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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 SeptemberJune 30, 20172021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-3759001-37590
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 606400
Baltimore,Rockville, Maryland 2120220850
(Address of principal executive offices)
(410) 522‑8707522-8707
(Registrant’s telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par value

CERCNasdaq 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‑TS-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‑acceleratednon-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“emerging growth company"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,July 30, 2021, the registrant had 26,054,85796,008,951 shares of common stock outstanding.



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CERECOR INC.
 
FORM 10-Q
 
For the Quarter Ended SeptemberJune 30, 20172021
 
TABLE OF CONTENTS
Page
a)
3
b)
4
d)
5
c)
7
Page
PART I. 
e)
Item 1.
Financial Statements
a)
Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016
3
b)
Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2017 and 2016
4
c)
Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2017 and 2016
5
d)
Notes to Unaudited Condensed Consolidated Financial Statements
69
2028
3040
3040
3141
3141
3142
Exhibits
3244
SIGNATURES
34


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PART I –- FINANCIAL INFORMATION

Item 1.  Financial StatementsStatements.
CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
 
Balance Sheets
June 30, 2021December 31, 2020
(unaudited)
Assets        
Current assets:  
Cash and cash equivalents$40,435 $18,919 
Accounts receivable, net4,120 2,177 
Other receivables998 2,208 
Inventory, net20 3 
Prepaid expenses and other current assets1,750 2,660 
Restricted cash, current portion41 38 
Total current assets47,364 26,005 
Property and equipment, net1,431 1,607 
Intangible assets, net732 1,585 
Goodwill14,409 14,409 
Restricted cash, net of current portion149 149 
Total assets$64,085 $43,755 
Liabilities and stockholders’ equity  
Current liabilities:  
Accounts payable$3,965 $2,574 
Accrued expenses and other current liabilities17,611 11,310 
Current liabilities of discontinued operations98 1,341 
Total current liabilities21,674 15,225 
Notes payable17,143 0 
Royalty obligation2,000 2,000 
Deferred tax liability, net122 90 
Other long-term liabilities1,558 1,878 
Total liabilities42,497 19,193 
Stockholders’ equity:  
Common stock—$0.001 par value; 200,000,000 shares authorized at June 30, 2021 and December 31, 2020; 96,008,951 and 75,004,127 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively96 75 
Preferred stock—$0.001 par value; 5,000,000 shares authorized at June 30, 2021 and December 31, 2020; 0 and 1,257,143 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively0 1 
Additional paid-in capital247,067 202,276 
Accumulated deficit(225,575)(177,790)
Total stockholders’ equity21,588 24,562 
Total liabilities and stockholders’ equity$64,085 $43,755 
  September 30,
2017		 December 31,
2016
  (unaudited)  
Assets          
Current assets:    
Cash and cash equivalents $23,955,397
 $5,127,958
Escrowed cash receivable 3,750,803
 —
Grants receivable 30,135
 132,472
Prepaid expenses and other current assets 341,025
 391,253
Restricted cash, current portion 29,159
 11,111
Total current assets 28,106,519
 5,662,794
Property and equipment, net 34,183
 43,243
Restricted cash, net of current portion 62,847
 62,828
Total assets $28,203,549
 $5,768,865
Liabilities and stockholders’ (deficit) equity    
Current liabilities:    
Term debt, net of discount $—
 $2,353,667
Accounts payable 312,514
 1,010,209
Accrued expenses and other current liabilities 1,290,683
 947,987
Income taxes payable 3,230,000
 —
Total current liabilities 4,833,197
 4,311,863
License obligations 1,250,000
 1,250,000
Total liabilities 6,083,197
 5,561,863
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
Additional paid-in capital 77,167,922
 70,232,651
Accumulated deficit (55,073,625) (70,035,083)
Total stockholders’ equity 22,120,352
 207,002
Total liabilities and stockholders’ equity $28,203,549
 $5,768,865

See accompanying notes to the unaudited condensed consolidated financial statements.


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CERECOR INC. and SUBSIDIARIES
 
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(In thousands, except per share data)
 
Three Months EndedSix Months Ended
 June 30,June 30,
 2021202020212020
Revenues:
Product revenue, net$2,730 $1,338 $3,204 $4,092 
License revenue625 0 625 0 
Total revenues, net3,355 1,338 3,829 4,092 
Operating expenses:
Cost of product sales83 78 159 144 
Research and development12,569 5,917 37,774 10,685 
Acquired in-process research and development0 0 0 25,549 
General and administrative6,618 6,101 11,530 8,777 
Sales and marketing786 653 1,221 1,330 
Amortization expense428 404 853 834 
Total operating expenses20,484 13,153 51,537 47,319 
(17,129)(11,815)(47,708)(43,227)
Other (expense) income:
Change in fair value of Investment in Aytu0 (1,872)0 5,208 
Other income (expense), net(5)398 (5)410 
Interest (expense) income, net(239)9 (222)18 
Total other (expense) income, net from continuing operations(244)(1,465)(227)5,636 
Loss from continuing operations before taxes(17,373)(13,280)(47,935)(37,591)
Income tax benefit(199)(454)(188)(2,611)
Loss from continuing operations$(17,174)$(12,826)$(47,747)$(34,980)
Income (loss) from discontinued operations, net of tax69 (455)(38)582 
Net loss$(17,105)$(13,281)$(47,785)$(34,398)
Net (loss) income per share of common stock, basic and diluted:
Continuing operations$(0.18)$(0.18)$(0.50)$(0.53)
Discontinued operations0 (0.01)0 0.01 
Net loss per share of common stock, basic and diluted$(0.18)$(0.19)$(0.50)$(0.52)
Net (loss) income per share of preferred stock, basic and diluted:
Continuing operations$(0.88)$(0.93)$(2.49)$(2.66)
Discontinued operations0 (0.03)0 0.04 
Net loss per share of preferred stock, basic and diluted$(0.88)$(0.96)$(2.49)$(2.62)
  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

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)
(In thousands, except share amounts)

 Common stockPreferred StockAdditional paid-inAccumulatedTotal stockholders’
 SharesAmountSharesAmountcapitaldeficitequity
Three Months Ended June 30, 2021
Balance, March 31, 202189,104,816 $89 1,257,143 $1 $241,535 $(208,470)$33,155 
Conversion of preferred stock to common stock6,285,715 6 (1,257,143)(1)(5)— 0 
Restricted stock units vested during period77,917 — — — — — — 
Shares purchased through employee stock purchase plan88,686 — — — 207 — 207 
Issuance of equity classified warrants related to venture debt financing agreement— — — — 861 — 861 
Exercise of stock options451,817 1 — — 1,395 — 1,396 
Stock-based compensation— — — — 3,074 — 3,074 
Net loss— — — — — $(17,105)(17,105)
Balance, June 30, 202196,008,951 $96 0 $0 $247,067 $(225,575)$21,588 
 Common stockPreferred StockAdditional paid-inAccumulatedTotal stockholders’
 SharesAmountSharesAmountcapitaldeficitequity
Six Months Ended June 30, 2021
Balance, December 31, 202075,004,127 $75 1,257,143 $1 $202,276 $(177,790)$24,562 
Issuance of shares of common stock and pre-funded warrants in underwritten public offering, net13,971,889 14 — — 37,639 — 37,653 
Conversion of preferred stock to common stock6,285,715 6 (1,257,143)(1)(5)— 0 
Restricted stock units vested during period77,917 — — — — — — 
Shares purchased through employee stock purchase plan88,686 — — — 207 — 207 
Issuance of equity classified warrants related to venture debt financing agreement— — — — 861 — 861 
Exercise of stock options580,617 1 — — 1,567 — 1,568 
Stock-based compensation— — — — 4,522 — 4,522 
Net loss— — — — — (47,785)(47,785)
Balance, June 30, 202196,008,951 $96 0 $0 $247,067 $(225,575)$21,588 


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 Common stockPreferred StockAdditional paid-inAccumulatedTotal stockholders’
 SharesAmountSharesAmountcapitaldeficitequity
Three Months Ended June 30, 2020
Balance, March 31, 202059,560,252 $59 1,257,143 $1 $160,936 $(135,408)$25,588 
Issuance of shares of common stock in underwritten public offering, net of offering costs15,180,000 15 — — 35,413 — 35,428 
Exercise of stock options25,071 — — — 18 — 18 
Restricted Stock Units vested during period111,667 — — — — — — 
Restricted Stock Units withheld for taxes(35,279)— — — (94)— (94)
Shares purchased through employee stock purchase plan58,336 — — — 133 — 133 
Stock-based compensation— — — — 2,786 — 2,786 
Net loss— — — — — (13,281)(13,281)
Balance, June 30, 202074,900,047 $74 1,257,143 $1 $199,192 $(148,689)$50,578 
 Common stockPreferred StockAdditional paid-inAccumulatedTotal stockholders’
 SharesAmountSharesAmountcapitaldeficitequity
Six Months Ended June 30, 2020
Balance, December 31, 201944,384,222 $44 2,857,143 $3 $135,239 $(114,291)$20,995 
Conversion of preferred stock to common stock8,000,000 8 (1,600,000)(2)(6)— 0 
Issuance of shares related to Aevi Merger3,893,361 4 — — 15,492 — 15,496 
Issuance of shares pursuant to registered direct offering, net of offering costs1,306,282 1 — — 5,135 — 5,136 
Issuance of shares pursuant to common stock private placement, net of offering costs1,951,219 2 — — 3,886 — 3,888 
Issuance of shares of common stock in underwritten public offering, net of offering costs15,180,000 15 — — 35,413 — 35,428 
Exercise of stock options50,239 — — — 92 — 92 
Restricted stock units vested during period111,667 — — — — — — 
Restricted stock units withheld for taxes(35,279)— — — (94)— (94)
Shares purchased through employee stock purchase plan58,336 — — — 133 — 133 
Stock-based compensation— — — — 3,902 — 3,902 
Net loss— — — — — (34,398)(34,398)
Balance, June 30, 202074,900,047 $74 1,257,143 $1 $199,192 $(148,689)$50,578 
See accompanying notes to the unaudited condensed consolidated financial statements.
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CERECOR INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
 Six Months Ended June 30,
 20212020
Operating activities        
Net loss$(47,785)$(34,398)
Adjustments to reconcile net loss used in operating activities:
Depreciation and amortization907 879 
Stock-based compensation4,522 3,902 
Accretion of debt discount104 0 
Acquired in-process research and development, including transaction costs0 25,549 
Deferred taxes31 (424)
Change in fair value of Investment in Aytu0 (5,208)
Change in fair value of warrant liability and unit purchase option liability0 (14)
Change in value of Guarantee0 (1,755)
Changes in assets and liabilities:
Accounts receivable, net(1,943)(532)
Other receivables1,210 (1,852)
Inventory, net(17)9 
Prepaid expenses and other assets910 (24)
Accounts payable (excluding unpaid debt issuance costs)(324)83 
Income taxes payable0 288 
Accrued expenses and other liabilities4,916 (815)
Lease liability, net(34)18 
Net cash used in operating activities(37,503)(14,294)
Investing activities  
Proceeds from sale of Investment in Aytu, net0 12,837 
Net cash paid in merger with Aevi0 (1,251)
Purchase of property and equipment(21)0 
Net cash used in investing activities(21)11,586 
Financing activities  
Proceeds from issuance of common stock and pre-funded warrants in underwritten public offering, net37,653 0 
Proceeds from Notes and warrants, net of debt issuance costs paid19,615 0 
Proceeds from underwritten public offering, net0 35,428 
Proceeds from registered direct offering, net0 5,136 
Proceeds from sale of shares pursuant to common stock private placement, net0 3,888 
Proceeds from exercise of stock options1,568 92 
Proceeds from issuance of common stock under employee stock purchase plan207 133 
Restricted stock units withheld for taxes0 (94)
Net cash provided by financing activities59,043 44,583 
Increase in cash, cash equivalents and restricted cash21,519 41,875 
Cash, cash equivalents, and restricted cash at beginning of period19,106 3,729 
Cash, cash equivalents, and restricted cash at end of period$40,625 $45,604 
Supplemental disclosures of cash flow information  
Cash paid for taxes$0 $316 
Supplemental disclosures of non-cash activities
Unpaid debt issuance costs$1,715 $0 
Issuance of common stock in Aevi Merger$0 $15,496 
Leased asset obtained in exchange for new operating lease liability$0 $376 
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  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
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 (in thousands):
June 30,
20212020
Cash and cash equivalents$40,435 $45,391 
Restricted cash, current41 33 
Restricted cash, non-current149 180 
Total cash, cash equivalents and restricted cash$40,625 45,604 
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” or “Cerecor”) is a biopharmaceutical company that is developing innovative drug candidates for commercialization, license or sale to makefocused on becoming a differenceleader 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 immunologic, immuno-oncologic and rare genetic disorders. The Company is advancing its clinical-stage pipeline of innovative therapies that address unmet patient needs within rare and orphan diseases.


The Company’s rare disease pipeline includes CERC-801, CERC-802 and CERC-803 (“CERC-800 compounds”), which are in development for congenital disorders of glycosylation and CERC-006, an oral mTORc1/c2 inhibitor in development for the treatment of complex lymphatic malformations. The Company is also developing 2 monoclonal antibodies, CERC-002 and CERC-007. CERC-002, targets the cytokine LIGHT (TNFSF14) and is in clinical development for treatment of inflammatory bowel disease and COVID-19 acute respiratory distress syndrome. CERC-007 targets the cytokine IL-18 and is in clinical development for the treatment of Still’s disease (adult onset Still’s disease and systemic juvenile idiopathic arthritis) and multiple myeloma. CERC-006, 801, 802 and 803 have all received Orphan Drug Designation and Rare Pediatric Disease Designation, which makes all 4 eligible for a priority review voucher (“PRV”) upon approval from the U.S. Food and Drug Administration (“FDA”).

The Company has one commercialized product, Millipred®, a non-core asset, which is an oral prednisolone indicated across a wide variety of inflammatory conditions.

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

Liquidity

As of SeptemberJune 30, 2017, the Company2021, Cerecor had an accumulated deficit of $55.1 million and a balance of $24.0$40.4 million in cash and cash equivalents. In June 2021, the Company entered into a $35.0 million venture debt financing agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (“Horizon”) and Powerscourt Investments XXV, LP (“Powerscourt, together with Horizon, the “Lenders”). In accordance with the Loan Agreement, $20.0 million of the $35.0 million loan was funded on the closing date (the “Initial Note”), with the remaining $15.0 million fundable upon the Company achieving certain predetermined milestones. The Company anticipates operatingreceived net proceeds of $19.6 million in the second quarter of 2021 and will pay approximately $1.7 million of debt issuance costs in the third quarter of 2021, for total expected net proceeds of $17.9 million (related to the Initial Note funded in the second quarter). The Loan Agreement contains certain covenants and certain other specified events that could result in an event of default, which if not cured or waived, could results in the acceleration of all or a substantial portion of the notes. As of June 30, 2021, the Company did not breach any covenants or specified event that could result in an event of default.

In the third quarter of 2021, the Company received $10.0 million in gross proceeds (the “Second Note”) under the Loan Agreement. The Second Note was made available in connection with the Company’s successful positive initial results from a Phase1b proof-of-concept study evaluating CERC-002 in adult patients with moderate-to-severe Crohn’s disease.

In January 2021, the Company closed an underwritten public offering of 13,971,889 shares of its common stock and 1,676,923 pre-funded warrants for net proceeds of approximately $37.7 million.

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, 2021, Cerecor generated a net loss of $47.8 million and negative cash flows from operations of $37.5 million. As of June 30, 2021, Cerecor had an accumulated deficit of $225.6 million.

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern; however, losses are expected to continue foras the foreseeable future dueCompany continues to among other things, costs related toinvest in its preclinical programs, additional clinicalresearch and development of its product candidates, business development and costs associated with its organizational infrastructure.pipeline assets. The Company will require substantial additional financing to fund its operations and to continue to execute its strategy. The Companybusiness strategy at least one year after the date the condensed consolidated financial statements included herein were issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

To mitigate these conditions and to meet the Company’s capital requirements, management plans to meetuse its capital requirements primarily through acurrent cash on hand along with some combination of equity the following: (i) dilutive and/or debtnon-dilutive financings, (ii) federal and/or private grants, (iii) other out-licensing or strategic alliances/collaborations of its current pipeline assets, and (iv) out-licensing or out-licensing arrangements,sale of its non-core assets. If the Company raises additional funds through collaborations, strategic alliances federal and private grants, marketing, distribution or licensing arrangements and in 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, thatwith third parties, the Company will be successful in obtainingmight have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates. Subject
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to limited exceptions, our venture debt financing atagreement prohibits us from incurring certain additional indebtedness, making certain asset dispositions, and entering into certain mergers, acquisitions or other business combination transactions without prior consent of the level needed to sustain operations and develop its product candidates 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.Lender. If the Company failsrequires but is unable to raise capitalobtain additional funding, the Company may be forced to make reductions in spending, delay, suspend, reduce or enter into any such arrangements, it will have to further delay, scale backeliminate some or discontinue the development of one or moreall of its product candidatesplanned research and development programs, or cease its operations altogether.

In April 2017liquidate assets where possible. Due to the Company received $5.0 million in gross proceeds pursuant to a securities purchase agreement with Armistice Capital Master Fund Ltd (“Armistice”). The Company has theuncertainty regarding future financing and other potential options to raise additional cash through an equity distribution agreementfunds, management has concluded that substantial doubt exists with Maxim Group LLC ("Maxim Group")respect to the Company’s ability to continue as describeda going concern within one year after the date that the financial statements in Note 8.this Quarterly Report were issued.


The Company expectsOver the long term, the Company’s ultimate ability to achieve and maintain profitability will depend on, among other things, the development, regulatory approval, and commercialization of its cash on hand at September 30, 2017 to fund future expenses through at least December 31, 2018.pipeline assets, and the potential receipt and sale of any PRVs it receives.




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”). 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, 20162020 has been derived from audited 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”).

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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, 20162020 audited consolidated financial statements.


UseUnless otherwise indicated, all amounts in the following tables are in thousands except share and per share amounts.

Significant Accounting Policies

During the six months ended June 30, 2021, there were no significant changes to the Company’s summary of Estimatessignificant accounting policies contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 8, 2021.

3. Revenue

The Company generates substantially all of its revenue from sales of Millipred®, an oral prednisolone indicated across a wide variety of inflammatory conditions, which is considered a prescription drug. The Company sells its prescription drug in the United States primarily through wholesale distributors and specialty contracted pharmacies. Wholesale distributors account for substantially all of the Company’s net product revenues and trade receivables. The Company also earns revenue from sales of its prescription drug directly to retail pharmacies. For the three months ended June 30, 2021, the Company’s three largest customers accounted for approximately 62%, 17%, and 20% of the Company’s total net product revenues. For the six months ended June 30, 2021, the Company’s three largest customers accounted for approximately 64%, 16%, and 19% of the Company’s total net product revenues.

The Company has a license and supply agreement for the Millipred® product with a wholly owned subsidiary of Teva Pharmaceutical Industries Ltd. (“Teva”), which expires on September 30, 2023. Beginning July 1, 2021, Cerecor is required to pay Teva 50 percent of the net profit of the Millipred® product following each calendar quarter, subject to a $0.5 million quarterly minimum payment.

Revenue from sales of prescription drugs was $2.7 million and $1.3 million for the three months ended June 30, 2021 and 2020, respectively, and $3.2 million and $4.1 million for the six months ended June 30, 2021 and 2020, respectively. During the first quarter of 2021, the Company’s inventory on hand became short-dated (which the Company considers inventory within six months of
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expiration) due to manufacturing delays and therefore the Company recorded a full sales return allowance on sales of short-dated inventory given the high likelihood of return. The Company received the delayed inventory lot in April 2021 and began selling this lot immediately.

License revenue was $0.6 million for the three and six months ended June 30, 2021 related to the out-license of two non-core pipeline assets. In May 2021, the Company out-licensed all of its rights in respect of its non-core neurology pipeline asset, CERC-301, to Alto Neuroscience, Inc. (“Alto”). The Company received a mid-six digit upfront license payment and can earn development, regulatory and sales-based milestone payments as well as modest royalties based on Alto’s activities under the out-license. In June 2021, the Company assigned all of its rights under its license covering its non-core neurology pipeline asset, CERC-406, to ES Therapeutics, LLC (“ES”). ES is a wholly-owned subsidiary of Armistice Capital Master Fund Ltd. (an affiliate of Armistice Capital, LLC and collectively “Armistice”), which is a significant stockholder of the Company and whose chief investment officer, Steven Boyd, serves on the Company’s Board of Directors. The transaction with ES was approved in accordance with the Company’s related party transaction policy. The Company received a low-six digit upfront license payment and can earn development, regulatory, and sales-based milestone payments based on ES’s activities under the assigned license.

4. Aytu Divestiture

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

On November 1, 2019, the Company closed on an asset purchase agreement to sell the Company’s rights, title and interest in assets relating to certain commercialized products (the “Pediatric Portfolio”) and the corresponding commercial infrastructure to Aytu BioScience, Inc. (“Aytu”). 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 to Deerfield CSF, LLC (“Deerfield”) and certain other liabilities primarily related to contingent consideration and sales returns. Steve Boyd, Chief Investment Officer of Armistice Capital, LLC, a significant stockholder of the Company, serves on each company’s board of directors.

Cerecor retained all rights to Millipred®, an oral prednisolone indicated across a wide variety of inflammatory conditions. Millipred is a non-core asset. Pursuant to a transition services agreement entered into between Aytu and Cerecor, Aytu managed Millipred® commercial operations for 18 months (post November 1, 2019). In May 2021, the Company entered into an amended transition services agreement pursuant to which Aytu continued to manage Millipred®’s commercial operations until June 30, 2021. The Company is currently finalizing its trade and distribution channel to allow it to control third party distribution in the third quarter of 2021. As of the filing date of this Quarterly Report on 10-Q, Aytu continues to distribute Millipred®.

Upon the sale of the Pediatric Portfolio to Aytu, the Pediatric Portfolio met all conditions to be classified as discontinued operations. Therefore, the accompanying condensed consolidated financial statements for the three and six months ended June 30, 2021 and 2020 and as of December 31, 2020 reflect the operations, net of taxes, and related assets and liabilities of the Pediatric Portfolio as discontinued operations. Refer to the “Discontinued Operations” section below for more information, including Cerecor’s continuing involvement.

Deerfield Guarantee

As of the closing date of the Aytu Divestiture on November 1, 2019, Aytu assumed the Company’s debt obligation to Deerfield and the contingent consideration liability related to future royalties on Avadel Pharmaceuticals PLC’s (“Avadel”) pediatric products. In conjunction with the closing of this transaction, the Company entered into a guarantee in favor of Deerfield, which guarantees the payment of the assumed liabilities to Deerfield, which included the debt obligation and includes the contingent consideration related to future royalties on Avadel’s pediatric products (collectively referred to as the “Guarantee”).

Aytu publicly reported that it had paid the $15.0 million balloon payment to Deerfield before it came due in June 2020 and the fixed monthly payments to Deerfield ended in January 2021, thus satisfying the debt obligation. As of November 1, 2019, Aytu was responsible for the remaining contingent consideration related to future royalties on Avadel’s pediatric products of $9.3 million. Aytu is required to pay an amount equal to at least $0.1 million per month. Cerecor’s 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 a payment under the Guarantee upon demand by Deerfield 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. The remaining minimum commitments payable as most recently publicly reported by Aytu was $7.3 million as of June 30, 2020, which represents Cerecor’s estimated maximum potential future payments under the Guarantee.

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 Aytu Divestiture as the difference between (i) the estimated fair value of the assumed payments using Cerecor’s
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estimated cost of debt and (ii) the estimated fair value of the assumed payments using Aytu’s estimated cost of debt. At each subsequent 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 and comprehensive loss. The Company concluded that the expected credit loss of the Guarantee was de minimis as of June 30, 2021 based on considerations such as recent financings, cash position, operating cash flows and trends and Aytu’s ability to meet its financial commitments.

Discontinued Operations

The following tables summarizes the liabilities of the discontinued operations as of June 30, 2021 and December 31, 2020 (in thousands):
 June 30,December 31,
 20212020
Liabilities  
Current liabilities:
Accrued expenses and other current liabilities$98 $1,342 
Total current liabilities of discontinued operations$98 $1,342 
    
The preparationAytu assumed sales returns of financial statements in conformity 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 estimatesPediatric Portfolio made after November 1, 2019 related to clinical trial accruals,sales prior to November 1, 2019 only to the warrant liabilityextent 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 unit purchase option liability.Pediatric Portfolio sold prior to November 1, 2019 in excess of the $0.8 million assumed by Aytu. The Company bases its estimatesestimated future returns as of June 30, 2021 on historical experiencesales of the Pediatric Portfolio made prior to the transaction close date, which was recognized within accrued expenses and other market‑specific or other relevant assumptions that it believescurrent liabilities from discontinued operations (and shown in the table above).

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 comprehensive loss and is shown within product revenue, net in the table summarizing the results of discontinued operations below. In future periods, as additional information becomes available, 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, which will be reasonable underrecognized within discontinued operations. The Company expects this involvement to continue until sales returns are no longer accepted on sales of the circumstances. ActualPediatric Portfolio made prior to November 1, 2019. Returns of these products may be accepted through the second quarter of 2022 (in line with the products’ return policies).

The following table summarizes the results may differof discontinued operations for the three and six months ended June 30, 2021 and 2020 (in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Product revenue, net$69 $(455)$63 $(1,173)
Operating expenses:
Sales and marketing0 0 101 0 
Total operating expenses0 0 101 0 
Other income:
Change in value of Guarantee0 0 0 1,755 
Total other income0 0 0 1,755 
Income (loss) from discontinued operations, net of tax$69 $(455)$(38)$582 

There were no non-cash operating items from those estimates or assumptions.discontinued operations for the six months ended June 30, 2021 and no non-cash investing items from the discontinued operations for the six months ended June 31, 2021 and 2020. The significant non-cash operating item from the discontinued operations for the six months ended June 30, 2020 is contained below (in thousands).
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 Six Months Ended June 30,
 20212020
Change in value of Guarantee0 $(1,755)

5. Net Income (Loss)Loss Per Share Basic and Diluted

EarningsThe Company computes earnings per share are computed(“EPS”) using the two-class method. The two-class method of computing earnings per shareEPS is an earnings allocation formula that determines earnings per shareEPS for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Shares

The Company had two classes of stock outstanding during the three and six months ended June 30, 2021; common stock and preferred stock. The preferred stock outstanding during the period had the same rights and preferences as the Company’s common stock, other than being non-voting, and is convertible into share of common stock on a 1-for-5 ratio. In April 2021, Armistice, which is a significant stockholder of the unexercised warrants issued inCompany and whose chief investment officer, Steven Boyd, serves on the Armistice Private Placement transaction are considered participating securities because these warrants contain a non-forfeitable rightBoard of the Company, converted the remaining 1,257,143 shares of convertible preferred stock into 6,285,715 shares of Cerecor’s common stock. Refer to dividends irrespective of whether the warrants are ultimately exercised.Note 11 for more information. Under the two-class method, earnings perthe convertible preferred stock was considered a separate class of stock until the time it was converted to common shareshares for theEPS purposes and therefore basic and diluted EPS is provided below for both common stock and participating warrants arepreferred stock for the periods presented.

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 shareholdersfor each class of stock by the weighted-averageweighted 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 warrantspreferred stock based on the weighted-averageweighted average shares outstanding during the period.period, which assumes the convertible preferred stock has been converted to common stock. The weighted average number of common shares outstanding as of June 30, 2021 includes the weighted average effect of the pre-funded warrants issued in connection with the January 2021 underwritten public offering, the exercise of which requires nominal consideration for the delivery of the shares of common stock (refer to Note 11 for more information).


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 Plansand restricted stock units, which are included under the "treasury“treasury stock method"method” when dilutive,dilutive; and (ii) common stock to be issued upon the assumed conversion of the Company's unit purchase option shares, which are included under the "if-converted method" when dilutive, and (iii) common stock to be issued upon the exercise of outstanding warrants, which are included under the "treasury“treasury stock method"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 purchasedsecurity only if the security has not only the right to be cash equivalents. The carrying amounts reportedparticipate 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 setstables set forth the computation of basic and diluted net (loss) income (loss) per share of common stock and preferred stock for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016:2020 (in thousands, except share and per share amounts): 


Three Months Ended
 June 30, 2021
Common stockPreferred stock
Continuing OperationsDiscontinued OperationsContinuing OperationsDiscontinued Operations
Numerator:
Allocation of undistributed net loss$(16,991)$68 $(183)$1 
Denominator:
Weighted average shares96,179,581 96,179,581 207,221 207,221 
Basic and diluted net loss per share$(0.18)$0 $(0.88)$0 


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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
 $(1.71)
Six Months Ended
 June 30, 2021
Common stockPreferred stock
Continuing OperationsDiscontinued OperationsContinuing OperationsDiscontinued Operations
Numerator:
Allocation of undistributed net loss$(45,934)$(37)$(1,813)$(1)
Denominator:
Weighted average shares92,399,073 92,399,073 729,282 729,282 
Basic and diluted net loss per share$(0.50)$0 $(2.49)$0 



Three Months Ended
 June 30, 2020
Common stockPreferred stock
Continuing OperationsDiscontinued OperationsContinuing OperationsDiscontinued Operations
Numerator:
Allocation of undistributed net loss$(11,659)$(414)$(1,167)$(41)
Denominator:
Weighted average shares62,806,926 62,806,926 1,257,143 1,257,143 
Basic and diluted net loss per share$(0.18)$(0.01)$(0.93)$(0.03)





Six Months Ended
 June 30, 2020
Common stockPreferred stock
Continuing OperationsDiscontinued OperationsContinuing OperationsDiscontinued Operations
Numerator:
Allocation of undistributed net loss$(31,099)$517 $(3,881)$65 
Denominator:
Weighted average shares58,370,843 58,370,843 1,457,143 1,457,143 
Basic and diluted net loss per share$(0.53)$0.01 $(2.66)$0.04 
Shares which
The following outstanding securities have been excluded from the computation of diluted per share amounts because their effect wouldweighted shares outstanding for the three and six months ended June 30, 2021 and 2020, as they could have been antidilutive, includeanti-dilutive: 
 Three and Six Months Ended
June 30,
 20212020
Stock options12,645,4109,363,265
Warrants on common stock1
4,406,2244,024,708
Restricted Stock Units77,916155,833
Underwriters’ unit purchase option040,000
1 The above table excludes 1,676,923 pre-funded warrants for the following:three and six months ended June 30, 2021. See “Q1 2021 Financing” in Note 11 for more information.



6. Asset Acquisition

Aevi Merger
11
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In the first quarter of 2020, the Company consummated its merger with Aevi Genomic Medicine Inc. (“Aevi”), in which Cerecor acquired the rights to CERC-002, CERC-006 and CERC-007 (the “Merger” or the “Aevi Merger”).

The Merger consideration included (i) stock valued at approximately $15.5 million, resulting in the issuance of approximately 3.9 million shares of Cerecor common stock to Aevi stockholders, (ii) forgiveness of $4.1 million the Company had loaned Aevi prior to the Merger closing, (iii) contingent value rights for up to an additional $6.5 million in subsequent payments based on certain development milestones (discussed further in Note 14), and (iv) transaction costs of $1.5 million.

The Company recorded this transaction as an asset purchase as opposed to a business combination because management concluded that substantially all the value received was related to one group of similar identifiable assets, which was the in-process research and development (“IPR&D”) for two early phase therapies. The Company considered these pipeline 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 $25.5 million (consisting primarily of $24.0 million IPR&D, $0.3 million of cash and $0.9 million of assembled workforce) was immediately recognized as acquired in-process research and development expense in the Company’s consolidated statement of operations and comprehensive loss because the IPR&D asset has no alternate use due to the stage of development. The assembled workforce asset was recorded to intangible assets and will be amortized over an estimated useful life of two years.

  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



4.7. 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 of the short‑term nature of these accounts.

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:basis (in thousands):
 June 30, 2021
 Fair Value Measurements Using
 Quoted prices inSignificant otherSignificant
 active markets forobservableunobservable
 identical assetsinputsinputs
 (Level 1)(Level 2)(Level 3)
Assets            
Investments in money market funds*$38,973 $0 $0 
 December 31, 2020
 Fair Value Measurements Using
 Quoted prices inSignificant otherSignificant
 active markets forobservableunobservable
 identical assetsinputsinputs
 (Level 1)(Level 2)(Level 3)
Assets            
Investments in money market funds*$17,503 $0 $0 

15
  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
        
*Investments in money market funds are reflected in cash and cash equivalents on the accompanying Balance Sheets.condensed consolidated balance sheets.

Level 3 Valuation
As of June 30, 2021 and December 31, 2020, the Company’s financial instruments included cash and cash equivalents, restricted cash, accounts receivable, other receivables, prepaid and other current assets, accounts payable, and accrued expenses and other current liabilities. The warrant liability (which relates to warrants to purchase shares of common stock as part of the term loan agreement) is marked‑to‑market each reporting period with the change in fair value recorded to other income (expense)carrying amounts reported in the accompanying condensed consolidated financial statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity. Theapproximate their respective fair valuevalues because of the warrant liability is estimated using a Black‑Scholes option-pricing model. The significant assumptions used in preparing the option pricing model for valuing the warrant liability asshort-term nature of September 30, 2017, include (i) volatility of 65%, (ii) risk free interest rate of 1.63%, (iii) strike price ($8.40), (iv) fair value of common stock ($0.85), and (v) expected life of 3.1 years.these accounts.

The underwriters’ unit purchase option (the “UPO”) was issued to the underwriters of the Company’s initial public offering (“IPO”) 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 warrants to purchase shares of common stock. 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 each reporting period with the change in fair value recorded to other income (expense) in the accompanying statements of operations until the UPO is exercised, expire 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. The significant assumptions used in preparing the simulation model for valuing the UPO as of September 30, 2017, include (i) volatility range of 65% to 75%, (ii) risk free interest rate range of 0.74% to 1.63%, (iii) unit strike price ($7.48), (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), and (vii) optimal exercise point of immediately prior to the expiration of the underwriters’ Class B warrants, which occurred on April 20, 2017.
The table presented below is a summary of changes of the Company’s Level 3 warrant liability and unit purchase option liability for the nine months ended September 30, 2017:
  
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
No otherNaN changes in valuation techniques or inputs occurred during the ninesix months ended SeptemberJune 30, 20172021 and no2020. NaN transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the ninesix months ended SeptemberJune 30, 2017.2021 and 2020.


5.8. Leases

The 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 Company’s office located in Rockville, Maryland is $161,671, subject to annual 2.5% increases over the term of the lease. The applicable 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 under the Chesterbrook Lease is $280,185. The lease expires in November 2021.

The weighted average remaining term of the operating leases at June 30, 2021 was 7.9 years.

Supplemental balance sheet information related to the leased property is as follows (in thousands):
 As of
 June 30, 2021December 31, 2020
Property and equipment, net$773 $917 
Accrued expenses and other current liabilities$288 $426 
Other long-term liabilities998 1,038 
Total operating lease liabilities$1,286 $1,464 
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 7.5% to determine the present value of the lease payments.

The components of lease expense for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Operating lease cost*$95 $87 $190 $142 
*Includes short-term leases, which are immaterial.

The following table shows a maturity analysis of the operating lease liabilities as of June 30, 2021 (in thousands):
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 Undiscounted Cash Flows
July 1, 2021 through December 31, 2021$202 
2022174 
2023178 
2024183 
2025187 
2026192 
Thereafter621 
Total lease payments$1,737 
Less implied interest(451)
Total$1,286 

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of June 30, 2021 and December 31, 2020 consisted of the following:following (in thousands): 
 As of
 June 30, 2021December 31, 2020
Research and development$9,838 $4,939 
Compensation and benefits2,566 3,119 
General and administrative2,217 771 
Sales and marketing246 31 
Commercial operations2,451 1,913 
Lease liability, current288 426 
Other5 111 
Total accrued expenses and other current liabilities$17,611 $11,310 


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10. Notes Payable


Overview
  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, the Company entered into 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,June 4, 2021, the Company entered into a separate exclusive license agreement$35.0 million Loan Agreement with Merck pursuant to which Merck grantedHorizon and Powerscourt. On the closing date, the Company received $20.0 million, with the remaining $15.0 million fundable upon the Company achieving certain rightspredetermined milestones, one of which was achieved in small molecule compounds which are knownJuly 2021 (refer to inhibitmore information below).

Each advance under the activity of COMT. In considerationLoan Agreement will mature 42 months from the first day of the license,month following 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 entered into a $7.5 million secured term loan from a finance company. The loan was secured by a lien on allfunding 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 in the event of a loan default. Loan defaults were defined in the loan agreement and

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included, among others, the finance company’s determination that there was a material adverse change in the Company’s operations. Interest on the loan wasadvance. Each advance accrues interest at a per annum rate of the greater of 7.95%, or 7.95%interest equal to 6.25% plus the prime rate, as reported in Thethe Wall Street Journal minus (subject to a floor of 3.25%). On August 1, 2017,The Loan Agreement provided for interest-only payments for each advance for the term loan matured andfirst 18 months. The interest-only period may be extended to 24 months if the Company made asatisfies the Interest Only Extension Milestone (as defined in the Loan Agreement), which the Company met in the third quarter of 2021. Thereafter, amortization payments will be payable in monthly installments of principal and interest through each advance’s maturity date. Upon 10 business days’ prior written notice, the Company may prepay all of the outstanding advances by paying the entire principal balance and all accrued and unpaid interest, subject to prepayment charges of up to 3% of the then outstanding principal balance. Upon the earlier of (i) payment in full of the principal balance, (ii) an event of default, or (iii) the maturity date, the Company will pay an additional final payment of $494,231 which included a termination fee of $187,500. Debt consisted3% of the followingprincipal loan amount to the Lenders.

Each advance of the loan is secured by a lien on substantially all of the assets of the Company, other than Intellectual Property and Excluded Collateral (in each case as defined in the Loan Agreement), and contains customary covenants and representations, including a financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions taxes, corporate changes, deposit accounts, and subsidiaries.

The events of default under the Loan Agreement include but are not limited to, failing to make a payment, breach of covenant, or occurrence of a material adverse change. If an event of default occurs, the Lenders are entitled to accelerate the loan amounts due, or
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take other enforcement actions. As of June 30, 2021, the Company did not breach any covenants or specified event that could result in an event of default.

Initial Note

The Initial Note of $20.0 million will mature on January 1, 2025 (the “Initial Note Maturity Date”). As of June 30, 2021, the Company was required to make interest-only payments of the Initial Note through January 1, 2023 with monthly amortization payments of principal and interest thereafter through the Initial Note Maturity Date. Subsequent to the second quarter of 2021, the Company satisfied the Interest Only Extension Milestone; refer to further information below.

On June 4, 2021, pursuant to the Loan Agreement, the Company issued warrants to the Lenders to purchase 403,844 shares of the Company’s common stock with an exercise price of $2.60 (the “Warrants”). The Warrants are exercisable for ten years from the date of issuance. The Lenders may exercise the Warrants either by (a) cash or check or (b) through a net issuance conversion. The Warrants, which met equity classification, were recognized as a component of permanent stockholders’ equity within additional paid-in-capital and were recorded at the issuance date using a relative fair value allocation method. The Company valued the Warrants at issuance, which resulted in a discount on the debt, and allocated the proceeds from the loan proportionately to the notes payable and to the Warrants, of which $0.9 million was allocated to the Warrants.

For the three and six months ended June 30, 2021, the Company incurred $2.1 million in debt issuance costs, including legal fees in connection with the Loan Agreement, fees paid directly to the lender, and other direct costs, of which $1.7 million will be paid in the third quarter of 2021. All fees, warrants, and costs paid to the Lenders and all direct costs incurred by the Company are recognized as a debt discount and are amortized to interest expense using the effective interest method over the term of the loan. The effective rate of the Initial Note, including the amortization of the debt discount and issuance costs, and accretion of the final payment, was 16.3% as of SeptemberJune 30, 20172021.

Balance sheet information related to the note payable (which only includes the Initial Note as of June 30, 2021) is as follows (in thousands):
As of
 June 30, 2021December 31, 2020Maturity
Notes payable, gross1
$20,600 $0 January 2025
Less: Unamortized debt discount and issuance costs3,457 0 
Carrying value of notes payable$17,143 $0 

1 Balance includes $0.6 million final payment fee

As of June 30, 2021, the estimated future principal payments due on the Initial Note (prior to meeting the Interest Only Extension Milestone, which occurred in the third quarter of 2021) were as follows (in thousands):

 As of June 30, 2021
2021$0 
20220 
202310,000 
202410,600 
Total principal payments1
$20,600 

1 Balance includes $0.6 million final payment fee


Funding of Second Note Subsequent to June 30, 2021

In the third quarter of 2021, the Company received $10.0 million in gross proceeds under the Loan Agreement. The Second Note was made available in connection with the Company’s successful positive initial results from a Phase1b proof-of-concept study evaluating CERC-002 in adult patients with moderate-to-severe Crohn’s disease. The remaining $5.0 million may be funded upon achieving certain predetermined milestones.

The funding of the Second Note satisfied the Interest Only Extension Milestone for both the Initial Note and December 31, 2016:the Second Note. Therefore, the Second Note includes interest-only payments through August 1, 2023 and monthly principal and interest payments beginning thereafter through its maturity date on February 1, 2025. As it relates to the Initial Note, the Company’s interest-only
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payment period is now extended through July 1, 2023 and the monthly principal and interest payments begin thereafter through its maturity date on January 1, 2025.

The Company will evaluate the accounting impact of the Second Note and extension of the interest only period of the Initial Note in the third quarter of 2021.

11. 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 andPursuant 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 anCompany’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 two2 classes of stock, common stock and preferred stock, and eliminates all references to the previously existing series of preferred stock. At SeptemberJune 30, 2017,2021, 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, 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 a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (“Series A Preferred Stock”) of Cerecor Inc. (the “Certificate of Designation”). The Certificate of Designation authorized the issuance of 4,179 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 at 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 the conversion of Armistice’s Series A Preferred Stock into common stock, Armistice has a majority voting control over the Company.


Common Stock

Initial PublicAt-the-Market Offering Program

On October 20, 2015, 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 initial 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,In July 2021, the Company entered into a common stock purchasean “at-the-market” sales agreement (the “Purchase Agreement”) with AspireCantor Fitzgerald & Co. and RBC Capital Markets, LLC (together, the “Agents”), pursuant to which Aspire Capital committedthe Company may sell from time to purchasetime, shares of its common stock having an aggregate offering price of up to an aggregate of $15.0$50 million of sharesthrough the Agents (the “ATM Program”). As 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 thefiling date of this Quarterly Report on Form 10-Q, the Company doeshas not haveyet sold any remaining shares available to issueof our common stock under the ATM Program.

Q2 2021 Debt Financing Agreement

As part of the Loan Agreement entered into in the second quarter of 2021, on June 4, 2021, the Company issued warrants to Horizon and Powerscourt to purchase agreement. The Company may not issue any additional403,844 shares of the Company’s common stock with an exercise price of $2.60. The warrants are exercisable for ten years from the date of issuance. Refer to Aspire Capital under the Purchase Agreement unless shareholder approval is obtained.Note 10 for additional information.



Q1 2021 Financing
The Maxim Group Equity Distribution Agreement

OnIn January 27, 2017,2021, the Company entered intoclosed 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 sharesunderwritten public offering 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 13,971,889 shares of its common stock through Maxim under the Equity Distribution Agreementand 1,676,923 pre-funded warrants for grossnet proceeds of$938,000 and $37.7 million. Armistice, which is a significant stockholder of the Company hasand whose chief investment officer, Steven Boyd, currently serves on the potentialBoard of the Company, participated in the offering by purchasing 2,500,000 shares of common stock, on the same terms as all other investors. Certain affiliates of Nantahala Capital Management LLC (collectively, “Nantahala”), which beneficially owned greater than 5% of the Company’s outstanding common stock at the time of the offering and, therefore, were considered a related party pursuant to sellthe Company’s written related person transaction policy, purchased 1,400,000 shares of common stock, on the same terms as all other investors.

Nantahala also purchased the pre-funded warrants to purchase up to approximately $2.9an aggregate of 1,676,923 shares of common stock at a purchase price of $2.599, which represents the per share public offering price for the common stock less the $0.001 per share exercise price for each pre-funded warrant.

The pre-funded warrants are exercisable at any time after their original issuance at the option of each holder, in such holder’s discretion, by (i) payment in full in immediately available funds for the number of shares of common stock purchased upon such exercise or (ii) a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the pre-funded warrant. A holder will not be entitled to exercise any portion of any pre-funded warrant if the holder’s ownership of the Company’s common stock would exceed 9.99% following such exercise.

In the event of certain fundamental transactions, the holders of the pre-funded warrants will be entitled to receive upon exercise of the pre-funded warrants the kind of amounts of securities, cash or other property that the holders would have received had they exercised the pre-funded warrants immediately prior to such fundamental transaction without regard to any limitations on exercise contained in the pre-funded warrants.

The pre-funded warrants were classified as a component of permanent stockholders’ equity within additional paid-in capital and were recorded at the issuance date using a relative fair value allocation method. The pre-funded warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company’s common stock and (vi) meet the equity classification criteria. In addition, such pre-funded warrants do not provide any guarantee of value or return. The Company valued the
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pre-funded warrants at issuance, concluding that their sales price approximated their fair value, and allocated net proceeds from the sale proportionately to the common stock and pre-funded warrants, of which $4.4 million in was allocated to the pre-funded warrants and recorded as a component of additional paid-in capital.

2020 Financings

On June 11, 2020, the Company closed an underwritten public offering of 15,180,000 shares of its common stock under for net proceeds of approximately $35.4 million. Armistice participated in the registration statementoffering 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

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 2,345,714Company sold 1,951,219 shares of the Company’s common stock at a purchase price of $0.35 per share and 4,179 shares of Series A Preferred Stock at a price of $1,000 per share. The Company received $4.65 million infor net proceeds fromof approximately $3.9 million.
On February 6, 2020, the Armistice Private Placement. The numberCompany closed a registered direct offering with certain institutional investors for the sale by the Company of shares of common stock that were purchased in the private placement constituted approximately 19.99% of the Company’s outstanding shares of common stock immediately prior to the closing of the Armistice Private Placement. Armistice also received warrantsto purchase up to 14,285,7141,306,282 shares of the Company’s common stock at an exercise pricefor net proceeds of $0.40 per share. Underapproximately $5.1 million. Armistice participated in the offering by purchasing 1,256,282 shares of common stock from the Company, on the same terms as all other investors.

Aevi Merger

On February 3, 2020, under the terms of the securities purchase agreement, the Series A Preferred Stock were not convertible into common stock, and the warrants were not exercisable untilAevi Merger noted above in Note 6, 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.


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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, the warrant instrument was accounted for as an equity instrument. Fair value of the warrants was initially determined upon issuance using the Black-Scholes Model (level 3 fair value measurement). Armistice converted all of the Series A Preferred Stock into 11,940,000approximately 3.9 million shares of common stock on July 6, 2017.stock.

Common Stock Warrants
 
At SeptemberJune 30, 2017,2021, the following common stock purchase warrants were outstanding:
Number of common sharesExercise priceExpiration
underlying warrantsper sharedate
2,380$8.68 May 2022
4,000,000$12.50 June 2024
1,676,923$0.001 —
403,844$2.60 June 2031
6,083,147  

Convertible Preferred Stock

On December 26, 2018, the Company filed a Certificate of Designation of Preferences of Series B Non-Voting Convertible Preferred Stock (“Series B Convertible Preferred Stock” or “convertible preferred stock”) of Cerecor Inc. (the “Certificate of 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 2,857,143 shares of convertible preferred stock. The Series B Convertible Preferred Stock converted to shares of common stock on a 1-for-5 ratio and has the same rights, preferences, and privileges as common stock other than it held no voting rights. During the first quarter of 2020, the holder of the Series B Preferred Stock, Armistice, converted 1,600,000 shares of the convertible preferred stock into 8,000,000 shares of Cerecor’s common stock. In April 2021, Armistice converted the remaining 1,257,143 shares of Series B Convertible Preferred Stock into 6,285,715 shares of Cerecor’s common stock. As of June 30, 2021, the Company had 0 preferred stock 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)



9.12. Stock-Based Compensation

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
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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 SeptemberJune 30, 2017,2021, there were 483,2142,576,435 shares available for future issuance under the 2016 Third Amended Plan.


TheOption 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 either immediately or over a period of 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‑basedstock-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, 2021 and 2020 was as follows (in thousands): 

 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Research and development$467 $391 $765 $772 
General and administrative2,503 2,308 3,548 2,988 
Sales and marketing104 87 209 142 
Total stock-based compensation$3,074 $2,786 $4,522 $3,902 

In June 2021, the Company’s former Chairman of the Board resigned from the Board. The Company and the former Chairman subsequently entered into an agreement for him to serve as a strategic advisor to the Board and the Company, including serving on the Company’s Scientific Advisory Board, for a period of at least one year. As consideration for these services, the Company modified his outstanding stock option awards to allow them to continue to vest during the term during which he serves as a strategic advisor. Additionally, any option award previously granted was amended to extend the exercisability period. As a result of the modification, the Company recognized $1.4 million of compensation cost, $1.0 million of which related to options with market-based vesting conditions (which were fully vested prior to the modification) and $0.4 million of which related to options with service-based vesting conditions. This expense was recognized in general and administrative expenses for the three and six months ended June 30, 2021. At June 30, 2021, there was $0.3 million of unrecognized compensation cost related to the modification of service-based options that will be recognized over a weighted-average period of 1.0 years.
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Stock options with service-based vesting conditions


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 ninesix months ended SeptemberJune 30, 20172021 is as follows:
 Options Outstanding
 Number of sharesWeighted average exercise price per shareWeighted average grant date fair value per shareWeighted average remaining contractual term (in years)
Balance at December 31, 20208,830,674 $3.95 $2.36 7.7
Granted4,048,563 $3.33 $2.19 
Exercised(580,617)$2.70 $1.74 
Forfeited(313,841)$3.82 $2.41 
Expired(339,369)$4.55 $2.70 
Balance at June 30, 202111,645,410 $3.78 $2.32 8.5
Exercisable at June 30, 20213,939,679 $4.29 $2.44 7.5

In March 2021, the Company granted its newly appointed Chief Financial Officer options with service-based vesting conditions to purchase 0.5 million shares of common stock as an inducement option grant, pursuant to NASDAQ Listing Rule 5635(c)(4). 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
January 2021, the Company granted 2.7 million options with service-based vesting conditions to its employees as part of its annual stock option award.

In March 2020, our Chief Executive Officer entered into an amended employment agreement in which his salary in cash was reduced to $35,568 (the “Reduction”), which represents the minimum exempt annual salary. In consideration for the Reduction, on a quarterly basis, the Company grants stock options, which vest immediately, 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 the foregone salary.

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, 2021, the aggregate intrinsic value of options outstanding was $2.2 million. The aggregate intrinsic value of options currently exercisable as of June 30, 2021 was $1.1 million. There were 1,953,214 options that vested during the six months ended June 30, 2021 with a weighted average exercise price of $3.66 per share. The total grant date fair value of shares which vested during the six months ended June 30, 2021 was $4.4 million.

The Company recognized stock-based compensation expense of $2.0 million and $3.3 million related to stock options with service-based vesting conditions for the three and six months ended June 30, 2021, respectively. At June 30, 2021, there was $14.8 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 2.9 years.

Stock-based compensation assumptions

The following table shows the assumptions used to compute stock-based compensation expense for stock options with service-based vesting conditions granted under the Black-Scholes valuation model for the six months ended June 30, 2021:
Service-based options
Expected annual dividend yield0%
Expected stock price volatility73.0% - 86.5%
Expected term of option (in years)0.76 - 6.25
Risk-free interest rate0.07% - 1.23%

Stock options with market-based vesting conditions

The following table summarizes the Company’s market-based option activity for the six months ended June 30, 2021 (in thousands except, for share amounts):
 Options Outstanding
 Number of sharesWeighted average exercise price per shareWeighted average remaining contractual term (in years)Aggregate intrinsic value (1)
Balance at December 31, 20201,000,000 $3.29 9.5$65 
Granted0 $0 
Balance at June 30, 20211,000,000 $3.29 3.0$380 
Exercisable at June 30, 20211,000,000 $380 
(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.

Restricted Stock Units

The Company measures the fair value of the restricted stock units 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 restricted stock unit (“RSU”) activity for the six months ended June 30, 2021:
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 RSUs Outstanding
 Number of sharesWeighted average grant date fair value
Unvested RSUs at December 31, 2020155,833 $4.91 
Vested(77,917)0
Unvested RSUs at June 30, 202177,916 $4.91 
    
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 ESPPCompany 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 increaseincreases 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 20,000The number of shares during 2016 and 33,406 shares during the nine months ended September 30, 2017.were increased by 500,000 on January 1, 2021. As of SeptemberJune 30, 2017, 540,9352021, 1,836,622 shares remained available for issuance.

In accordance with the guidance in ASC 718-50,Employee Share Purchase Plans (“ASC 718-50”), the ability to purchase shares of the 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$55 thousand and $69,492$89 thousand for the three and ninesix months ended SeptemberJune 30, 2017.2021, respectively.


Stock‑based compensation expense
13. Income Taxes

The Company recognized an income tax benefit of $0.2 million for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016 was as follows:
  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
The provision foran income taxes was $3.2tax benefit of $0.5 million and $2.6 million for the ninethree and six months ended SeptemberJune 30, 2017.2020, respectively. The effective tax ratebenefit recognized for the nine-month periodsix months ended SeptemberJune 30, 2020 was a result of a tax law change signed into law as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which allowed the Company to carry back certain losses for taxes paid in fiscal year 2017 and thus resulted in a refund claim. The 2021 income tax benefit was 17.76% as compared to 0% fora result of the corresponding period in the

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prior year. The increase in the rate is attributable to changes in projected incomeas well as limitationsinterest receivable and abatement of penalties on the utilization of NOL carryforwardsrefund claim, as described below for the year primarily due to the sale of CERC-501. In addition, the Companyfinal refund payment was able to utilize net operating loss ("NOL") carryforwards of $2.7 million, which were previously 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 byreceived from the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards are also subject to an annual limitation in the eventsecond quarter 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.2021.
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.


11.14. Commitments and Contingencies
 
Office LeaseLitigation

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 basis over the term of the lease. Rent expense for the office lease amounted to approximately $125,000 for the nine months ended September 30, 2017 and 2016. Pursuant to the terms of such lease, the Company’s future lease obligation is as follows:
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 ProvidersLitigation - General
    
The Company has entered into agreements with contract research organizationsmay become party to various contractual disputes, litigation, and other external service providers for services, primarilypotential 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.

Karbinal Royalty Make-Whole Provision
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In 2018, in connection with the clinical trialsacquisition of Avadel’s pediatric products, the Company entered into a supply and distribution agreement (the “Karbinal Agreement”) with TRIS Pharma Inc. (“TRIS”). As part of the Karbinal Agreement, the 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 2025. The Company was required to pay TRIS a royalty make whole payment (“Make-Whole Payments”) of $30 for each unit under the 70,000 units annual minimum sales commitment through 2025. 

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 the 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.

Possible Future Milestone Payments for In-Licensed Compounds

General

The Company is a party to license and development agreements with various third parties, which contain future payment obligations such as royalties and milestone payments (discussed further below). The Company recognizes a liability (and related expense) for each milestone if and when such milestone is probable and can be reasonably estimated. As typical in the biotechnology industry, each milestone has its own unique risks that the Company evaluates when determining the probability of achieving each milestone and the probability of success evolves over time as the programs progress and additional information is obtained. The Company considers numerous factors when evaluating whether a given milestone is probable including (but not limited to) the regulatory pathway, development plan, ability to dedicate sufficient funding to reach a given milestone and the probability of success.

CERC-002 KKC License Agreement

On March 25, 2021, the Company entered into a license agreement with Kyowa Kirin Co., Ltd. (“KKC”) for exclusive worldwide rights to develop, manufacture and commercialize CERC-002, KKC’s first-in-class fully human anti-LIGHT (TNFSF14) monoclonal antibody for all indications (the “KKC License Agreement”). The KKC License Agreement replaced the Amended and Restated Clinical Development and Option Agreement between the Company and KKC dated May 28, 2020.

Under the KKC License Agreement, the Company paid KKC an upfront license fee equal to $10.0 million. The Company is also required to pay KKC up to $112.5 million based on the achievement of specified development and regulatory milestones.Upon commercialization, the Company is required to pay KKC sales-based milestones aggregating up to $75 million tied to the achievement of annual net sales targets.

Additionally, the Company is required to pay KKC royalties during a country-by-country royalty term equal to a mid-teen percentage of annual net sales. The Company is required to pay KKC a double digit percentage (less than 30%) of the payments that the Company receives from sublicensing of its rights under the KKC License Agreement, subject to certain exclusions. Cerecor is responsible for the development and commercialization of CERC-002 in all indications worldwide (other than the option in the KKC License Agreement that, upon exercise by KKC, allows KKC to develop, manufacture and commercialize CERC-002 in Japan).

The Company recognized the upfront license fee of $10.0 million within research and development expenses for the six months ended June 30, 2021 and made the payment in April 2021. There has been 0 cumulative expense recognized as of June 30, 2021 related to the milestones under this license agreement. The Company will continue to monitor the milestones at each reporting period.

CERC-006 Astellas License Agreement

The Company has an exclusive license agreement with OSI Pharmaceuticals, LLC, an indirect wholly owned subsidiary of Astellas Pharma, Inc. (“Astellas”), for the worldwide development and commercialization of the novel, second generation mTORC1/2 inhibitor (which we refer to as CERC-006). Under the terms of the license agreement, there was an upfront license fee of $0.5 million. The Company is required to pay Astellas up to $5.5 million based on the achievement of specified development and regulatory milestones. The Company is also required to pay Astellas a tiered mid-to-high single digit percentage of the payments that Cerecor receives from sublicensing of its rights under the Astellas license agreement, subject to certain exclusions. Upon commercialization, the Company is required to pay Astellas royalties during a country-by-country royalty term equal to a tiered mid-to-high single digit percentage of annual net sales. Cerecor is fully responsible for the development and commercialization of the program.

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For the six months ended June 30, 2021, the Company recognized a $0.5 million development milestone payment within research and development expenses.There has been $0.5 million of cumulative expense recognized as of June 30, 2021 related to the milestones under this license agreement. The Company will continue to monitor the remaining milestones at each reporting period.

CERC-007 AstraZeneca License Agreement

The Company has an exclusive global license with Medimmune Limited, a subsidiary of AstraZeneca plc (“AstraZeneca”), to develop and commercialize a fully human, anti-IL-18 monoclonal antibody (which we refer to as CERC-007). Under the terms of the license agreement, there was an upfront license fee of $6.0 million in cash and equity. The Company is required to payAstraZeneca up to $71.5 million based on the achievement of certain development and regulatory milestones. Upon commercialization, the Company is required to pay AstraZeneca sales-based milestone payments aggregating up to $90.0 million tied to the achievement of annual net sales targets.Additionally, the Company is also required to pay AstraZeneca royalties during a country-by-country royalty term equal to a tiered low double digit percentage of annual net sales. Cerecor is fully responsible for the development and commercialization of the program.

NaN expense related to this license agreement was recognized in the six months ended June 30, 2021. There has been $1.5 million of cumulative expense recognized as of June 30, 2021 related to the milestones under this license agreement.The Company will continue to monitor the remaining milestones at each reporting period.

CERC-008 Sanford Burnham Prebys License Agreement

On June 22, 2021, the Company entered into an Exclusive Patent License Agreement with Sanford Burnham Prebys Medical Discovery Institute (the “Sanford Burnham Prebys License Agreement”) under which the Company obtained an exclusive license to a portfolio of issued patents and patent applications covering an immune checkpoint program (which we refer to as CERC-008).

Under the terms of the agreement, the Company incurred an upfront license fee of $0.4 million, as well as patent costs of $0.5 million. The Company is required to pay Sanford Burnham Prebys up to $24.2 million based on achievement of specified development and regulatory milestones. Upon commercialization, the Company is required to pay Sanford Burnham Prebys sales-based milestone payments aggregating up to $50.0 million tied to annual net sales targets.Additionally, the Company is required to pay Sanford Burnham Prebys royalties during a country-by-country royalty term equal to a low-to-mid single digit percentage of annual net sales. The Company is also required to pay Sanford Burnham Prebys a tiered low-double digit percentageof the payments that Cerecor receives from sublicensing of its rights under the Sanford Burnham Prebys license agreement, subject to certain exclusions. Cerecor is fully responsible for the development and commercialization of the program.

The Company recognized the upfront license fee of $0.4 million within research and development expenses and the $0.5 million of patent expense within general and administrative expenses for the three and six months ended June 30, 2021. There has been 0 cumulative expense recognized as of June 30, 2021 related to the milestones under this license agreement. The Company will continue to monitor the milestones at each reporting period.

Possible Future Milestone Proceeds for Out-Licensed Compounds

CERC-301 Out-License

On May 28, 2021, the Company out-licensed its rights in respect of its non-core asset, CERC-301, to Alto. The Company initially in-licensed the compound from an affiliate of Merck & Co., Inc. (“Merck”) in 2013.

Under the out-license agreement, the Company received a mid-six digit upfront payment from Alto. The Company is also eligible to receive up to $18.6 million based on the achievement of specified development, regulatory and commercial sale milestones. Additionally, the Company is entitled to a less than single digit percentage royalty based on annual net sales. Alto is fully responsible for the development and commercialization of the program.

Cerecor recognized the upfront fee as license revenue for the three and six months ended June 30, 2021. The Company has 0t recognized any milestones as of June 30, 2021.

CERC-406 License Assignment

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On June 9, 2021, the Company assigned its rights, title, interest, and obligations under an in-license covering its non-core asset, CERC-406, to ES, a wholly-owned subsidiary of Armistice, which is a significant stockholder of the Company and whose chief investment officer, Steven Boyd, currently serves on the Board of the Company. The transaction with ES was approved in accordance with Cerecor’s related party transaction policy.

Under the assignment agreement, the Company received a low-six digit upfront payment from ES. The Company is also eligible to receive up to $6.0 million based on the achievement of specified development and regulatory milestones. Upon commercialization, the Company is eligible to receive sales-based milestone payments aggregating up to $20.0 million tied to annual net sales targets. ES is fully responsible for the development and commercialization of the program.

Cerecor recognized the upfront fee as license revenue for the three and six months ended June 30, 2021. The Company has 0t recognized any milestones as of June 30, 2021.

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. The Company is also eligible to receive up to $20.0 million based on the achievement of specified development and regulatory milestones. Janssen is fully responsible for the development and commercialization of the program.

The Company has 0t recognized any milestones as of June 30, 2021.

CERC-611 License Assignment

In August 2019, the Company assigned its rights, title, interest, and obligations under an in-license covering its non-core asset, CERC-611, to ES, a wholly-owned subsidiary of Armistice, which is a significant stockholder of the Company and whose chief investment officer, Steven Boyd, currently serves on the Board of the Company.

Upon commercialization, the Company is eligible to receive sales-based milestone payments aggregating up to $20.0 million tied to annual net sales targets. ES is fully responsible for the development and commercialization of the program.

The Company has 0t recognized any milestones as of June 30, 2021.

Related Party and Acquisition Related Contingent Liabilities

CERC-006 Royalty Agreement with Certain Related Parties

Prior to Cerecor entering into the Aevi Merger, in July 2019, Aevi entered into a royalty agreement with Mike Cola, Cerecor’s 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, Cerecor’s current Chief Scientific Officer (collectively, the “Investors”) in exchange for a one-time aggregate payment of $2.0 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’ 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.

Cerecor assumed this Royalty Agreement upon closing of the Aevi Merger and it is recorded as a royalty obligation within the Company’s accompanying condensed consolidated balance sheet as of June 30, 2021. 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 will result in a corresponding increase in the liability balance.

Aevi Merger Possible Future Milestone Payments

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A portion of the consideration for the Aevi Merger includes 2 future contingent development milestones worth up to an additional $6.5 million. The first milestone is the enrollment of a patient in a Phase 2 study related to CERC-002 for use in pediatric onset Crohn’s disease, CERC-006 (any indication) or CERC-007 (any indication) 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 product candidates.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, 2021, 0 contingent consideration related to the development milestone has been recognized. The Company was contractually obligatedwill continue to monitor the development milestones at each reporting period.

Ichorion Asset Acquisition Possible Future Milestone Payments

In September 2018, the Company acquired Ichorion Therapeutics, Inc. including acquiring 3 compounds for inherited metabolic disorders known as CDGs (CERC-801, CERC-802 and CERC-803) and 1 other preclinical compound. Consideration for the transaction included shares of Cerecor common stock and 3 future contingent development milestones for the acquired compounds worth up to approximately $1.2 millionan additional $15.0 million. 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 future services under these agreements as$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 September 30, 2017.$5.0 million. The Company’s actual contractual obligations will vary depending upon several factors, includingthird milestone is a protide molecule being approved by the progress and resultsFDA 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 underlying services.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, 2021, 0 contingent consideration related to the development milestone has been recognized. The Company will continue to monitor the development milestones at each reporting period.
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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, 20178, 2021, 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, 20162020 appearing in our Annual Report on Form 10-K filed with the SEC on March 10, 2017.8, 2021.     


Overview


We areCerecor Inc. (the “Company” or “Cerecor”) is a biopharmaceutical company that is developing innovative drug candidates for either commercialization, license or sale to makefocused on becoming a differenceleader in the livesdevelopment and commercialization of patients with neurologictreatments for immunologic, immuno-oncologic and psychiatricrare genetic disorders. Our lead drug candidateThe Company 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 portfolioadvancing its clinical-stage pipeline of product candidates is summarized below:

CERC-301: Orphan Neurologic Diseases. CERC‑301 belongs to a class of compounds known as antagonists of the N‑methyl‑D‑aspartate, or NMDA, receptor, a receptor subtype of the glutamate neurotransmitter systeminnovative therapies 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 medicalpatient needs within rare and orphan diseases.

The Company’s rare disease pipeline includes CERC-801, CERC-802 and CERC-803 (“CERC-800 compounds”), which are in neurologic indications. We are now embarking on a pre-clinicaldevelopment for congenital disorders of glycosylation and clinical program to explore the use of CERC-301CERC-006, an oral mTORc1/c2 inhibitor 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 therapydevelopment for the treatment of partial-onset seizures, with or without secondarily generalized seizures,complex lymphatic malformations. The Company is also developing two monoclonal antibodies, CERC-002 and CERC-007. CERC-002, targets the cytokine LIGHT (TNFSF14) and is in patients with epilepsy.



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CERC-406: Residual Cognitive Impairment. CERC-406inflammatory bowel disease and COVID-19 acute respiratory distress syndrome (“ARDS”). CERC-007 targets the cytokine IL-18 and 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 be developedin clinical development for the treatment of residual cognitive impairment symptoms.
Still’s disease (adult onset Still’s disease (“AOSD”) and systemic juvenile idiopathic arthritis) and multiple myeloma (“MM”). CERC-006, 801, 802 and 803 have all received Orphan Drug Designation and Rare Pediatric Disease Designation, which makes all four eligible for a priority review voucher (“PRV”) upon approval from the U.S. Food and Drug Administration (“FDA”).


The Company has one commercialized product, Millipred®, a non-core asset, which is an oral prednisolone indicated across a wide variety of inflammatory conditions.

Management’s primary evaluation of the success of the Company is the ability to progress its pipeline assets forward towards commercialization or opportunistically out-licensing rights to indications or geographies. This success depends not only on the operational execution of the programs, but also the ability to secure sufficient funding to support the programs. We believe the ability to achieve the anticipated milestones (as presented in the Research and Development Updates milestone chart below), represents our most immediate evaluation points.

We plan both to evaluatehave made significant progress in 2021 toward our current portfoliokey goal of advancing the pipeline as highlighted by the CERC-002 Crohn’s Phase 1b first cohort data release, CERC-002 COVID-19 ARDS Phase 2 proof-of-concept data release and subsequent receipt of fast-track designation (“FTD”), completion of the first cohort of the CERC-007 Multiple Myeloma Phase 1b trial, obtaining FTD for potential new indicationsCERC-803 and to identify potential new product candidatesenrollment of the first patient in the CERC-007 AOSD Phase 1b open-label proof-of-concept trial. We also believe our licensing activity during the first half of 2021, including in-licenses of immunology and / or commercialized assets.

At September 30, 2017, we had $24.0 million in cashimmuno-oncology assets (including the expanded license agreement for CERC-002 and cash equivalentsthe license agreement for CERC-008) and $4.8 million in current liabilities. In August 2017, we sold allout-licenses of non-core assets, enhances our rights to a prior product candidate, 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, as well as a potential future $20.0 million regulatory milestone payment.

We will need additional funding to completefocus on the development of innovative therapies in areas of high unmet need within the fields of immunology, immuno-oncology, and rare genetic disorders. Finally, we executed a combination of debt and equity financings in 2021 for total net proceeds of approximately $65 million as of the filing date of this Quarterly Report on Form 10-Q, which strengthens and extends our financial resources to advance our clinical pipeline towards these key development milestones.

Recent Developments
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In June 2021, the Company entered into a $35.0 million venture debt financing agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (“Horizon”) and Powerscourt Investments XXV, LP (“Powerscourt, together with Horizon, the “Lenders”). On the closing date, the Company received $20.0 million, with the remaining $15.0 million fundable upon the Company achieving certain predetermined milestones. In the third quarter of 2021, the Company received $10.0 million in gross proceeds under the Loan Agreement. This advance was made available in connection with the Company’s successful positive initial results from a Phase1b proof-of-concept study evaluating CERC-002 in adult patients with moderate-to-severe Crohn’s disease. The remaining $5.0 million may be funded upon achieving certain predetermined milestones.

In June 2021, Dr. Sol Barer notified the Board of Directors of the Company that he resigned from the Board, effective June 15, 2021. Dr. Barer’s resignation was not related to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. Dr. Barer will serve as a strategic advisor to the Board and the Company for a period of at least one year, during which he will serve on the Company’s Scientific Advisory Board. Following Dr. Barer’s resignation, the Board appointed Michael Cola, who is also the Company’s Chief Executive Officer, as Chairman of the Board and Dr. Suzanne Bruhn as the Lead Independent Director of the Board.

In July 2021, the Company entered into an “at-the-market” sales agreement with Cantor Fitzgerald & Co. and RBC Capital Markets, LLC (together, the “Agents”), pursuant to which the Company may sell from time to time, shares of its common stock having an aggregate offering price of up to $50 million through the Agents (the “ATM Program”). As of the filing date of this Quarterly Report on Form 10-Q, the Company has not yet sold any shares of our existing product candidates or any new product candidates we decidecommon stock under the ATM Program.

Research and Development Updates

On June 22, 2021, the Company entered into an exclusive patent license agreement with Sanford Burnham Prebys Medical Discovery Institute under which the Company obtained an exclusive license to pursue. We intenda portfolio of issued patents and patent applications covering an immune checkpoint program, which the Company refers to seek future funding for ouras CERC-008. The license further enhances the Company’s development programspipeline of novel biologics that address immunology 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.immuno-oncology targets.


We were incorporated in Delaware in 2011 and commenced operations inDuring the second quarter of 2011. Since inception, our operations have included organizing2021, the Company out-licensed and staffing our company, business planning, raising capital and developing our product candidates. We have no products approved for commercial sale and have not generated any revenue from product salesassigned, respectively, its rights to date, and we continue to incur significant research, development and other expenses related to our ongoing operations. We have incurred lossesits non-core neurology pipeline assets (compounds used 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 losses for the foreseeable future as we continue the development and clinical trials of our product candidates.

We have financed our operations primarily through a public offering, private placements of our common stock and convertible preferred stock, the issuance of debtCERC-301 and the saleCOMTi platform, including CERC-406) to Alto Neuroscience, Inc. (“Alto”) and ES Therapeutics, LLC (“ES”), respectively. The Company intends to focus on developing innovative therapies in areas of our rightshigh unmet need within the fields of immunology, immuno-oncology, and rare genetic disorders. As part of the transactions, the Company received initial upfront payments, and is eligible to CERC-501. Our abilityreceive additional payments upon achievement of specified development, regulatory and sales-based milestones. The Company is also entitled to become and remain profitable dependsroyalty payments based on our ability to generate product revenue. We do not expect to generate any product revenue unless, and until, we obtain marketing approval for, and commercialize, anynet sales of our product candidates. There can be no assurance as to whether or when we will achieve profitability. CERC-301.
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 grantJuly 2021, the Company announced positive initial results 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,1b proof-of-concept study evaluating CERC-002 in July 2016, we receivedadult patients with moderate-to-severe Crohn’s disease who had previously failed three or more lines of biologics therapies, including anti-TNF treatments. The results showed a researchmean reduction in LIGHT levels of approximately 80% compared to baseline signifying a dramatic and development grant fromrapid reduction of LIGHT levels correlating to the National Institute on Alcohol Abuse and Alcoholism, or NIAAA, at the National Institutespharmacodynamic effect of Health to provide additional resources for the period of July 2016 through August 2017 to progress the development of CERC-501 for the treatment of alcohol use disorder. 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.

In August 2017, we sold all of our rights to a prior product candidate, CERC-501, to Janssen Pharmaceuticals, Inc.CERC-002 (1.0 mg/kg), 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 termsclinically meaning endoscopic improvement in 75% (3/4) of subjects, as determined by colonoscopy (SES-CD score). CERC-002 was tolerated with no drug related severe adverse events. These initial results support expansion to patients with moderate to severe ulcerative colitis refractory to anti-TNF alpha therapies. Based on the results of the agreement provide that Janssenfirst cohort (n=4) of data, the Company will assume ongoing clinical trialscontinue dose exploration by proceeding to the next planned cohort without trial modification. The second cohort (3.0 mg/kg dose) is fully enrolled and be responsible for any newcomplete data results are anticipated in the second half of 2021.

The following chart summarizes key information about our clinical-stage pipeline and anticipated research & development and commercialization of CERC-501.milestones:


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cerc-20210630_g1.jpg



Research and Development Expenses

Our researchStrategy
Our strategy for increasing stockholder value includes:

•Advancing our pipeline of compounds through development and development expenses consist primarily of costs incurred developing, testingto 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 compounds;
•Developing the go-to-market strategy to quickly and internal researcheffectively 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 acquisitionsdistribute each of our product candidatescompounds that receive regulatory approval; and preclinical platform, milestone payments, and fees associated with the prosecution and maintenance of patents.
Internal costs include: •Opportunistically out-licensing rights to indications or geographies.
personnel‑related expenses, including salaries, benefits and stock‑based compensation expense;
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 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 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, as well as the amortization of the debt discounts 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 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 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.
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 SeptemberJune 30, 20172021 and 20162020


License and OtherProduct Revenue, net    


On August 14. 2017, we sold CERC-501 to Janssen in exchange for initial gross proceeds of $25.0Net product revenue was $2.7 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 three months ended SeptemberJune 30, 2017 and 2016:
  Three Months Ended
  September 30,
  2017 2016
  (in thousands)
Grant revenue $38
 $321
Grant revenue under the NIAAA grant was approximately $38,0002021, as compared to $1.3 million for the three months ended SeptemberJune 30, 2017. We recognized approximately $321,0002020. During the first quarter of grant2021, the Company’s inventory on hand became short-dated (which the Company considers inventory within six months of expiration) due to manufacturing delays and therefore the Company recorded a full sales return allowance on sales of short-dated inventory given the high likelihood of return. The Company received the delayed inventory lot in April 2021 and began selling this lot immediately. As a result, net revenue increased for the three months ended SeptemberJune 30, 2016 for 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 third quarter of 20172021 as compared to the prior year period which resulted in a reduction in grant revenue under the current NIAAA grant compareddue to the ongoing research conducted underincreased demand to backfill the NIDA grantshort-dated inventory.

In addition, Aytu BioScience, Inc. (“Aytu”), who the Company sold its rights, title and interest in 2016. assets relating to certain commercialized products in 2019, managed Millipred® commercial operations through June 30, 2021 pursuant to transition service agreements. We are currently finalizing our trade and distribution channel to allow us to control third party distribution in the third quarter of 2021. As of the filing date of this Quarterly Report on 10-Q, Aytu continues to distribute Millipred®.

The Company sold CERC-501expects net revenues to Janssen in August 2017continue to return to levels consistent with prior periods over the remainder of 2021.

License Revenue

License revenue was $0.6 million for the three months ended June 30, 2021, which relates to upfront fee received as a result of the out-license and does not expect any further grant revenues.


assignment, respectively, of the Company’s rights to its non-core neurology pipeline assets, CERC-301 and
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CERC-406 to Alto and ES, respectively. ES is a wholly-owned subsidiary of Armistice Capital Master Fund Ltd., (an affiliate of Armistice Capital, LLC and collectively “Armistice”), which is a significant stockholder of the Company and whose chief investment officer, Steven Boyd, currently serves on the Board of the Company. The transaction with ES was approved in accordance with Cerecor’s related party transaction policy.

Cerecor is eligible to receive additional payments upon achievement of specified development, regulatory and sales-based milestones for both CERC-301 and CERC-406 and is also entitled to royalty payments based on net sales of CERC-301.

Cost of Product Sales

Cost of product sales was $0.1 million for the three months ended June 30, 2021, which was consistent with the cost of product sales for the three months ended June 30, 2020. We are currently finalizing our trade and distribution channel to allow us to control third party distribution of Millipred® in the third quarter of 2021. As of the filing date of this Quarterly Report on 10-Q, Aytu continues to distribute Millipred®.

The Company has a license and supply agreement for the Millipred® product with a wholly owned subsidiary of Teva Pharmaceutical Industries Ltd. (“Teva”), which expires on September 30, 2023. Beginning July 1, 2021, Cerecor is required to pay Teva fifty percent of the net profit of the Millipred® product following each calendar quarter, subject to a $0.5 million quarterly minimum payment. Beginning in the third quarter of 2021, we expect cost of product sales to increase as compared to historic periods.

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended SeptemberJune 30, 20172021 and 2016:2020 (in thousands):
  Three Months Ended
  September 30,
  2017 2016
  (in thousands)
CERC-301 $362
 $1,142
CERC-501 14
 896
CERC-611 175
 2,019
CERC-406 —
 17
Internal expenses not allocated to programs:    
Salaries, benefits and related costs 194
 400
Stock-based compensation expense 41
 44
Other 179
 64
  $965
 $4,582
 Three Months Ended June 30,
 20212020
Preclinical expenses$2,110 $1,637 
Clinical expenses2,460 1,325 
CMC expenses4,905 1,327 
License and milestone expenses400 — 
Internal expenses:
Salaries, benefits and related costs2,160 1,201 
Stock-based compensation expense467 391 
Other67 36 
 $12,569 $5,917 
 
Research and development expenses were $965,000increased $6.7 million for the three months ended SeptemberJune 30, 2017, a decrease of approximately $3.6 million2021 compared to the same period in 2020. The Company’s merger with Aevi Genomic Medicine Inc. (“Aevi”) (the “Aevi Merger” or the “Merger”) in February 2020 was a transformative event as it significantly broadened our pipeline by adding the rights to three months ended September 30, 2016. Costsnew assets, as well as bringing in critical leadership to guide the Company and development of the expanded pipeline. Given the timing of the Merger, the first half of 2020 was spent integrating and initiating the additional programs. Therefore, the main driver of the increase is attributable to the maturing expanded pipeline, particularly as it relates to CMC and clinical expenses.

Notably, Chemistry, Manufacturing, and Controls (“CMC”) expenses increased $3.6 million due to additional spending on manufacturing to support development of the progressing pipeline and to ensure the Company has adequate drug on-hand for CERC-301 decreased by $780,000,upcoming trials. Clinical expenses increased $1.1 million primarily due to increased clinical trial spend as we approach the completion of the Phase 2initial cohorts of ongoing trials. Preclinical expenses increased $0.5 million due to increased non-clinical toxicity studies and biomarker studies to support clinical trial fordevelopment. Finally, we recognized a $0.4 million upfront license fee related to an asset in-licensed during the adjunctive treatmentperiod.

Salaries, benefits and related costs increased by $1.0 million mainly due to an increase in headcount to grow our research and development activities as we continue to invest in our expanded pipeline.

We expect research and development expense to continue to outpace historic periods, as the Company advances its maturing pipeline in anticipation of MDD. Costs for CERC-501 decreased by $882,000 frommultiple clinical data readouts over the prior year period as our Phase 2 clinical trial with CERC-501 was completed in the fourth quarternext twelve months.
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Table 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.Contents





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
The following table summarizes our general and administrative expenses for the three months ended June 30, 2021 and 2020 (in thousands): 
 Three Months Ended June 30,
 20212020
Salaries, benefits and related costs$1,118 $1,756 
Legal, consulting and other professional expenses2,685 1,804 
Stock-based compensation expense2,503 2,286 
Other312 255 
 $6,618 $6,101 
 
General and administrative expenses were $2.2$6.6 million for the three months ended SeptemberJune 30, 2017,2021, which represents a $0.5 million increase from the prior year period. The increase was largely driven by a $0.9 million increase in legal, consulting and other professional expenses, of which $0.5 million was related to patent expenses of an increase of $0.4 million comparedin-licensed asset and the remainder primarily due to expenses incurred to execute the three months ended September 30, 2016.licensing agreements executed during the period. This increase was primarilypartially offset by a $0.6 million decrease in salaries, benefits and related costs for the quarter due to a severance accruals for our former chiefaccrual in the prior year related to the resignation of an 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 gainsecond quarter of $101,0002020, which did not repeat for the three months ended SeptemberJune 30, 2016.2021.

During the three months ended June 30, 2021 and June 30, 2020, there were stock-based compensation modifications recorded related modifications of awards previously granted to former executives and board members which drove minimal change period over period.

We expect general and administrative expenses to continue to increase compared to historic periods as a result of the increased infrastructure to support the Company’s expanded research and development efforts.

Sales and Marketing Expenses
 
The $101,000 gain on the change in fair value during the 2016 period was primarily due to the increase in fair value of the warrant liabilityfollowing table summarizes our sales 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 $134,000marketing expenses for the three months ended SeptemberJune 30, 2017 compared2021 and 2020 (in thousands): 
 Three Months Ended June 30,
 20212020
Salaries, benefits and related costs$182 $183 
Stock-based compensation expense104 87 
Advertising and marketing expense432 366 
Other68 17 
 $786 $653 
Sales and marketing expenses consist of expenses related to initiatives to support the go-to-market strategy of our pipeline assets. Sales and marketing expenses were relatively consistent for the three months ended SeptemberJune 30, 2016. 2021 and 2020.

Amortization Expense

The decreasefollowing table summarizes our amortization expense for the three months ended June 30, 2021 and 2020 (in thousands):

 Three Months Ended June 30,
 20212020
Amortization of intangible assets$428 $404 

Amortization expense relates to the amortization of the assembled workforces and other intangible assets acquired as part of previous acquisitions and mergers and was primarily due to a decrease in interest associated with a reduction inlargely consistent for the principal balance of our secured term loan facility. We made the final payment under this term loan on August 1, 2017.three months ended June 30, 2021 and 2020.


Other (Expense) Income, Net
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The following table summarizes our other (expense) income, net for the three months ended June 30, 2021 and 2020 (in thousands):
Income Tax Expense
 Three Months Ended June 30,
 20212020
Change in fair value of Investment in Aytu (as defined below)$— $(1,872)
Other (expense) income, net(5)398 
Interest (expense) income, net(239)9 
$(244)$(1,465)


The provision for income taxes was $3.2Other expense, net decreased $1.2 million for the three months ended SeptemberJune 30, 2017 due2021, as compared to the prior year. For the three months ended June 30, 2020, other expense, net income generatedwas mainly comprised of a $1.9 million loss on the change in the fair value of an investment of the Company. As consideration of the Company’s divestiture of certain commercialized products to Aytu in 2019, the Company received 9.8 million shares of Aytu preferred stock (the “Investment in Aytu”), which was remeasured at its current fair value each reporting period. In the second quarter of 2020, the Company sold the common stock underlying the investment for net proceeds of $12.8 million, which represented a loss of $1.9 million from its fair value on March 31, 2020.

Additionally, the saleCompany recognized interest expense of CERC-501. Our annual effective tax rate as of September$0.2 million for the three months ended June 30, 2017 was approximately 18 percent. Our effective tax rate differs from the federal statutory rate due2021 related 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 4th quarter due to additional expected operating losses during that period.venture debt agreement entered into in June 2021.


Income Tax Benefit
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 revenueincome tax expense (benefit) for the ninethree months ended SeptemberJune 30, 20172021 and 2016:2020 (in thousands):
  Nine Months Ended
  September 30,
  2017 2016
  (in thousands)
Grant revenue $580
 $972
 Three Months Ended June 30,
 20212020
Income tax benefit$(199)$(454)
    
Grant revenue from the NIAAA grant was $580,000The Company recognized an income tax benefit of $0.2 million for the ninethree months ended SeptemberJune 30, 2017. Revenue2021 compared to an income tax benefit of $972,000$0.5 million for the ninethree months ended SeptemberJune 30, 20162020. The tax benefit recognized for the three months ended June 30, 2020 was derived froma result of a tax law change and the NIDA grant. Our grant revenues are dependent upon the timing and progressability of the underlying studiesCompany to carry back certain losses for taxes related to the Coronavirus Aid, Relief and development activities. We had a reduced level of researchEconomic Security Act (“CARES Act”) and development activitiesrelated state provisions. The income tax benefit in the current year period was a result of the updated estimate of interest receivable and abatement of penalties on the refund claim, as the final refund payment was received from the Internal Revenue Service in the second quarter of 2021.

Comparison of the Six Months Ended June 30, 2021 and 2020

Product Revenue, net    

Net product revenue was $3.2 million for the six months ended June 30, 2021, as compared to $4.1 million for the six months ended June 30, 2020. During the first quarter of 2021, the Company’s inventory on hand became short-dated (which the Company considers inventory within six months of expiration) due to manufacturing delays and therefore the Company recorded a full sales return allowance on sales of short-dated inventory given the high likelihood of return. The Company received the delayed inventory lot in April 2021 and began selling this lot immediately. As a result of the full sales return allowance recognized in the first quarter of 2021, net revenue decreased for the six months ended June 30, 2021 as compared to the on-going clinical trial work in prior year period,period.

In addition, Aytu managed Millipred® commercial operations through June 30, 2021 pursuant to transition service agreements. We are currently finalizing our trade and distribution channel to allow us to control third party distribution in the third quarter of 2021. As of the filing date of this Quarterly Report on 10-Q, Aytu continues to distribute Millipred®.

The Company expects net revenues to continue to return to levels consistent with prior periods over the remainder of 2021.

License Revenue, net

License revenue was $0.6 million for the six months ended June 30, 2021, which resultedrelates to upfront fee received as a result of the out-license and assignment, respectively, of the Company’s rights to its non-core neurology pipeline assets, CERC-301 and
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CERC-406 to Alto and ES, respectively. ES is a wholly-owned subsidiary of Armistice, which is a significant stockholder of the Company and whose chief investment officer, Steven Boyd, currently serves on the Board of the Company. The transaction with ES was approved in accordance with Cerecor’s related party transaction policy.

Cerecor is eligible to receive additional payments upon achievement of specified development, regulatory and sales-based milestones for both CERC-301 and CERC-406 and is also entitled to royalty payments based on net sales of CERC-301.

Cost of Product Sales

Cost of product sales was $0.2 million for the six months ended June 30, 2021, which was consistent with the cost of product sales for the six months ended June 30, 2020. We are currently finalizing our trade and distribution channel to allow us to control third party distribution of Millipred® in the third quarter of 2021. As of the filing date of this Quarterly Report on 10-Q, Aytu continues to distribute Millipred®.

The Company has a reductionlicense and supply agreement for the Millipred® product with a wholly owned subsidiary of grant revenue underTeva, which expires on September 30, 2023. Beginning July 1, 2021, Cerecor is required to pay Teva fifty percent of the current NIAAA grantnet profit of the Millipred® product following each calendar quarter, subject to a $0.5 million quarterly minimum payment. Beginning in the third quarter of 2021, we expect cost of product sales to increase as compared to the NIDA grant in 2016.historic periods.

Research and Development Expenses

The following table summarizes our research and development expenses for the ninesix months ended SeptemberJune 30, 20172021 and 2016:2020 (in thousands):
  Nine Months Ended
  September 30,
  2017 2016
  (in thousands)
CERC-301 $484
 $2,534
CERC-501 596
 3,145
CERC-611 216
 2,019
CERC-406 2
 121
Internal expenses not allocated to programs:    
Salaries, benefits and related costs 743
 1,285
Stock-based compensation expense 124
 95
Other 246
 178
  $2,411
 $9,377
 Six Months Ended June 30,
 20212020
Preclinical expenses$4,344 $2,915 
Clinical expenses7,900 1,896 
CMC expenses9,639 2,521 
License and milestone expenses10,900 — 
Internal expenses:
Salaries, benefits and related costs4,097 2,514 
Stock-based compensation expense765 772 
Other129 67 
 $37,774 $10,685 
 
Research and development expenses were $2.4increased $27.1 million for the ninesix months ended SeptemberJune 30, 2017, a decrease of approximately $7.0 million2021 compared to the nine months ended September 30, 2016. Costssame period in 2020. The Aevi Merger, which closed in February 2020, was a transformative event as it significantly broadened our pipeline by adding the rights to three new assets, as well as bringing in critical leadership to guide the Company and development of the expanded pipeline. Given the timing of the Merger, the first half of 2020 was spent integrating and initiating the additional programs. Therefore, the main driver of the increase is attributable to the maturing expanded pipeline, particularly as it relates to CMC and clinical expenses

In addition, we recognized a $10.0 million upfront license fee related to the expanded indication license agreement for CERC-301 decreasedCERC-002 entered into with Kyowa Kirin Co. (“KKC”) in March 2021 and also recognized a $0.4 million upfront license fee related to an asset in-licensed during the period. Additionally, we recognized a $0.5 million development milestone payment to Astellas Pharma, Inc. for CERC-006 (which was subsequently paid in July 2021).

CMC expenses increased $7.1 million due to additional spending on manufacturing to support development of the progressing pipeline and to ensure the Company has adequate drug on-hand for anticipated trials. Clinical expenses increased $6.0 million primarily due to costs incurred to advance the pipeline as we approach multiple clinical data read outs across our pipeline. Salaries, benefits and related costs increased by $2.0$1.6 million mainly due to an increase in headcount to grow our research and development activities as we continue to invest in our expanded pipeline.


We expect research and development expense to continue to outpace historic periods, as the Company advances its maturing pipeline in anticipation of multiple clinical data readouts over the next twelve months.

Acquired In-Process Research and Development Expenses
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In the first quarter of 2020, the Company consummated its merger with Aevi, resulting in us acquiring $25.5 million fromof in-process research and development (“IPR&D”). The fair value of the prior year period, primarilyIPR&D was immediately recognized as acquired in-process research and development expense given such asset has no other alternate use due to the completionstage of enrollment during the Phase 2 clinical trialdevelopment. There was no acquired IPR&D for the adjunctive treatment of MDD in 2016. We did not perform any clinical trials 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 million and are currently in the process of preparing that compound for additional development.six months ended June 30, 2021.

General and Administrative Expenses
  Nine Months Ended
  September 30,
  2017 2016
  (in thousands)
Salaries, benefits and related costs $1,665
 $1,808
Legal, consulting and other professional expenses 2,150
 2,186
Stock-based compensation expense 728
 1,344
Other general and administrative expenses 378
 651
  $4,921
 $5,989
The following table summarizes our general and administrative expenses for the six months ended June 30, 2021 and 2020 (in thousands): 
 Six Months Ended June 30,
 20212020
Salaries, benefits and related costs$2,038 $2,768 
Legal, consulting and other professional expenses5,277 2,588 
Stock-based compensation expense3,548 2,988 
Other667 433 
 $11,530 $8,777 
 
General and administrative expenses were $4.9$11.5 million for the ninesix months ended SeptemberJune 30, 2017,2021, which represents a decrease$2.8 million increase from the prior year period. The increase was largely driven by a $2.7 million increase in legal, consulting and other professional expenses. The largest driver was higher legal costs in the current period, including costs to execute the KKC expanded indication license agreement and the other licensing agreements executed in the current year. Additionally, director and officer insurance expense increased in the current year.

Stock-based compensation expense increased $0.6 million for the six months ended June 30, 2021. The increase was largely driven by $1.4 million of $1.1 million comparedexpense related to the nine months ended September 30, 2016. Salaries,modifications of a former board members stock options during the second quarter of 2021, partially offset by increased expense in the prior year due to equity award grants and modifications to certain former executives and board members due to leadership changes in the first half of 2020.

These increases were partially offset by a $0.7 million decrease in salaries, benefits and related costs decreased by $143,000 primarilyfor the quarter due to a temporary reduction in headcount and certain employee benefits. Stock-based compensation expense decreased by $616,000, which was primarily driven by the modification of grants made to our former chief executive officerseverance accrual in the firstprior year related to the resignation of an executive during the second quarter of 2016. Other2020, which did not repeat for the six months ended June 30, 2021.

We expect general and administrative expenses decreased by $273,000 due to effortscontinue to reduce certain other operating costs in orderincrease compared to preserve cash.historic periods as a result of the increased infrastructure to support the Company’s expanded research and development efforts.

Sales and Marketing Expenses
 
Change in Fair Value of Warrant LiabilityThe following table summarizes our sales and Unit Purchase Option Liabilitymarketing expenses for the six months ended June 30, 2021 and 2020 (in thousands): 
 Six Months Ended June 30,
 20212020
Salaries, benefits and related costs$371 $317 
Stock-based compensation expense209 142 
Advertising and marketing expense562 848 
Other79 23 
 $1,221 $1,330 
    
We recognizedSales and marketing expenses consist of expenses related to initiatives to support the go-to-market strategy of our pipeline assets. For the six months ended June 30, 2020, we incurred costs related to market research projects for multiple programs and indications that did not repeat in the current year, driving a $0.3 million decrease. This decrease was largely offset by slightly higher salaries, benefits and related costs and stock-based compensation expense incurred in the current year, leading to an overall decrease of $0.1 million.

Amortization Expense
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The following table summarizes our amortization expense for the six months ended June 30, 2021 and 2020 (in thousands):

 Six Months Ended June 30,
 20212020
Amortization of intangible assets$853 $834 

Amortization expense relates to the amortization of the assembled workforces and other intangible assets acquired as part of previous acquisitions and mergers and was largely consistent for the six months ended June 30, 2021 and 2020.

Other (Expense) Income, Net

The following table summarizes our other (expense) income, net for the six months ended June 30, 2021 and 2020 (in thousands):

 Six Months Ended June 30,
 20212020
Change in fair value of Investment in Aytu (as defined below)$— $5,208 
Other (expense) income(5)410 
Interest (expense) income, net(222)18 
$(227)$5,636 

Other (expense), net was $0.2 million for the six months ended June 30, 2021 compared to other income, net of $5.6 million for the six months ended June 30, 2020. For the six months ended June 30, 2020, other income, net was mainly comprised of a $5.2 million gain on the change in fair value of our warrant liability and UPO liabilitythe Company’s previous Investment in Aytu. Each reporting period, the Company’s Investment in Aytu was remeasured at its fair value. In the second quarter of $2,000 during2020, the nineCompany sold the common stock underlying its Investment in Aytu for net proceeds of $12.8 million, which represented a gain of $5.2 million from its fair value on December 31, 2019.

Additionally, the Company recognized interest expense of $0.2 million for the six months ended SeptemberJune 30, 2017 compared2021 related to a net gain of $58,000the venture debt agreement entered into in June 2021.

Income Tax Benefit

The following table summarizes our income tax expense (benefit) for the ninesix months ended SeptemberJune 30, 2016.2021 and 2020 (in thousands):
 Six Months Ended June 30,
 20212020
Income tax benefit$(188)$(2,611)
    
The $58,000 gain on the change in fair value during the 2016 period was primarily due to the decrease in fair valueCompany recognized an income income tax benefit 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 Expense

The provision for income taxes was $3.2$0.2 million for the ninesix months ended SeptemberJune 30, 2021 compared to an income tax benefit of $2.6 million for the six months ended June 30, 2020. The tax benefit recognized for the six months ended June 30, 2020 was a result of a tax law change signed into law as part of the CARES Act, which allowed the Company to carry back certain losses for taxes paid in fiscal year 2017 dueand thus resulted in a refund claim. The income tax benefit in the current period was a result of the updated estimate of interest receivable and abatement of penalties on the refund claim, as the final refund payment was received from the Internal Revenue Service in the second quarter of 2021.

Liquidity and Capital Resources

As of June 30, 2021, Cerecor had $40.4 million in cash and cash equivalents. In June 2021, the Company entered into a $35.0 million venture debt financing agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (“Horizon”) and Powerscourt Investments XXV, LP (“Powerscourt, together with Horizon, the “Lenders”). In accordance with the Loan Agreement, $20.0 million of the $35.0 million loan was funded on the closing date (the “Initial Note”), with the remaining $15.0 million fundable upon the Company achieving certain predetermined milestones. The Company received net proceeds of $19.6 million in the second quarter of 2021 and will pay approximately $1.7 million of debt issuance costs in the third quarter of 2021 for total expected net proceeds of $17.9 million (related to the Initial Note funded in the second quarter). The Loan Agreement contains certain covenants and certain other specified events that could result in an event of default, which if not cured
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or waived, could results in the acceleration of all or a substantial portion of the notes. As of June 30, 2021, the Company did not breach any covenants or specified event that could result in an event of default.

In the third quarter of 2021, the Company received $10.0 million in gross proceeds (the “Second Note”) under the Loan Agreement. The Second Note was made available in connection with the Company’s successful positive initial results from a Phase1b proof-of-concept study evaluating CERC-002 in adult patients with moderate-to-severe Crohn’s disease.

In January 2021, the Company closed an underwritten public offering of 13,971,889 shares of its common stock and 1,676,923 pre-funded warrants for net incomeproceeds of approximately $37.7 million.

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, 2021, Cerecor generated a net loss of $47.8 million and negative cash flows from operations of $37.5 million. As of June 30, 2021, Cerecor had an accumulated deficit of $225.6 million.

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern; however, losses are expected to continue as the Company continues to invest in its research and development pipeline assets. The Company will require additional financing to fund its operations and to continue to execute its business strategy at least one year after the date the condensed consolidated financial statements included herein were issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

To mitigate these conditions and to meet the Company’s capital requirements, management plans to use its current cash on hand along with some combination of the following: (i) dilutive and/or non-dilutive financings, (ii) federal and/or private grants, (iii) other out-licensing or strategic alliances/collaborations of its current pipeline assets, and (iv) out-licensing or sale of CERC-501. Our annual effective tax rate asits non-core assets. If the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, the Company might have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates. Subject to limited exceptions, our venture debt financing agreement prohibits us from incurring certain additional indebtedness, making certain asset dispositions, and entering into certain mergers, acquisitions or other business combination transactions without prior consent of September 30, 2017 was approximately 18 percent. Our effective tax rate differs from the federal statutory rate dueLender. If the Company requires but is unable to obtain additional funding, the Company may be forced to make reductions in spending, delay, suspend, reduce or eliminate some or all of its planned research and development programs, or liquidate assets where possible. Due to the uncertainty regarding future financing and other potential options to raise additional funds, management has concluded that substantial doubt exists with respect to the Company’s ability to utilizecontinue as a portiongoing concern within one year after the date that the financial statements in this Quarterly Report were issued.

Over the long term, the Company’s ultimate ability to achieve and maintain profitability will depend on, among other things, the development, regulatory approval, and commercialization of its prior net operating losses, which were previously subjectpipeline assets, and the potential receipt and sale of any PRVs it receives.

Uses of Liquidity

The Company uses cash to a valuation allowance, to offset current period income. We currently expect to generate an income tax benefit duringprimarily fund the 4th quarter due to additional expected operating losses during that period.
Liquidity and Capital Resources
We have devoted mostongoing development of our cash resources to research and development pipeline assets and general and administrative activities. Since our inception, we have incurred net losses and negative cash flows from our operations. We expect to incur significant expenses and operating losses for the foreseeable future as we continue the development, preclincial and clinical trials of, and seek marketing approval for, our product candidates. We incurred net income (losses) of $15.0 million and $(14.8) million forcosts associated with its organizational infrastructure.

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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 to the sale of CERC-501. To date, we 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 our 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. 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.

We will require substantial additional financing to fund our operations to continue 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 current research and development plans we expect that our existing cash and cash equivalents, together with the initial proceeds from the Janssen sale, will enable us to fund our operating expenses and capital expenditure requirements through 2018.
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 ninesix months ended SeptemberJune 30, 20172021 and 2016:2020 (in thousands): 
  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 $852,000.
 Six Months Ended June 30,
 20212020
Net cash (used in) provided by:  
Operating activities$(37,503)$(14,294)
Investing activities(21)11,586 
Financing activities59,043 44,583 
Net increase in cash and cash equivalents$21,519 $41,875 
 
Net cash used in operating activities

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Net cash used in operating activities was $10.9$37.5 million for the ninesix months ended SeptemberJune 30, 20162021 and consisted primarily of a net loss of $14.8$47.8 million, offsetwhich was primarily driven by non-cash stock-based compensation expenseresearch and development activities as the Company continued to fund its pipeline of $1.4development assets. The six months ended June 30, 2021 included a full period of development of the expanded pipeline from the Aevi Merger compared to a partial period in the prior year (in which the focus was integration as opposed to pipeline development). Changes in net liabilities increased by $4.6 million, and anmainly driven by a $4.9 million increase in accrued expenses which is primarily related to accrued research and development expense. Furthermore, other liabilitiesreceivables decreased by $1.2 million. These were partially offset by increased accounts receivable of $2.5$1.9 million.

Net cash used in operating activities was $14.3 million for the six months ended June 30, 2020 and consisted primarily of a net loss of $34.4 million 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 the 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 investing activities

Net cash used in investing activities was minimal for the six months ended June 30, 2021 and consisted primarily of the purchase of property and equipment.

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

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Net cash provided by financing activities was $3.7$59.0 million for the ninesix months ended SeptemberJune 30, 2017, which2021 and consisted primarily of grossnet proceeds of $37.7 million from an underwritten public offering of 13,971,889 shares of common stock and 1,676,923 pre-funded warrants. Armistice, which is a significant stockholder of the Company and whose chief investment officer, Steven Boyd, currently serves on the Board of the Company, participated in the offering by purchasing 2,500,000 shares of common stock, on the same terms as all other investors. Certain affiliates of Nantahala Capital Management LLC (collectively, “Nantahala”), which beneficially owned greater than 5% of the Company’s outstanding common stock at the time of the offering and, therefore, were considered a related party pursuant to the Company’s written related person transaction policy, purchased 1,400,000 shares of common stock, on the same terms as all other investors. Nantahala also purchased the pre-funded warrants to purchase up to an aggregate of 1,676,923 shares of common stock at a purchase price of $2.599, which represents the per share public offering price for the common stock less the $0.001 per share exercise price for each pre-funded warrant. Additionally, net cash provided by financing activities includes net proceeds of $19.6 million received in the second quarter of 2021 as part of the Loan Agreement entered into in June 2021. The Company will pay approximately $1.7 million of debt issuance costs in the third quarter of 2021 for total expected net proceeds of $17.9 million (related to the Initial Note funded in the second quarter).

Net cash provided by financing activities was $44.6 million for the six months ended June 30, 2020 and consisted primarily of net proceeds of $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 the Maxim Groupof Company and $4.6net proceeds of $3.9 million net from a private placement of equity securities towith Armistice Capital Master Fund Ltd, offset by principal paymentsduring March 2020.

Critical Accounting Policies, Estimates, and Assumptions

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our term loanunaudited 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 $2.4 million.

Netproduct sales, stock-based compensation, fair value measurements, cash flows used in financing activities was $1.5 millionmanagement’s going concern assessment, income taxes, goodwill, and other 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 estimates, and estimates may vary as new facts and circumstances arise. Our most critical accounting
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estimates and assumptions are included in our Annual Report on Form 10-K for the nine monthsyear ended September 30, 2016, which consisted primarily of proceeds of $1.0 million from the sale of common stock offset by principal payments on our term loan of $2.5 million.

Operating and Capital Expenditure Requirements
We have not achieved profitability since our inception and, while we did recognize license and other revenue from the sale of CERC-501, we expect to continue to incur net losses 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, togetherDecember 31, 2020 filed with the initial proceeds of $25.0 million from the Janssen sale, of which $3.75 million will be held 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 beSEC on March 8, 2021. There have been 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 rights 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 result 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 anymaterial changes to our development plan with respect to CERC-611, if any;critical accounting policies during the six months ended June 30, 2021.
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; 

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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;Off-Balance Sheet Arrangements
 
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 our substantial capital requirements.

Off‑Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable SEC rules and regulations.
Recent Accounting Pronouncements
See Item 1 of Part I, “Notes to Unaudited Financial Statements,” Note 2, of this Quarterly Report on Form 10-Q.


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Item 3. Quantitative and Qualitative Disclosures aboutAbout Market RiskRisk.
 
Interest Rate Risk

We maintainAs a short-term investment portfolio consisting mainly of highly liquid short-term money market funds, whichsmaller reporting company, we considerare 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 affectedinformation required by a sudden change in market interest rates.this Item.
 

Item 4. Controls and ProceduresProcedures.
 
Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended, or 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 arewere effective at the reasonable assurance level in ensuring that information required to be disclosedas 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 overOver Financial Reporting

There have not been anywere no changes in our internal controlscontrol 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, 2017period 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 ProceedingsProceedings.

We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.None.


Item 1A. Risk FactorsFactors.

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, 2016,2020, filed with the SEC on March 10, 2017,8, 2021, and our Current Report on Form 8-K filed with the SEC on July 2, 2021 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 onthe Form 10-K. However,10-K and 8-K referenced above with the exception of the supplemental risk factor outlined below. The risks described in our Annual Report onthe Form 10-K 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

2.14.1
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 to the Current Report on Form 8-K filed on April 28, 2017).
3.2
Amended and Restated Bylaws of Cerecor Inc. (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(incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-18-K filed on June 12, 2015)4, 2021).

4.2

4.3

4.4
4.5

4.54.6

4.64.7

4.74.8

4.9
Form of Class A Warrant AgreementHorizon Technology Finance Corporation (incorporated by reference to Exhibit 4.94.8 to the Registration Statement on Form S-18-K filed on October 13, 2015)June 4, 2021).

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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4.1310.1*+

10.2*+
4.1410.3*+
4.1531.1+
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.231.2+

32.132.1+†
*

101.INS
XBRL Instance Document.

101.SCH
XBRL Taxonomy Extension Schema Document.

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.
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101
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020; (ii) Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2020; (iii) Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2021 and 2020; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2020; and (v) Notes to Unaudited Financial Statements.
104Cover Page Interactive Data File, formatted in XBRL (included in Exhibit 101).
* These certifications areCertain portions of this exhibit have been omitted pursuant to 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 areis not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and areis 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 2, 2021/s/ John KaiserSchond L. Greenway
John KaiserSchond L. Greenway
Interim Chief ExecutiveFinancial Officer
(on behalf of the registrant and as the registrant’s Principal Executive Officer)principal financial officer)
Date: November 6, 2017
/s/    Mariam E. Morris
Mariam E. Morris
Chief Financial Officer
(Principal Financial Officer)
Date: November 6, 2017

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