, the terms of the agreement provide for a potential future $20 million regulatory milestone payment. The terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of CERC-501.Contents

~~Grant Revenue~~

~~The following table summarizes our grant~~Net product revenue was $1.3 million for the three months ended June 30, 2020, which was relatively consistent with the net product revenue for the three months ended ~~September~~June 30, ~~2017 and 2016:~~2019 of $1.4 million.

Three Months Ended
September 30,
2017 2016
(in thousands)
Grant revenue $ 38
$ 321
Cost of Product Sales

~~Grant revenue under the NIAAA grant~~Cost of product sales was ~~approximately $38,000~~$0.1 million for the three months ended ~~September~~June 30, ~~2017. We recognized approximately $321,000 of grant revenue~~2020, as compared to $(1.5) million for the three months ended ~~September~~June 30, ~~2016~~2019. The $1.5 million reversal of expense for the ~~NIDA grant. Our grant revenues are dependent upon~~three months ended June 30, 2019 was driven by a settlement agreement the ~~timing and progress of~~Company entered into related to the ~~underlying studies and development activities. We had a reduced level of research and development activities in~~Ulesfia product during the ~~third~~second quarter of ~~2017 compared~~2019, which fully released the Company of its minimum purchase obligations and minimum royalty provisions related to the prior year period, which resulted in a reduction in grant revenue under the current NIAAA grant compared to the ongoing research conducted under the NIDA grant in 2016. The Company sold CERC-501 to Janssen in August 2017 and does not expect any further grant revenues.Ulesfia product.

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Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:


						Three Months Ended June 30,
	Three Months Ended					2020		2019
	September 30,
	2017		2016			(in thousands)
	(in thousands)
CERC-301	$	362	$	1,142
CERC-501	14		896
CERC-611	175		2,019
CERC-406	—		17
Preclinical expenses					Preclinical expenses	$	1,572	$	667
Clinical expenses					Clinical expenses	1,347		1,691
CMC expenses					CMC expenses	1,204		755
Internal expenses not allocated to programs:					Internal expenses not allocated to programs:
Salaries, benefits and related costs	194		400		Salaries, benefits and related costs	1,201		474
Stock-based compensation expense	41		44		Stock-based compensation expense	391		121
Other	179		64		Other	202		5
	$	965	$	4,582		$	5,917	$	3,713

Research and development expenses were $965,000 for the three months ended September 30, 2017, a decrease of approximately $3.6 million compared to the three months ended September 30, 2016. Costs for CERC-301 decreased by $780,000, primarily due to the completion of the Phase 2 clinical trial for the adjunctive treatment of MDD. Costs for CERC-501 decreased by $882,000 from the prior year period as our Phase 2 clinical trial with CERC-501 was completed in the fourth quarter of 2016. The Company sold CERC-501 to Janssen in August 2017. We purchased CERC-611 for $2.0 million in September 2016 and are currently in the process of preparing that compound for additional development.

~~General and Administrative Expenses~~

Three Months Ended
September 30,
2017 2016
(in thousands)
Salaries, benefits and related costs $ 744
$ 556
Legal, consulting and other professional expenses 1,047
725
Stock-based compensation expense 223
244
Other general and administrative expenses 138
178
$ 2,152
$ 1,703

~~General and administrative expenses were~~increased $2.2 million for the three months ended ~~September~~June 30, ~~2017, an increase of $0.4 million~~2020 compared to the ~~three months ended September 30, 2016. This~~same period in 2019. The overall increase was ~~primarily due to severance accruals for our former chief executive officer, who resigned in August, 2017 and increased legal fees associated with the sale of all of our rights to CERC-501.~~

~~Change in Fair Value of Warrant Liability and Unit Purchase Option Liability~~

We recognized a net gain on the change in fair value of our warrant liability and UPO liability of $64 during the three months ended September 30, 2017 compared to a net gain of $101,000 for the three months ended September 30, 2016.

~~The $101,000 gain on the change in fair value during the 2016 period was primarily due to the~~driven by an increase in ~~fair value of the warrant liability and UPO liability. These increases were attributable to a decrease in our common stock price compared to the previous quarter-end.~~

~~Interest Expense, Net~~

Net interest expense decreased by $134,000 for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The decrease was primarily due to a decrease in interest associated with a reduction in the principal balance of our secured term loan facility. We made the final payment under this term loan on August 1, 2017.

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~~Income Tax Expense~~

The provision for income taxes was $3.2 million for the three months ended September 30, 2017 due to the net income generated from the sale of CERC-501. Our annual effective tax rate as of September 30, 2017 was approximately 18 percent. Our effective tax rate differs from the federal statutory rate due to the Company’s ability to utilize a portion of its prior net operating losses, which were previously subject to a valuation allowance, to offset current period income. We currently expect to generate an income tax benefit during the 4^th ~~quarter due to additional expected operating losses during that period.~~

~~Comparison of the Nine Months Ended September 30, 2017 and 2016~~

~~License and Other Revenue~~

On August 14. 2017, we sold CERC-501 to Janssen in exchange for initial gross proceeds of $25.0 million, of which $3.75 million was deposited into a twelve month escrow to secure certain indemnification obligations to Janssen. In addition to the initial proceeds, the terms of the agreement provide for a potential future $20 million regulatory milestone payment. The terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of CERC-501.

~~Grant Revenue~~

~~The following table summarizes our grant revenue for the nine months ended September 30, 2017 and 2016:~~

Nine Months Ended
September 30,
2017 2016
(in thousands)
Grant revenue $ 580
$ 972

Grant revenue from the NIAAA grant was $580,000 for the nine months ended September 30, 2017. Revenue of $972,000 for the nine months ended September 30, 2016 was derived from the NIDA grant. Our grant revenues are dependent upon the timing and progress of the underlying studies and development activities. We had a reduced level of research and development activities in the current year ~~period~~as the Company expanded its pipeline assets as a result of the Aevi Merger and continued to develop its existing pipeline assets during the quarter.

Preclinical expenses increased $0.9 million primarily due to additional spending related to the Aevi Merger. Chemistry, Manufacturing, and Controls ("CMC") expenses increased $0.4 million for the three months ended June 30, 2020 compared to the ~~on-going~~same period in 2019 due to additional spending on manufacturing to support clinical ~~trial work~~development as a result of the Company acquiring the rights to additional assets from the Aevi Merger. These increases were partially offset by a $0.3 million decrease in ~~prior year period, which resulted in a reduction~~clinical expenses driven by minimal spend on clinical development of ~~grant revenue under~~CERC-301 as the ~~current NIAAA grant~~Company began exploring strategic alternatives for the asset during 2019.

Salaries, benefits and related costs increased by $0.7 million compared to the ~~NIDA~~same period in 2019 mainly due to an increase in headcount as a result of the Aevi Merger and salary-related costs to grow our research and development activities as we continue to invest in our expanded pipeline. Stock-based compensation increased by $0.3 million mainly due to an increase in stock option grants as a result of the increased headcount due to the Aevi Merger and the Company's annual stock option grant in ~~2016.~~April 2020.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended June 30, 2020 and 2019:

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	Three Months Ended June 30,
	2020		2019

	(in thousands)
Salaries, benefits and related costs	$	1,756	$	1,226
Legal, consulting and other professional expenses	1,804		774
Stock-based compensation expense	2,286		196
Other	255		145
	$	6,101	$	2,341

General and administrative expenses were $6.1 million for the three months ended June 30, 2020, which represents a $3.8 million increase from the prior period. The increase was largely driven by a $2.1 million increase in stock-based compensation expense as a result of $0.8 million of expense recognized related to an equity award granted to the Company's Chairman of the Board during the second quarter of 2020, expense recognized related to the modifications of certain former executives' and board members' equity awards due to leadership changes during the quarter and an increase in stock option grants as a result of the Company's annual grant in April 2020 and increased headcount as a result of the Aevi Merger. Additionally, legal, consulting and other professional expenses increased by $1.0 million due to increased patent costs driven by the additional assets acquired as part of Aevi Merger, increased recruiting costs, and increased legal fees related to leadership changes and contract reviews performed. Salaries, benefits and related costs increased $0.5 million mainly due to a severance accrual related to the resignation of an executive during the second quarter of 2020.

Sales and Marketing Expenses

The following table summarizes our sales and marketing expenses for the three months ended June 30, 2020 and 2019:


	Three Months Ended June 30,
	2020		2019

	(in thousands)
Salaries, benefits and related costs	$	183	$	121
Stock-based compensation expense	87		57
Advertising and marketing expense	366		148
Other	17		—
	$	653	$	326

Sales and marketing expenses of continuing operations consist of expenses related to advertising and marketing initiatives to support the go-to-market strategy of our pipeline assets and the respective salaries and stock-based compensation to support such initiatives. The overall $0.3 million increase for the three months ended June 30, 2020 as compared to the same period in 2019 was primarily driven by a $0.2 million increase in advertising and marketing expense related to market research and a $0.1 million increase in salaries, benefits and related costs driven by increased headcount to support such initiatives.

Amortization Expense

The following table summarizes our amortization expense for the three months ended June 30, 2020 and 2019:


	Three Months Ended June 30,
	2020		2019

	(in thousands)
Amortization of intangible assets	$	404	$	335

Amortization expense of the continuing operations relates to the amortization of the Company's acquired Millipred product marketing rights and amortization of the assembled workforce acquired as part of the Aevi Merger. As a result of the asset acquisition accounting treatment of the Aevi Merger in the first quarter of 2020, the Company recorded an assembled workforce intangible asset of $0.7 million, which was assigned a two-year useful life. Therefore, the $0.1 million increase to amortization expense for the three months ended June 30, 2020 as compared to the prior period was primarily driven by the amortization expense of the assembled workforce acquired as part of the Aevi Merger.

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Other (Expense) Income, Net

The following table summarizes our other income (expense), net for the three months ended June 30, 2020 and 2019:


	Three Months Ended June 30,
	2020		2019

	(in thousands)
Change in fair value of Investment in Aytu	$	(1,872)	$	—
Change in fair value of warrant liability and unit purchase option liability	3		19
Other income (expense), net	396		—
Interest income, net	9		38
	$	(1,464)	$	57

Other expense, net increased $1.5 million for the three months ended June 30, 2020 as compared to the prior period. Other expense, net is mainly comprised of a $1.9 million loss on change in the fair value of the Company's Investment in Aytu. As consideration of the Aytu Divestiture in November 2019, the Company received 9,805,845 shares of Aytu Series G Preferred Stock, which was remeasured at the current fair value each reporting period with the change in fair value recorded to other (expense) income, net in the accompanying statements of operations. In April 2020, the Company converted its shares of Aytu Preferred Stock into approximately 9.8 million shares of common and sold that common stock for net proceeds of approximately $12.8 million. Therefore, the Company's Investment in Aytu was $0 as of June 30, 2020, which represented a $1.9 million loss on change in the fair value for the three months ended June 30, 2020. The loss was driven by a decrease in Aytu's stock price from March 31, 2020 to the dates the Company sold its shares of Aytu common stock in mid-April 2020.

The increase in other expense, net was partially offset by other income recognized on the $0.4 million Payroll Protection Program ("PPP") Loan received by the Company during the second quarter of 2020. The PPP Loan Program is part of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") which serves to provide certain small businesses with liquidity to support their operations during the COVID-19 pandemic. PPP Loans are eligible for forgiveness under certain conditions. The Company believes it meets the criteria for forgiveness and plans to submit an application for forgiveness during the third quarter of 2020. Therefore, the Company recognized $0.4 million as other income for the three months ended June 30, 2020.

Income Tax (Benefit) Expense

The following table summarizes our income tax (benefit) expense for the three months ended June 30, 2020 and 2019:


	Three Months Ended June 30,
	2020		2019

	(in thousands)
Income tax (benefit) expense	$	(454)	$	53

The Company recognized an income tax benefit of $0.5 million for the three months ended June 30, 2020 and income tax expense of $0.1 million for the three months ended June 30, 2019. The 2020 tax benefit recognized was a result of a current year tax law change and the ability of the Company to now carry back certain losses related to the CARES Act and related state tax provisions. The expense recognized for the three months ended June 30, 2019 was a result of interest on an unpaid tax liability related to the 2017 tax year and state taxes.

Comparison of the Six Months Ended June 30, 2020 and 2019

Product Revenue, net

Net product revenue was $4.1 million for the six months ended June 30, 2020, which was relatively consistent with the net product revenue for the six months ended June 30, 2019.

Cost of Product Sales

Cost of product sales were $0.1 million for the six months ended June 30, 2020, as compared to $(0.7) million for the six months ended June 30, 2019. During the second quarter of 2019, the Company entered into a settlement agreement related to the

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Ulesfia product, which fully released the Company of its minimum purchase obligations and minimum royalty provisions related to the Ulesfia product resulting in a reversal of expense of approximately $1.6 million. The reversal of expense was partially offset by minimum royalty obligations related to the Ulesfia product recognized in the first quarter of 2019 prior to entering into the settlement agreement.

Research and Development Expenses

The following table summarizes our research and development expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:


						Six Months Ended June 30,
	Nine Months Ended					2020		2019
	September 30,
	2017		2016			(in thousands)
	(in thousands)
CERC-301	$	484	$	2,534
CERC-501	596		3,145
CERC-611	216		2,019
CERC-406	2		121
Preclinical expenses					Preclinical expenses	$	2,818	$	1,547
Clinical expenses					Clinical expenses	1,944		3,280
CMC expenses					CMC expenses	2,370		1,190
Internal expenses not allocated to programs:					Internal expenses not allocated to programs:
Salaries, benefits and related costs	743		1,285		Salaries, benefits and related costs	2,514		908
Stock-based compensation expense	124		95		Stock-based compensation expense	772		178
Other	246		178		Other	267		11
	$	2,411	$	9,377		$	10,685	$	7,114

Research and development expenses ~~were $2.4~~increased $3.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020 compared to the same period in 2019. The overall increase was driven by an increase in research and development activities in the current year as the Company expanded its pipeline assets as a ~~decrease~~result of ~~approximately $7.0~~the Aevi Merger and continued to develop its existing pipeline assets during the quarter.

Salaries, benefits and related costs increased by $1.6 million compared to the ~~nine~~same period in 2019 mainly due to an increase in headcount as a result of the Aevi Merger and salary-related costs to grow our research and development activities as we continue to invest in our expanded pipeline. Additionally, the Company recognized $0.3 million of severance within salaries, benefits and related costs for the six months ended ~~September~~June 30, ~~2016. Costs~~2020 related to a separation agreement entered into with a research and development executive during the first quarter of 2020. There was no severance for ~~CERC-301 decreased by $2.0~~the six months ended June 30, 2019.

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Preclinical expenses increased $1.3 million ~~from the prior year period,~~ primarily due to additional spending related to the ~~completion of enrollment during the Phase 2 clinical trial~~Aevi Merger. Similarly, Chemistry, Manufacturing, and Controls ("CMC") expenses increased $1.2 million for the ~~adjunctive treatment~~six months ended June 30, 2020 compared to the same period in 2019 due to additional spending on manufacturing to support development of ~~MDD~~the Company's expanded pipeline. These increases were partially offset by a $1.3 million decrease in ~~2016. We did not perform any~~ clinical ~~trials~~expenses driven by minimal spend on clinical development of the Company's non-core neurology assets as the Company began exploring strategic alternatives for ~~CERC-301 in 2017, however costs were incurred to analyze potential other indications for CERC-301 in 2017. Costs for CERC-501 decreased by $2.5 million from~~ the prior year period as our Phase 2 clinical trial with CERC-501 was completed in the fourth quarter of 2016. We sold all of our rights to CERC-501 to Janssen in August 2017. We purchased CERC-611 in September 2016 for $2.0 millionasset during 2019.

Acquired In-Process Research and ~~are currently in the process of preparing that compound for additional development.~~Development Expenses

On February 3, 2020, the Company consummated its merger with Aevi, which was recorded as an asset acquisition. As a result, the Company acquired $25.5 million of in-process research and development ("IPR&D") for two clinical stage pipeline assets for rare and orphan diseases (CERC-006 and CERC-007). The fair value of the IPR&D was immediately recognized as acquired in-process research and development expense as the IPR&D asset has no other alternate use due to the stage of development. There was no acquired in-process research and development expense for the six months ended June 30, 2019.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the six months ended June 30, 2020 and 2019:

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	Nine Months Ended					Six Months Ended June 30,
	September 30,					2020		2019
	2017		2016
	(in thousands)					(in thousands)
Salaries, benefits and related costs	$	1,665	$	1,808	Salaries, benefits and related costs	$	2,768	$	2,456
Legal, consulting and other professional expenses	2,150		2,186		Legal, consulting and other professional expenses	2,588		1,661
Stock-based compensation expense	728		1,344		Stock-based compensation expense	2,992		665
Other general and administrative expenses	378		651
Other					Other	429		235
	$	4,921	$	5,989		$	8,777	$	5,017

General and administrative expenses ~~were $4.9~~increased $3.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, a decrease of $1.1 million~~2020 compared to the ~~nine months ended September 30, 2016. Salaries,~~same period in 2019. The increase was largely driven by a $2.3 million increase to stock-based compensation expense as a result of $0.8 million of expense recognized related to an equity award granted to the Company's Chairman of the Board during the second quarter of 2020, expense recognized related to the modifications of certain former executives' and board members' equity awards due to leadership changes during the quarter and an increase in stock option grants as a result of the Company's annual grant in April 2020 and increased headcount as a result of the Aevi Merger. Legal, consulting and other professional expenses increased by $0.9 million due to increased patent costs driven by the additional assets acquired as part of the Aevi Merger, increased recruiting costs, and increased legal fees related to leadership changes and contract reviews performed. Additionally, salaries, benefits and related costs ~~decreased by $143,000 primarily~~increased $0.3 million mainly due to a ~~temporary reduction~~severance accrual related to the resignation of an executive during the second quarter of 2020.

Sales and Marketing Expenses

The following table summarizes our sales and marketing expenses for the six months ended June 30, 2020 and 2019:


	Six Months Ended June 30,
	2020		2019

	(in thousands)
Salaries, benefits and related costs	$	317	$	306
Stock-based compensation expense	142		78
Advertising and marketing expense	848		338
Other	23		—
	$	1,330	$	722

Sales and marketing expenses of continuing operations consist of expenses related to advertising and marketing initiatives to support the go-to-market strategy of our pipeline assets and the respective salaries and stock-based compensation to support such initiatives. The overall $0.6 million increase for the six months ended June 30, 2020 as compared to the same period in ~~headcount~~2019 was primarily driven by a $0.5 million increase in advertising and ~~certain employee benefits. Stock-based~~marketing expense related to market research and a $0.1 million increase in stock-based compensation expense ~~decreased~~driven by ~~$616,000,~~an increase in stock option grants as a result of the Company's annual grant in April 2020 and increased headcount as a result of the Aevi Merger which closed during the first quarter of 2020.

Amortization Expense

The following table summarizes our amortization expense for the six months ended June 30, 2020 and 2019:


	Six Months Ended June 30,
	2020	2019

	(in thousands)
Amortization of intangible assets	834	669

Amortization expense of the continuing operations relates to the amortization of the Company's acquired Millipred product marketing rights and amortization of the assembled workforces acquired as part of the Ichorion Acquisition and Aevi Merger. As a result of the asset acquisition accounting treatment of the Aevi Merger in the first quarter of 2020, the Company recorded an assembled workforce intangible asset of $0.7 million, which was assigned a two-year useful life. Therefore, the $0.2

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million increase to amortization expense for the six months ended June, 2020 as compared to the prior period was primarily driven by the ~~modification~~amortization expense of ~~grants made~~the assembled workforce acquired as part of the Aevi Merger.

Other Income, Net

The following table summarizes our other income (expense), net for the six months ended June 30, 2020 and 2019:


	Six Months Ended June 30,
	2020		2019

	(in thousands)
Change in fair value of Investment in Aytu	5,208		—
Change in fair value of warrant liability and unit purchase option liability	14		(29)
Other income (expense), net	396		(9)
Interest income, net	19		69
	$	5,637	$	31

Other income, net increased $5.6 million for the six months ended June 30, 2020 as compared to ~~our former chief executive officer~~the prior period. Other income, net is mainly comprised of a $5.2 million gain on change in the ~~first quarter~~fair value of ~~2016. Other general~~the Company's Investment in Aytu. As consideration of the Aytu Divestiture in November 2019, the Company received 9,805,845 shares of Aytu Series G Preferred Stock, which was remeasured at the current fair value each reporting period with the change in fair value recorded to other (expense) income, net in the accompanying statements of operations. In April 2020, the Company converted its shares of Aytu Preferred Stock into approximately 9.8 million shares of common and ~~administrative expenses decreased by $273,000 due to efforts to reduce certain other operating costs~~sold that common stock for net proceeds of approximately $12.8 million, thus representing a realized gain of $5.2 million from December 31, 2019, which was recognized in ~~order to preserve cash.~~

~~Change in Fair Value of Warrant Liability and Unit Purchase Option Liability~~

~~We recognized a net gain on~~ the change in fair value of ~~our warrant liability and UPO liability~~Investment in Aytu within the accompanying condensed consolidated statement of ~~$2,000~~operations. The gain was primarily driven by a significant increase in Aytu's stock price from December 31, 2019 to the dates the Company sold its shares of Aytu common stock in mid-April 2020.

Additionally, the Company recognized $0.4 million of other income for the six months ended June 30, 2020 related to the PPP Loan received during the ~~nine~~second quarter of 2020. The PPP Loan Program is part of the CARES Act, which serves to provide certain small businesses with liquidity to support their operations during the COVID-19 pandemic. PPP Loans are eligible for forgiveness under certain conditions. The Company believes it meets the criteria for forgiveness and submitted an application for forgiveness in July 2020. Therefore, the Company recognized $0.4 million as other income for the three months ended ~~September~~June 30, ~~2017 compared to a net gain of $58,000 for the nine months ended September 30, 2016.~~2020.

The $58,000 gain on the change in fair value during the 2016 period was primarily due to the decrease in fair value of the warrant liability and UPO liability. These decreases were attributable to a decrease in our common stock price compared to the previous year-end.

~~Interest Expense, Net~~

Net interest expense decreased by $328,000 for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease was primarily due to a decrease in interest associated with a reduction in the principal balance of our secured term loan facility. We made the final payment under this term loan on August 1, 2017.

Income Tax (Benefit) Expense

The ~~provision for~~following table summarizes our income ~~taxes was $3.2 million~~tax (benefit) expense for the ~~nine~~six months ended ~~September~~June 30, 2017 due to the net income generated from the sale of CERC-501. Our annual effective tax rate as of September 30, 2017 was approximately 18 percent. Our effective tax rate differs from the federal statutory rate due to the Company’s ability to utilize a portion of its prior net operating losses, which were previously subject to a valuation allowance, to offset current period income. We currently expect to generate2020 and 2019:


	Six Months Ended June 30,
	2020	2019

	(in thousands)
Income tax (benefit) expense	(2,611)	184

The Company recognized an income tax benefit ~~during~~of $2.6 million for the 4^th ~~quarter due~~six months ended June 30, 2020 and income tax expense of $0.2 million for the six months ended June 30, 2019. The tax benefit recognized for the six months ended June 30, 2020 was a result of a current year tax law change and the ability of the Company to ~~additional expected operating~~now carry back certain losses ~~during that period.~~related to the CARES Act and related state tax provisions. The expense recognized for the six months ended June 30, 2019 was a result of interest on an unpaid tax liability related to the 2017 tax year and state taxes

Liquidity and Capital Resources

WeIn June 2020, the Company closed an underwritten public offering of 15,180,000 shares of its common stock (inclusive of 1,980,000 shares that were sold pursuant to the underwriter’s full exercise of its option to purchase additional shares of Cerecor’s common stock) for net proceeds of approximately $35.4 million. In March 2020, the Company entered into a securities purchase agreement with its largest stockholder, Armistice Capital, LLC ("Armistice"), pursuant to which the Company sold 1,951,219 shares of the Company’s common stock for net proceeds of approximately $3.9 million. In February 2020, the Company closed a registered direct offering with institutional investors of 1,306,282 shares of the Company's common stock for net proceeds of

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approximately $5.1 million. See Note 9 for more information regarding these financings. Additionally, in April 2020, the Company converted its shares of Aytu preferred stock that were acquired in the fourth quarter of 2019 and subsequently sold that common stock, which generated net proceeds of approximately $12.8 million. As of June 30, 2020, Cerecor had $45.4 million in cash and cash equivalents.

The accompanying condensed consolidated financial statements have ~~devoted most of our cash resources~~been prepared assuming the Company will continue as a going concern; however, the Company expects to incur additional losses in the future in connection with its research and development activities and ~~general~~will require additional financing to fund its operations and ~~administrative activities. Since our inception, we have incurred net losses and negative~~to continue to execute its business strategy. The Company plans to use its current cash on hand, the anticipated cash flows from ~~our operations. We expect~~the Company's profits from Millipred product sales and/or the potential proceeds from a possible out-license or sale of Millipred to a third party to offset costs related to its pipeline assets, business development, and costs associated with its organizational infrastructure; however, Cerecor expects to continue to incur significant expenses and operating losses for the ~~foreseeable~~immediate future as weit continues to invest in the Company's pipeline assets. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise additional equity and/or debt capital, sell assets and/or obtain government funding; however, there can be no assurance that it will be able to do so nor that such activities will generate sufficient amounts, if any, on terms acceptable to the Company.

Over the long term, the Company's ultimate ability to achieve and maintain profitability will be dependent on, among other things, the development, ~~preclincial~~regulatory approval, and ~~clinical trials~~commercialization of its pipeline assets, and ~~seek~~the potential sale of any PRVs it receives, in order to support its cost structure and pipeline asset development.

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the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017 we had an accumulated deficit of $55.1 million, net working capital of $23.3 million and cash and cash equivalents of $24.0 million primarily due toother distribution or licensing arrangements, or the sale of ~~CERC-501. To date, we~~current or future assets. If the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, the Company might have not generated any commercial revenues from the sale of products and we do not anticipate generating any revenues from the commercial sale of our product candidates for the foreseeable future. Historically, we have financed our operations principally through private and public placements of common stock, private placements of convertible preferred stock and convertible and nonconvertible debt. In April 2017, we raised gross proceeds of $5.0 million from a private placement of our equity securities. On August 14. 2017, we sold all of ourto relinquish valuable rights to ~~CERC-501 to Janssen in exchange for initial gross proceeds of $25.0 million, of which $3.75 million was deposited into a twelve month escrow~~its technologies, future revenue streams, research programs or product candidates. If the Company is not able to secure ~~certain indemnification obligations~~adequate additional funding, the Company may be forced to ~~Janssen. In addition~~make reductions in spending, extend payment terms with suppliers, liquidate assets where possible or suspend or curtail planned programs. Due to the ~~initial proceeds,~~uncertainty regarding future financings and/or other potential options to raise additional funds, management has concluded that substantial doubt exists with respect to the terms of the agreement provide for a potential future $20 million regulatory milestone payment. Further, the terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of CERC-501.

~~We will require substantial additional financing to fund our operations~~Company’s ability to continue as a going concern within one year after the date that the financial statements in this Quarterly Report were issued.

Uses of Liquidity

The Company uses cash to execute our strategy. Our strategy is to seek funding for our operations from further offerings of equity or debt securities, non-dilutive financing arrangements such as federal grants, collaboration agreements or out-licensing arrangements, and to explore strategic alternatives such as an acquisition, merger, or business combination. Based on our currentfund research and development ~~plans we expect that our existing cash~~expenses related to its core asset pipeline, business development and ~~cash equivalents, together~~costs associated with ~~the initial proceeds from the Janssen sale, will enable us to fund our operating expenses and capital expenditure requirements through 2018.~~its organizational infrastructure.

~~Term Loan~~

In August 2014, we received a $7.5 million secured term loan from a finance company. The loan was secured by a lien on all our assets, excluding intellectual property, which was subject to a negative pledge. The loan agreement contained certain additional nonfinancial covenants. In connection with the loan agreement, our cash and investment accounts were subject to account control agreements with the finance company that give the finance company the right to assume control of the accounts in the event of a loan default. Loan defaults were defined in the loan agreement and include, among others, the finance company’s determination that there was a material adverse change in our operations, other than adverse results of clinical trials. Interest on the loan was at a rate of the greater of 7.95%, or 7.95% plus the prime rate as reported in The Wall Street Journal minus 3.25%. On August 1, 2017, we made the final payment of $494,231 under the loan, which included a termination fee of $187,500.

Cash Flows

The following table summarizes our cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016:~~2019:

Nine Months Ended September 30,
2017 2016
(in thousands)
Net cash provided by (used in):
Operating activities $ 15,110
$ (10,860 )
Investing activities (8 ) (26 )
Financing activities 3,726
(1,461 )
Net increase (decrease) in cash and cash equivalents $ 18,828
$ (12,347 )

~~Net cash provided by (used in) operating activities~~

Net cash provided by operating activities was $15.1 million for the nine months ended September 30, 2017 and consisted primarily of net income of $15.0 million, offset by an increase in escrowed cash receivable of $3.8 million which resulted from the sale of all of our rights to CERC-501 and a $698,000 decrease in accounts payable. These were offset by non‑cash stock-based compensation expense of $852,000.


	Six Months Ended June 30,
	2020		2019

	(in thousands)
Net cash provided by (used in):
Operating activities	$	(14,294)	$	(9,839)
Investing activities	11,586		(257)
Financing activities	44,583		8,914
Net increase (decrease) in cash and cash equivalents	$	41,875	$	(1,182)

Net cash used in operating activities

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Net cash used in operating activities was ~~$10.9~~$14.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2020, consisting primarily of a net loss of $34.4 million, which was driven by increased research and development activities as the Company continued to fund its pipeline of development assets, and non-cash adjustments to reconcile net loss to net cash used in operating activities including a $5.2 million realized gain related to the change in fair value of the Investment in Aytu and a $1.8 million gain related to the change in value of the Guarantee associated with the Aytu Divestiture. This decrease was offset by the following non-cash adjustments: non-cash acquired IPR&D expense of $25.5 million and non-cash stock-based compensation of $3.9 million. Additionally, changes in net assets, increased by a net $2.8 million, mainly driven by a $1.9 million increase in other receivables. Other receivables increased mainly due to a $2.2 million income tax receivable.

Net cash used in operating activities was $9.8 million for the six months ended June 30, 2019 and consisted primarily of a net loss of ~~$14.8~~$13.7 million, which was driven by increased research and development activities as the Company continued to fund its pipeline of development assets and also by increased sales and marketing expenses incurred to support commercial sales activities. The net loss was partially offset by non-cash depreciation and amortization of $2.2 million, non-cash impairment of intangible assets of $1.4 million related to the impairment of an intangible asset (of discontinued operations), non-cash stock-based compensation expense of ~~$1.4~~$1.1 million, and ~~an increase~~changes in working capital, primarily, a decrease in accrued expenses and other liabilities of ~~$2.5~~$6.3 million offset by a decrease in other receivables of $5.3 million.

Net cash used in investing activities

Net cash provided by investing activities was $11.6 million for the six months ended June 30, 2020 and consisted primarily of net proceeds of $12.8 million from the sale of the common stock during the second quarter of 2020 underlying the Company's previous Investment in Aytu, slightly offset by transaction costs incurred as part of the Aevi Merger.

Net cash used in investing activities was $0.3 million for the six months ended June 30, 2020 and consisted primarily of the purchase of property and equipment in connection with the Company occupying its corporate headquarters during the first quarter of 2019.

Net cash provided by ~~(used in)~~ financing activities

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Net cash provided by financing activities was ~~$3.7~~$44.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, which~~2020 and consisted primarily of ~~gross~~net proceeds of ~~$1.7~~$35.4 million from an underwritten public offering of common stock for 15,180,000 shares of common stock of the Company. The Company also received $5.1 million from a registered direct offering with certain institutional investors, which included Armistice, that closed in February 2020 for the sale of 1,306,282 shares of common stock ~~under an equity distribution agreement with~~of the ~~Maxim Group~~Company and ~~$4.6~~$3.9 million ~~net~~ from a private placement of equity securities towith Armistice ~~Capital Master Fund Ltd, offset by principal payments on our term loan of $2.4 million.~~during March 2020.

Net cash ~~used in~~provided by financing activities was ~~$1.5~~$8.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016, which~~2019 and consisted primarily of net proceeds of ~~$1.0~~approximately $9.0 million from the ~~sale~~underwritten public offering of common stock for 1,818,182 shares of common stock of the Company. Additionally, for the six months ended June 30, 2019, the Company received $0.3 million of proceeds from exercise of stock options and warrants and $0.1 million of proceeds from sales of common stock under the employee stock purchase plan. The increase was partially offset by ~~principal payments~~$0.4 million payment of contingent consideration related to the Avadel pediatric product's acquisition.

Critical Accounting Policies, Estimates, and Assumptions

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our ~~term loan~~unaudited condensed consolidated financial statements included in this Quarterly Report, which have been prepared in accordance with GAAP. In preparing the financial statements in conformity with GAAP, the Company makes estimates and assumptions that have an impact on assets, liabilities, revenue and expenses reported. These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk, and financial condition. In our unaudited condensed consolidated financial statements, estimates are used for, but not limited to, revenue recognition, cost of ~~$2.5 million.~~

~~Operating~~product sales, stock-based compensation, fair value measurements (including those relating to the Guarantee and ~~Capital Expenditure Requirements~~

~~We have not achieved profitability since our inception and, while we did recognize license~~Investment in Aytu), cash flows used in management's going concern assessment, income taxes, goodwill, and other ~~revenue~~intangible assets and clinical trial accruals. The Company believes, given current facts and circumstances, that our estimates and assumptions are reasonable, adhere to GAAP and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from ~~the sale of CERC-501, we expect to continue to incur net losses~~estimates, and estimates may vary as new facts and circumstances arise. Our most critical accounting estimates and assumptions are included in our Annual Report on Form 10-K for the foreseeable future. We expect to continue to incur significant legal, accounting and other expenses that relate to being a public company. In addition, the Sarbanes‑Oxley Act, as well as rules adopted by the Securities and Exchange Commission, or SEC, and the NASDAQ Stock Market, requires public companies to implement specified corporate governance practices that are inapplicable to private companies. We expect these rules and regulations will continue to increase our legal and financial compliance costs and will make some activities more time consuming and costly. Based on our research and development plans, we expect that our existing cash and cash equivalents, togetheryear ended December 31, 2019 filed with the ~~initial proceeds of $25.0 million from~~SEC on March 11, 2020 except for the ~~Janssen sale, of which $3.75 million will be held~~recently adopted accounting standards described in escrow for twelve months, which will enable us to fund our operating expenses and capital expenditure requirements through 2018. We will require substantial additional financing to fund our operations and to continue to develop our product candidates. Our strategy is to seek funding for our operations from further offerings of equity or debt securities, non-dilutive financing arrangements such as federal grants, collaboration agreements or out-licensing arrangements, and to explore strategic alternatives such as an acquisition, merger, or business combination.

Each of our product candidates are still in the early stages of preclinical and clinical development and the outcome of these efforts is uncertain. We cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may generate revenue.

We will need to raise substantial additional capital in the future to fund our operations and to further develop our product candidates and we anticipate funding our operations from further offerings of equity or debt securities, non-dilutive financing arrangements such as federal grants, collaboration agreements or out-licensing arrangements, and to explore strategic alternatives such as an acquisition, merger, or business combination. However, there can be no assurance that we will be able to obtain additional equity or debt financing, or strategic alternatives, on terms acceptable to us, if at all. If we raise additional funds through collaboration and licensing agreements with third parties, it may be necessary to relinquish valuable rightsNote 2 to our product candidates, technologies or future revenue streams or to grant licenses on terms that may not be favorable to us. There can also be no assurance that the exploration of strategic alternatives will resultunaudited condensed consolidated financial statements included elsewhere in ~~any such transaction. Our future capital requirements will depend on many forward‑looking factors, including:~~

~~the progress and results of any clinical trials for CERC-301~~

~~the progress and results of any clinical trials for CERC-611 and any changes to our development plan with respect to CERC-611, if any;~~

~~our plan and ability to enter into collaborative or licensing agreements for the development and commercialization of our product candidates;~~

~~the number and development requirements of any other product candidates that we may pursue;~~

~~the scope, progress, results and costs of researching and developing our product candidates or any future product candidates, both in the United States and in territories outside the United States;~~

~~the costs, timing and outcome of regulatory review of our product candidates or any future product candidates, both in the United States and in territories outside the United States;~~

this

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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution for any of our product candidates for which we receive marketing approval;

~~the costs and timing of any product candidate acquisition or in‑licensing opportunities;~~

~~any product liability or other lawsuits related to our products;~~

~~the expenses needed to attract and retain skilled personnel;~~

~~the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; and~~

the costs involved in preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending our intellectual property‑related claims, both in the United States and in territories outside the United States.

We have entered into agreements with contract research organizations and other external service providers for services, primarily in connection with the clinical trials and development of our product candidates. We were contractually obligated for up to approximately $1.2 million of future services under these agreements as of September 30, 2017. Our actual contractual obligations will vary depending upon several factors, including the progress and results of the underlying services.

~~Please refer to the section entitled “Risk Factors” at Item 1A of this~~ Quarterly Report on Form ~~10-Q for additional risks associated with~~10-Q. There have been no material changes to our ~~substantial capital requirements.~~critical accounting policies during the six months ended June 30, 2020

Off-Balance Sheet Arrangements

~~Off‑Balance Sheet Arrangements~~

We do not have any off-balance sheet arrangements, as defined by applicable SEC rules and regulations.

~~Recent~~Recently Adopted Accounting Pronouncements

See Item 1 of Part I, “Notes to Unaudited Financial Statements,” Note 2, of this Quarterly Report on Form 10-Q.

JOBS Act

The JOBS Act contains provisions that, among other things, reduce reporting requirements for an “emerging growth company.” As an emerging growth company, we have elected to not take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

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Item 3. Quantitative and Qualitative Disclosures ~~about~~About Market ~~Risk~~Risk.

Interest Rate Risk

~~We maintain~~ As a ~~short-term investment portfolio consisting mainly of highly liquid short-term money market funds, which~~smaller reporting company, we ~~consider~~are not required to be cash equivalents. These investments earn interest at variable rates and, as a result, decreases in market interest rates would generally result in decreased interest income. We do not believe that a 10% increase or decrease in interest rates would have a material effect onprovide the ~~fair value of our investment portfolio due to the short-term nature of these instruments, and accordingly we do not expect our operating results or cash flows to be materially affected~~information required by ~~a sudden change in market interest rates.~~this Item.

Item 4. Controls and ~~Procedures~~Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures ~~are~~were effective at the reasonable assurance level ~~in ensuring that information required to be disclosed~~as of the end of the period covered by ~~us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.~~this Quarterly Report on Form 10-Q.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control ~~over~~Over Financial Reporting

There ~~have not been any~~were no changes in our internal ~~controls~~control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the ~~quarter ended September 30, 2017~~period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal ~~Proceedings~~Proceedings.

In November 2017, Cerecor acquired TRx Pharmaceuticals, LLC ("TRx") and its wholly-owned subsidiaries, including Zylera Pharmaceuticals, LLC, and its franchise of commercial medications (the "TRx Acquisition"). TRx was owned by Fremantle LLC ("Fremantle") and LRS International, LLC ("LRS", and collectively, the "former TRx owners"). A portion of the consideration for TRx Acquisition included shares of Cerecor common stock. The TRx Acquisition also included certain earn-outs for the former TRx owners for Cerecor achieving gross profit targets in the sales of the TRx acquired products. Currently, the former TRx owners beneficially own more than 10% of Cerecor's outstanding common stock.

~~We are~~

On December 19, 2019, Cerecor, through its law firm, received a letter from an attorney on behalf of the former TRx owners dated December 18, 2019, which enclosed a draft complaint seeking relief against Cerecor and one of the members of its board of directors. The letter further threatened that if an immediate discussion regarding a settlement did not ~~currently~~occur, that the lawsuit would be filed on December 24, 2019. The parties met for a ~~party~~pre-lawsuit mediation in June 2020, however no resolution was reached. As of the date of this filing, no lawsuit has been filed. The proposed complaint indicates that the former TRx owners would seek the following relief: (a) $3,000,000 on the grounds that commercially reasonable efforts to ~~any material legal proceedings~~sell the acquired TRx products would have resulted in the gross profit earn-out target being reached; (b) that the $3,000,000 amount be trebled as a result of Cerecor's alleged improper conduct; (c) $9,200,000 as a result of alleged losses resulting from the alleged improper treatment of the former TRx owners as affiliates; and ~~we are not aware~~(d) the removal of any ~~pending or threatened legal proceeding~~restrictions on the former TRx owners' shares of common stock in Cerecor. Cerecor disputes that the former TRx owners are entitled to the relief sought and intends to vigorously defend against ~~us that we believe could have a material adverse effect~~any lawsuit filed on ~~our business, operating results, cash flows or financial condition.~~behalf of the former TRx owners.

Item 1A. Risk ~~Factors~~Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, filed with the SEC on March ~~10, 2017,~~11, 2020 , our Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020 and our Current Report on Form 8-K filed with the SEC on June 9, 2020 which could materially affect our business, financial condition, or future results. Our risk factors as of the date of this Quarterly Report on Form 10-Q have not changed materially from those described in ~~our Annual Report on~~the Form ~~10-K. However, the~~10-K, 10-Q and 8-K referenced above. The risks described in ~~our Annual Report on~~the Form 10-K, 10-Q and 8-K referenced above are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results of operations and the trading price of our common stock.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.~~

~~None.~~

~~Item 3.Defaults Upon Senior Securities.~~

~~None.~~

~~Item 4.Mine Safety Disclosures.~~

~~None.~~

~~Item 5.Other Information.~~

~~None.~~

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Item 6. ~~Exhibits~~

Exhibits.



Exhibit Number		Description of Exhibit

~~2.1~~10.25#			~~Asset Purchase~~Employment Agreement, dated ~~as of August 14, 2017,~~September 26, 2019, by and ~~among~~between Cerecor Inc. and ~~Janssen Pharmaceuticals, Inc.~~Christopher Sullivan (incorporated by reference to Exhibit ~~2.1 to the Current Report on Form 8-K filed on August 14, 2017).~~

~~3.1~~	~~Amended and Restated Certificate of Incorporation of Cerecor Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on October 20, 2015).~~

~~3.1.1~~	~~Form of Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of Cerecor Inc. (incorporated by reference to Exhibit 3.1~~10.1 to the Current Report on Form 8-K filed on April ~~28, 2017)~~27, 2020).

~~3.2~~10.26#			~~Amended~~Letter Agreement, dated April 23, 2020, by and ~~Restated Bylaws of~~between Cerecor Inc. and Christopher Sullivan (incorporated by reference to Exhibit ~~3.2 to Amendment No. 1 to the Current Report on Form 8-K filed on October 20, 2015).~~

~~4.1~~	~~Second Amended and Restated Investors' Rights Agreement, dated as of July 11, 2014 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 filed on June 12, 2015).~~

~~4.2~~	Form of Warrant to Purchase Shares of Common Stock issued in connection with the sale of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1 filed on June 12, 2015).

~~4.3~~	Form of Warrant to Purchase Shares of Common Stock issued in connection with the sale of Series A-1 Convertible Preferred Stock, as amended by the Amendment to Common Stock Warrants, dated as of July 11, 2014 (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1 filed on June 12, 2015).

~~4.4~~	Form of Warrant to Purchase Shares of Common Stock, issued to CIFCO International Group and its affiliate (incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-1 filed on June 12, 2015).

~~4.5~~	Form of Warrant to Purchase Shares of Common Stock issued in connection with the issuance of convertible promissory notes from April 2014 through June 2014 (incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-1 filed on June 12, 2015).

~~4.6~~	Warrant Agreement, dated as of August 19, 2014, issued to Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-1 filed on June 12, 2015).

~~4.7~~	~~Form of Unit Purchase Option (incorporated by reference to Annex IV of Exhibit 1.1 to the Registration Statement on Form S-1 filed on June 12, 2015).~~

~~4.9~~	~~Form of Class A Warrant Agreement (incorporated by reference to Exhibit 4.9 to the Registration Statement on Form S-1 filed on October 13, 2015).~~

~~4.1~~	~~Specimen Class A Warrant Certificate (incorporated by reference to Exhibit 4.10 to the Registration Statement on Form S-1 filed on October 13, 2015).~~

~~4.11~~	~~Form of Class B Warrant Agreement (incorporated by reference to Exhibit 4.11 to the Registration Statement on Form S-1 filed on October 13, 2015).~~

~~4.12~~	~~Specimen Class B Warrant Certificate (incorporated by reference to Exhibit 4.12 to the Registration Statement on Form S-1 filed on October 13, 2015).~~

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~~4.13~~			~~Specimen Unit Certificate (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-1 filed on October 13, 2015).~~



~~4.14~~	~~Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 filed on May 20, 2016).~~

~~4.15~~	~~Form of Warrant to Purchase Common Stock of Cerecor Inc. (incorporated by reference to Exhibit 4.1~~10.2 to the Current Report on Form 8-K filed on April ~~28, 2017)~~27, 2020).

~~31.1~~10.27#			Separation Agreement, dated April 24, 2020, by and between Cerecor Inc. and Simon Pedder (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on April 27, 2020).

10.28*+		Amended and Restated Clinical Development and Option Agreement, dated May 28, 2020, by and between Aevi Genomic Medicine, LLC and Kyowa Kirin Co., Ltd., formerly known as Kyowa Hakko Kirin Co., Ltd.

10.29#		Cerecor Inc. Third amended and Restated 201 6 Equity Incentive Plan (incorporated by refe rence to Exhibit 10.1 to the Current Report on Form 8-K filed on June 18, 2020).

31.1+		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2~~31.2+			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~32.1~~32.1+†		*	Certification of ~~Chief~~Principal Executive Officer and ~~Chief~~Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002 .

~~101.INS~~101				~~XBRL Instance Document.~~Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019; (ii) Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2020 and 2019; (iii) Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2020 and 2019; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2020 and 2019; and (v) Notes to Unaudited Financial Statements

~~101.SCH~~104				~~XBRL Taxonomy Extension Schema Document.~~Cover Page Interactive Data File, formatted in iXBRL (included in Exhibit 101

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document.~~

~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document.~~

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document.~~

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document.~~

# Management contract or compensatory agreement.

* ~~These certifications are~~Portions of this exhibit have been omitted in accordance with Item 601(b)(10) of Regulation S-K.

+ Filed herewith.

† This certification is being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, and ~~are~~is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and ~~are~~is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Cerecor Inc.

Date: August 6, 2020

/s/ ~~John Kaiser~~Christopher Sullivan

~~John Kaiser~~Christopher Sullivan

Interim Chief ~~Executive~~Financial Officer

(on behalf of the registrant and as the registrant’s ~~Principal Executive Officer)~~principal financial officer and principal accounting officer)

~~Date: November 6, 2017~~

~~/s/ Mariam E. Morris~~

~~Mariam E. Morris~~

~~Chief Financial Officer~~

~~(Principal Financial Officer)~~

~~Date: November 6, 2017~~



	Nine Months Ended September 30,
	2017			2016
Operating activities
Net income (loss)	$	14,961,458		$	(14,832,899	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation	17,050			20,468
Stock-based compensation expense	852,210			1,439,194
Non-cash interest expense	20,365			134,096
Change in fair value of warrant liability and unit purchase option liability	1,586			57,595
Changes in assets and liabilities:
Grants receivable	102,337			(379,256		)
Prepaid expenses and other assets	50,228			191,527
Escrowed funds receivable	(3,750,803		)	—
Restricted cash	(18,067		)	(79,051		)
Accounts payable	(697,695		)	109,908
Accrued expenses and other liabilities	341,109			2,478,234
Income taxes payable	3,230,000			—
Net cash provided by (used in) operating activities	15,109,778			(10,860,184		)
Investing activities
Purchase of property and equipment	(7,990		)	(25,646		)
Net cash used in investing activities	(7,990		)	(25,646		)
Financing activities
Proceeds from sale of shares under common stock purchase agreements, net	1,693,498			1,000,000
Proceeds from sale of shares pursuant to private placement, net	4,650,000			—
Proceeds from sales of common stock under employee stock purchase plan, net	35,430			—
Principal payments on term debt	(2,374,031		)	(2,459,493		)
Payment of financing costs	(279,246		)	(1,467		)
Net cash provided by (used in) financing activities	3,725,651			(1,460,960		)
Increase (decrease) in cash and cash equivalents	18,827,439			(12,346,790		)
Cash and cash equivalents at beginning of period	5,127,958			21,161,967
Cash and cash equivalents at end of period	$	23,955,397		$	8,815,177
Supplemental disclosures of cash flow information
Cash paid for interest	$	72,526		$	287,841
Supplemental disclosures of noncash financing activities
Accrued financing costs	$	—		$	101,728



	September 30, 2017
	Fair Value Measurements Using
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets
Investments in money market funds*	$	23,715,016	$	—	$	—
Liabilities
Warrant liability	$	—	$	—	$	531
Unit purchase option liability	$	—	$	—	$	6,607



	December 31, 2016
	Fair Value Measurements Using
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets
Investments in money market funds*	$	4,758,539	$	—	$	—
Liabilities
Warrant liability	$	—	$	—	$	5,501
Unit purchase option liability	$	—	$	—	$	51



	Warrant Liability			Unit purchase option liability		Total
Balance at December 31, 2016	$	5,501		$	51	$	5,552
Change in fair value	(4,970		)	6,556		1,586
Balance at September 30, 2017	$	531		$	6,607	$	7,138



	September 30, 2017		December 31, 2016
Term loan	$	—	$	2,374,031
Less: debt discount	—		(20,364		)
Term Loan, net of debt discount	$	—	$	2,353,667



	Options Outstanding
	Number of shares		Weighted‑average exercise price		Fair value of options granted		Weighted average remaining contractual term (in years)
Balance, December 31, 2016	1,849,359		$	5.57
Granted	578,611		$	0.74	$	301,743
Forfeited	(18,391	)	$	5.63
Balance, September 30, 2017	2,409,579		$	4.41			8.12
Exercisable at September 30, 2017	1,467,463		$	5.25			7.65