UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10‑Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, ~~2019~~2020
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 001-37590

CERECOR INC.

(Exact name of registrant as specified in its charter)



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

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



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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐

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



Large accelerated filer ¨		Accelerated filer ¨þ
Non-accelerated filer þ¨		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. þ

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 May ~~3, 2019,~~4, 2020, the registrant had ~~42,753,659~~59,606,018 shares of common stock outstanding.

Table of Contents

CERECOR INC.

FORM 10-Q

For the Quarter Ended March 31, ~~2019~~2020

TABLE OF CONTENTS




				Page

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		a)	Condensed Consolidated Balance Sheets as of March 31, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019	3

		b)	Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	4

		c)	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	5

		d)	Condensed Consolidated Statements of Changes in ~~Stockholders’~~Stockholders' Equity (Unaudited) for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	7

		e)	Notes to Unaudited Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2928

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3837

	Item 4.	Controls and Procedures		3837


PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings		3938

	Item 1A.	Risk Factors		3938

	Item 6.	Exhibits		40

	SIGNATURES			4143

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	16,121,388		$	10,646,301		$	5,659,384		$	3,609,438
Accounts receivable, net	2,718,396			3,157,555			2,194,983			1,001,645
Other receivables	5,531,025			5,469,011			2,063,981			4,240,572
Inventory, net	1,046,982			1,110,780			16,276			21,334
Prepaid expenses and other current assets	1,248,465			1,529,516			777,442			706,968
Restricted cash, current portion	77,846			18,730			64,643			17,535
Investment in Aytu							14,708,768			7,628,947
Current assets of discontinued operations							—			497,577
Total current assets	26,744,102			21,931,893			25,485,477			17,724,016
Property and equipment, net	1,477,067			586,512			1,416,832			1,447,663
Intangibles assets, net	30,160,621			31,239,468
Intangible assets, net							2,695,675			2,426,258
Goodwill	16,411,123			16,411,123			14,409,088			14,409,088
Restricted cash, net of current portion	77,118			81,725			112,549			101,945
Total assets	$	74,870,031		$	70,250,721		$	44,119,621		$	36,108,970
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,249,470		$	1,446,141		$	2,725,998		$	2,077,524
Accrued expenses and other current liabilities	21,815,097			19,731,373			6,194,205			5,640,252
Income taxes payable	1,814,650			2,032,258			—			551,671
Long-term debt, current portion	1,050,000			1,050,000
Contingent consideration, current portion	2,205,647			1,956,807
Current liabilities of discontinued operations							6,409,668			3,891,012
Total current liabilities	28,134,864			26,216,579			15,329,871			12,160,459
Long-term debt, net of current portion	14,303,540			14,327,882
Contingent consideration, net of current portion	6,796,641			7,093,757
Royalty obligation							2,000,000			—
Deferred tax liability, net	75,179			69,238			106,701			85,981
License obligations	1,250,000			1,250,000
Other long-term liabilities	1,189,277			385,517			1,094,307			1,111,965
Long-term liabilities of discontinued operations							—			1,755,000
Total liabilities	51,749,501			49,342,973			18,530,879			15,113,405
Stockholders’ equity:
Common stock—$0.001 par value; 200,000,000 shares authorized at March 31, 2019 and December 31, 2018; 42,753,659 and 40,804,189 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	42,754			40,804
Preferred stock—$0.001 par value; 5,000,000 shares authorized at March 31, 2019 and December 31, 2018; 2,857,143 shares issued and outstanding at March 31, 2019 and December 31, 2018	2,857			2,857
Common stock—$0.001 par value; 200,000,000 shares authorized at March 31, 2020 and December 31, 2019; 59,560,252 and 44,384,222 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively							59,560			44,384
Preferred stock—$0.001 par value; 5,000,000 shares authorized at March 31, 2020 and December 31, 2019; 1,257,143 and 2,857,143 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively							1,257			2,857
Additional paid-in capital	128,747,037			119,082,157			160,935,648			135,238,941
Accumulated deficit	(105,672,118		)	(98,218,070		)	(135,407,723		)	(114,290,617		)
Total stockholders’ equity	23,120,530			20,907,748			25,588,742			20,995,565
Total liabilities and stockholders’ equity	$	74,870,031		$	70,250,721		$	44,119,621		$	36,108,970

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2019			2018			2020			2019
Revenues
Revenues:
Product revenue, net	$	5,411,443		$	4,260,119		$	2,753,865		$	2,576,369
Sales force revenue	—			222,656
Total revenues, net	5,411,443			4,482,775			2,753,865			2,576,369

Operating expenses:
Cost of product sales	1,947,892			863,624			66,558			752,548
Research and development	3,401,189			1,649,778			4,767,750			3,401,189
Acquired in-process research and development							25,549,344			—
General and administrative	2,716,983			2,918,916			2,675,613			2,675,610
Sales and marketing	3,108,902			1,524,816			676,527			396,276
Amortization expense	1,078,847			1,017,408			430,583			334,748
Change in fair value of contingent consideration	180,402			262,769			—			20,940
Total operating expenses	12,434,215			8,237,311			34,166,375			7,581,311
Loss from operations	(7,022,772		)	(3,754,536		)
Other (expense) income:
Loss from continuing operations							(31,412,510		)	(5,004,942		)
Other income (expense):
Change in fair value of Investment in Aytu							7,079,821			—
Change in fair value of warrant liability and unit purchase option liability	(47,577		)	(23,251		)	11,280			(47,577		)
Other (expense) income, net	(9,400		)	18,655
Interest expense, net	(207,941		)	(100,402		)
Total other expense, net	(264,918		)	(104,998		)
Net loss before taxes	(7,287,690		)	(3,859,534		)
Income tax expense	166,358			23,313
Other expense, net							—			(9,400		)
Interest income, net							9,790			30,217
Total other income (expense), net from continuing operations							7,100,891			(26,760		)
Loss from continuing operations before taxes							(24,311,619		)	(5,031,702		)
Income tax (benefit) expense							(2,156,855		)	130,672
Loss from continuing operations							$	(22,154,764	)	$	(5,162,374	)
Income (loss) from discontinued operations, net of tax							1,037,658			(2,291,674		)
Net loss	$	(7,454,048	)	$	(3,882,847	)	$	(21,117,106	)	$	(7,454,048	)

Net (loss) income per share of common stock, basic and diluted:
Continuing operations							$	(0.36	)	$	(0.09	)
Discontinued operations							0.02			(0.04		)
Net loss per share of common stock, basic and diluted	$	(0.13	)	$	(0.12	)	$	(0.34	)	$	(0.13	)

Net (loss) income per share of preferred stock, basic and diluted:
Continuing operations							$	(1.78	)	$	(0.46	)
Discontinued operations							0.08			(0.21		)
Net loss per share of preferred stock, basic and diluted	$	(0.67	)	$	—		$	(1.70	)	$	(0.67	)

See accompanying notes to the unaudited condensed consolidated ~~unaudited~~ financial statements.

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CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Operating activities
Net loss	$	(7,454,048	)	$	(3,882,847	)	$	(21,117,106	)	$	(7,454,048	)
Adjustments to reconcile net loss provided by (used in) to net cash used in operating activities:
Adjustments to reconcile net loss used in operating activities:
Depreciation and amortization	1,098,478			1,023,040			453,016			1,098,478
Stock-based compensation	596,693			242,824			1,116,323			596,693
Acquired in-process research and development, including transaction costs							25,549,344			—
Deferred taxes	5,941			15,913			20,720			5,941
Amortization of inventory fair value associated with acquisition of TRx and Avadel	22,603			45,450
Non-cash interest expense	—			105,451
Amortization of inventory fair value associated with acquisition of TRx and Avadel's pediatric products							—			22,603
Change in fair value of Investment in Aytu							(7,079,821		)	—
Change in fair value of warrant liability and unit purchase option liability	47,577			23,251			(11,280		)	47,577
Change in fair value of contingent consideration and long-term royalty obligation	180,402			262,769
Change in value of Guarantee							(1,755,000		)	—
Change in fair value of contingent consideration							—			180,402
Other	21,412			—			—			21,412
Changes in assets and liabilities:
Accounts receivable, net	439,159			104,671			(695,761		)	439,159
Other receivables	(62,014		)	371,663			(1,962,812		)	(62,014		)
Inventory, net	41,195			(554,445		)	5,058			41,195
Prepaid expenses and other assets	281,051			(71,085		)	22,676			281,051
Escrowed cash receivable	—			(2,065		)
Accounts payable	(196,671		)	1,866,960			250,970			(196,671		)
Income taxes payable	(217,608		)	7,400			(551,671		)	(217,608		)
Accrued expenses and other liabilities	2,074,278			160,627			(141,873		)	2,074,278
Lease liability, net							157,143			—
Net cash used in operating activities	(3,121,552		)	(280,423		)	(5,740,074		)	(3,121,552		)
Investing activities
Acquisition of business	—			(1		)
Net cash paid in merger with Aevi							(1,250,650		)	—
Purchase of property and equipment	(165,969		)	(19,224		)	—			(165,969		)
Net cash used in investing activities	(165,969		)	(19,225		)	(1,250,650		)	(165,969		)
Financing activities
Proceeds from exercise of stock options and warrants	94,177			363,390			74,207			94,177
Proceeds from registered direct offering, net							5,136,184			—
Proceeds from sale of shares pursuant to common stock private placement, net							3,887,991			—
Proceeds from underwritten public offering, net	8,975,960			—			—			8,975,960
Payment of contingent consideration	(228,678		)	—			—			(228,678		)
Payment of long-term debt	(24,342		)	—			—			(24,342		)
Net cash provided by financing activities	8,817,117			363,390			9,098,382			8,817,117
Increase in cash, cash equivalents and restricted cash	5,529,596			63,742			2,107,658			5,529,596
Cash, cash equivalents, and restricted cash at beginning of period	10,746,756			2,605,499			3,728,918			10,746,756
Cash, cash equivalents, and restricted cash at end of period	$	16,276,352		$	2,669,241		$	5,836,576		$	16,276,352
Supplemental disclosures of cash flow information
Cash paid for interest	$	262,500		$	44,003		$	—		$	262,500
Cash paid for taxes	$	378,025		$	—		$	316,000		$	378,025
Supplemental disclosures of non-cash activities
Issuance of common stock in Aevi Merger							$	15,495,578		$	—
Leased asset obtained in exchange for new operating lease liability	$	743,025		$	—		$	—		$	743,025
Debt assumed in Avadel Pediatric Products acquisition	$	—		$	(15,075,000	)

Table of Contents

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

~~Table of Contents~~


	March 31,				March 31,
	2019		2018		2020		2019

Cash and cash equivalents	$	16,121,388	$	2,523,927	$	5,659,384	$	16,121,388
Restricted cash, current	77,846		13,955		64,643		77,846
Restricted cash, non-current	77,118		131,359		112,549		77,118
Total cash, cash equivalents and restricted cash	$	16,276,352	$	2,669,241	$	5,836,576	$	16,276,352

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

CERECOR INC. and SUBSIDIARIES

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


	Stockholders’ Equity																Common stock			Preferred Stock			Additional paid‑in			Accumulated			Total stockholders’
							Additional							Total			Shares	Amount		Shares	Amount		capital			deficit			equity
	Common stock			Preferred Stock			paid‑in		Contingently issuable stock		Accumulated			stockholders’
	Shares	Amount		Shares	Amount		capital		Amount		deficit			equity
Three Months Ended March 31, 2018:
Balance, December 31, 2017	31,266,989	$	31,268	—	$	—	$	83,338,136	$	2,655,464	$	(58,165,260	)	$	27,859,608
Three Months Ended March 31, 2019
Balance, December 31, 2018																	40,804,189	$	40,804	2,857,143	$	2,857	$	119,082,157		$	(98,218,070	)	$	20,907,748
Issuance of shares of common stock in underwritten public offering, net of offering costs																	1,818,182	1,818			—		8,974,142			—			8,975,960
Exercise of stock options and warrants	143,346	143		—	—		363,247							363,390			31,288	31			—		94,146			—			94,177
Stock-based compensation	—	—		—	—		242,824		—		—			242,824				—			—		596,693			—			596,693
Restricted Stock Units vested during period																	100,000	101			—		(101		)	—			—
Net loss	—	—		—	—		—				(3,882,847		)	(3,882,847		)		—			—		—			(7,454,048		)	(7,454,048		)
Balance, March 31, 2018	31,410,335	$	31,411	—	$	—	$	83,944,207	$	2,655,464	$	(62,048,107	)	$	24,582,975
Balance, March 31, 2019																	42,753,659	$	42,754	2,857,143	$	2,857	$	128,747,037		$	(105,672,118	)	$	23,120,530

Three Months Ended March 31, 2019:
Balance, December 31, 2018 40,804,189
$ 40,804
2,857,143
$ 2,857
$ 119,082,157
$ —
$ (98,218,070 ) $ 20,907,748
Issuance of shares of common stock in underwritten public offering, net of offering costs 1,818,182
1,818
—
—
8,974,142
—
8,975,960
Exercise of stock options and warrants 31,288
31
—
—
94,146
—
94,177
Stock-based compensation —
—
—
—
596,693
—
—
596,693
Restricted Stock Units vested during period 100,000
101
—
—
(101 ) —
—
—
Net loss —
—
—
—
—
—
(7,454,048 ) (7,454,048 )
Balance, March 31, 2019 42,753,659
$ 42,754
2,857,143
$ 2,857
$ 128,747,037
$ —
$ (105,672,118 ) $ 23,120,530



Three Months Ended March 31, 2020
Balance, December 31, 2019	44,384,222	$	44,384	2,857,143		$	2,857		$	135,238,941		$	(114,290,617	)	$	20,995,565
Conversion of preferred stock to common stock	8,000,000	8,000		(1,600,000	)	(1,600		)	(6,400		)	—			—
Issuance of shares related to Aevi Merger	3,893,361	3,894				—			15,491,684			—			15,495,578
Issuance of shares pursuant to registered direct offering, net of offering costs	1,306,282	1,306				—			5,134,878			—			5,136,184
Issuance of shares pursuant to common stock private placement, net of offering costs	1,951,219	1,951				—			3,886,040			—			3,887,991
Exercise of stock options and warrants	25,168	25				—			74,182			—			74,207
Stock-based compensation		—				—			1,116,323			—			1,116,323
Net loss		—				—			—			(21,117,106		)	(21,117,106		)
Balance, March 31, 2020	59,560,252	$	59,560	1,257,143		$	1,257		$	160,935,648		$	(135,407,723	)	$	25,588,742

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”~~"Cerecor") is a ~~fully integrated~~ biopharmaceutical company ~~with commercial operations~~focused on becoming a leader in development and ~~research~~commercialization of treatments for rare pediatric and ~~development capabilities.~~orphan diseases. The Company is ~~building a~~advancing an emerging clinical-stage pipeline of innovative therapies ~~in neurology,~~that address unmet patient needs within rare pediatric ~~healthcare,~~ and orphan ~~rare~~ diseases. The Company's neurology pipeline is led by CERC-301, which recently received positive interim results from the Phase I safety study of Neurogenic Orthostatic Hypotension ("nOH"). The Company is also developing two other neurological compounds, one of which is in preclinical testing and the other is in the clinical ready stage. The Company's pediatric ~~orphan~~ rare disease pipeline is led by CERC-801, CERC-802 and ~~CERC-803. All three of these compounds~~CERC-803 ("CERC-800 compounds"), which are therapies for inherited metabolic disorders known as Congenital Disorders of Glycosylation ("CDGs") ~~by means of substrate replacement therapy.~~. The U.S. Food and Drug Administration ("FDA") ~~has~~ granted Rare Pediatric Disease ~~designation~~Designation ("RPDD") and Orphan Drug Designation ("ODD") to all three ~~compounds. Under~~CERC-800 compounds, thus potentially qualifying the ~~FDA’s Rare Pediatric Disease~~Company to receive a Priority Review Voucher ("PRV") ~~program,~~ upon ~~the~~ approval of ~~a new drug application~~each New Drug Application ("NDA") for the treatment of a rare pediatric disease, the sponsor of such application would be eligible for a PRV that can be used to obtain priority review for a subsequent new drug application or biologics license application. The. Each PRV may be sold or transferred an unlimited number of times. The Company plans to leverage the 505(b)(2) NDA pathway for all three compounds to accelerate development and approval. Additionally, CERC-801 and CERC-802 were granted Fast Track Designation ("FTD") from the FDA, which can help facilitate and potentially expedite development of each compound.

The Company is also indeveloping CERC-002, CERC-006 and CERC-007. CERC-007 is an anti-IL-18 monoclonal antibody being developed for the ~~process~~treatment of ~~developing one other preclinical pediatric orphan rare disease compound.~~autoimmune inflammatory diseases such as Adult Onset Stills Disease ("AOSD") and Multiple Myeloma. CERC-006 is a dual mTOR inhibitor being developed for the treatment of complex Lymphatic Malformations. CERC-002 is an anti-LIGHT (Lymphotoxin-like, exhibits Inducible expression, and competes with HSV Glycoprotein D for HVEM, a receptor expressed by T lymphocytes) monoclonal antibody being developed for the treatment of Pediatric-onset Crohn's Disease.

The Company ~~also has~~continues to explore strategic alternatives for its sole commercialized product, Millipred®, an oral prednisolone indicated across a ~~diverse portfolio~~wide variety of marketed products. Our marketed products are led by our prescribed dietary supplements and prescribed drugs. Our prescribed dietary supplements include Poly-Vi-Flor and Tri-Vi-Flor, which are prescription vitamin and fluoride supplements used in infants and children to treat or prevent deficiency of essential vitamins and fluoride.inflammatory conditions. The Company ~~also markets~~has been in discussions with Simon Pedder, a ~~number~~member of ~~prescription drugs~~its Board of Directors, about potentially transferring its non-core neurology pipeline assets, CERC-301 and CERC-406, to a new company to be formed by Dr. Pedder, although it has not agreed to binding terms, and any such transaction might not happen until the third quarter of 2020, if at all.

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

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

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Cerecor was incorporated in 2011, commenced operations in the second quarter of 2011 and completed an initial public offering in October 2015.

~~On November 17, 2017,~~Liquidity

In February 2020, the Company ~~acquired TRx Pharmaceuticals,~~closed on a registered direct offering with institutional investors of 1,306,282 shares of the Company's common stock at a purchase price of $3.98 per share. The Company's largest stockholder, Armistice Capital, LLC ~~(“TRx”~~("Armistice") ~~and its wholly-owned subsidiaries (see "TRx Acquisition"~~, whose Chief Investment Officer Steve Boyd is a Cerecor director, participated in ~~Note 5 below~~the offering by purchasing 1,256,282 shares of common stock from the Company. The net proceeds of the offering were approximately $5.0 million. In March 2020, the Company entered into a securities purchase agreement with Armistice pursuant to which the Company sold 1,951,219 shares of the Company’s common stock for a ~~description~~purchase price of ~~this transaction).~~

~~On February 16, 2018, Cerecor acquired all rights~~$2.05 per share, which represents the closing stock price the day prior to ~~Avadel Pharmaceuticals PLC’s (“Avadel”) marketed pediatric products (the “Acquired Products”)~~entering into the agreement. Net proceeds of the private placement were approximately $3.9 million. Additionally, in ~~exchange for Cerecor assuming certain financial obligations of Avadel (see "Avadel Pediatric Products Acquisition" in Note 5 below for a description of this transaction).~~

~~On September 25, 2018,~~April 2020, the Company converted its shares of Aytu preferred stock that were acquired ~~Ichorion Therapeutics, Inc., a privately-held biopharmaceutical company focused on developing treatments~~in the fourth quarter of 2019 and ~~increasing awareness~~subsequently sold that common stock, which generated net proceeds of ~~inherited metabolic disorders known as CDGs (see "Ichorion Asset Acquisition" in Note 5 below for a description of this transaction).~~

~~Liquidity~~approximately $12.8 million.

The accompanying condensed consolidated financial statements have been prepared assuming the Company ~~closed an underwritten public offering of common stock for 1,818,182 shares of common stock of~~will continue as a going concern; however, the Company ~~at a price~~expects to ~~the public of $5.50 per share ("public price"). Armistice Capital Master Fund Ltd. ("Armistice"), our largest stockholder, participated~~incur additional losses in the offering by purchasing 363,637 shares of common stock of the Company from the underwriter at the public price. Cerecor director Steven J. Boyd is Armistice's Chief Investment Officer. The net proceeds of the offering were approximately $9.0 million (see "Common Stock Offering"future in ~~Note 9 below for description of the transaction).~~

connection with research and development activities and will require additional financing to fund its operations and to continue to execute its strategy. The Company plans to use its current cash ~~and~~on hand, which includes the cash generated from the sale of Aytu common shares in April 2020, the anticipated cash flows from the Company's ~~existing~~profits from Millipred product sales and/or the potential proceeds from a possible out-license or sale of Millipred to a third party to offset costs related to its ~~neurology programs, pediatric rare disease programs,~~pipeline assets, business development, and costs associated with its organizational

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~~infrastructure, and debt principal and interest payments.~~ infrastructure; however, Cerecor expects to continue to incur significant expenses and operating losses for the immediate future as it continues to invest in the Company's pipeline assets. ~~Our~~The Company’s ability to continue as a going concern through 2020 is dependent upon the Company’s ability to raise additional equity and/or debt capital, sell assets and obtain government funding; however, there can be no assurance that it will be able to do so nor that such activities will generate sufficient amounts on terms acceptable to the Company.

Over the long term, the Company's ultimate ability to achieve and maintain profitability ~~in the future is~~will be dependent on, among other things, the development, regulatory approval, and commercialization of ~~our new product candidates~~its pipeline assets, and ~~achieving a level~~the potential sale of ~~revenues from our existing product sales adequate~~any PRVs it receives, in order to support ~~our~~its cost structure ~~which includes significant~~and pipeline asset development.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. To alleviate these conditions, the Company monetized its investment in ~~our~~Aytu generating net proceeds of $12.8 million in April 2020 and is evaluating the potential out-licensing or sale of Millipred, its non-core neurology pipeline ~~assets.~~

The Company believes it will require additional financing to continue to execute its clinical development strategy and fund future operations. The Company plans to meet its capital requirements through operating cash flows from product sales andassets and/or some combination of rights to future PRV sales, equity or debt financings, collaborations, other out-licensing arrangements, strategic alliances, federal and private grants, marketing, other distribution or licensing arrangements, or the sale of current or future 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. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible or suspend or curtail planned programs. IfDue to the ~~Company raises~~uncertainty regarding future financings and/or other potential options to raise additional funds, ~~through collaborations, strategic alliances, or licensing arrangements~~management has concluded that substantial doubt exists with ~~third parties,~~respect to the ~~Company may have~~Company’s ability to ~~relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates.~~

~~Our plan to aggressively develop our pipeline will require substantial cash inflows in excess of what~~continue as a going concern within one year after the ~~Company expects our current commercial operations to generate. However,~~date that the Company expects that our existing cash and cash equivalents, together with anticipated revenue, will enable us to fund our operating expenses, capital expenditure requirements, and other non-operating cash payments, such as fixed quarterly payments on our outstanding debt balances, through at least May 2020.financial statements are issued.

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”).

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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, ~~2018~~2019 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”). Certain prior period amounts have been reclassified to conform to the current year ~~presentation.~~presentation, as described below.

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, ~~2018~~2019 audited consolidated financial statements.

~~Reclassification~~

During the fourth quarter of 2018, the Company concluded that going forward it would include change in fair value of contingent consideration within its own stand-alone line in operating expenses in the Company's statements of operations. The Company has reclassified $0.3 million from other expenses to operating expenses in the March 31, 2018 statement of operations to conform with current period presentation.

Significant Accounting Policies

During the three months ended March 31, ~~2019,~~2020, there ~~have been~~were no significant changes to the Company’s summary of significant accounting policies contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as filed with the SEC on March ~~18, 2019 and amended on April 23, 2019,~~11, 2020, except for the recently adopted accounting standards described below.

~~The following significant accounting policy was updated in~~Recently Adopted Accounting Pronouncements

Financial Instruments - Credit Losses

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

Upon adoption of ~~ASU No. 2016-02,~~ ~~Leases~~ ~~(Topic 842) ("ASU 2016-02").~~the new standard on January 1, 2020, the Company began recognizing an allowance using a forward-looking approach to estimate the expected credit loss related to financial assets. The Company began monitoring the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in the customers’ credit profiles. Over 95% of sales were generated from three major industry wholesalers for the three months ended March 31, 2020. Additionally, pursuant to the new standard, at each reporting period, the Company adjusts the Guarantee liability through earnings based on expected credit losses in accordance with Topic 326. The Company evaluated the impact of the adoption of this standard on its financial statements, concluding there was no significant impact on the Company's results of operations, financial position, cash flows or disclosures.

~~Leases~~Fair Value Measurements

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

Income Tax Simplification

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740)(ASU 2019-12)", which provides final guidance that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation that is applicable to the Company, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences among other changes. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects early adoption must adopt all the amendments in the same period. The Company elected to early adopt the ASU 2019-12 as of January 1, 2020. Management concluded that the adoption of the new standard did not have a material impact to income taxes reported on the financial statements for the three months ended March 31, 2020.

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3. Aytu Divestiture

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

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

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

Deerfield Guarantee

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

The debt obligation assumed by Aytu consists of fixed monthly payments to Deerfield of $0.1 million until January 2021 and an additional balloon payment of $15.0 million to Deerfield on January 31, 2021. Therefore, Cerecor's Fixed Payment Guarantee will end on January 31, 2021, upon the $15.0 million balloon payment being made to Deerfield. The contingent consideration assumed by Aytu consists of quarterly deferred payments equal to 15% of net sales of certain Pediatric Portfolio paid in arrears each quarter until the earlier of (i) February 5, 2026, or (ii) when $12.5 million in aggregate deferred payments have been paid to Deerfield. Of the contingent consideration, $3.2 million was paid to Deerfield prior to the Aytu Divestiture and therefore as of November 1, 2019, Aytu was responsible for the remaining $9.3 million. Aytu is required to pay an amount equal to at least $0.1 million per month except the monthly Deferred Payment due on January 31, 2020 will be at least $0.2 million. Cerecor's Deferred Payment Guarantee will end upon the earlier of (i) February 5, 2026, or (ii) upon $12.5 million in aggregate deferred payments has been paid to Deerfield. Cerecor is required to make payment under the Guarantee upon demand by Deerfield, which Deerfield can demand at any time if all or any part of the fixed payments and/or deferred payments are not paid by Aytu when due or upon breach of a covenant. As of March 31, 2020, the maximum potential amount of future payments under the Guarantee was $24.5 million, consisting of $15.9 million for the Fixed Payment Guarantee and $8.6 million for the Deferred Payment 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 divestiture as the difference between (i) the estimated fair value of the debt and contingent payments, respectively, using Cerecor's estimated cost of debt and (ii) the estimated fair value of the debt and contingent payments, respectively, using Aytu's estimated cost of debt. Subsequent to the close of the Aytu Divestiture, at each reporting period, the value of the Guarantee is determined based on the expected credit loss of the Guarantee with changes recorded in income (loss) from discontinued operations, net of tax within the consolidated statements of operations. As of March 31, 2020, Aytu's credit rating significantly improved as a result of recent developments to Aytu's business, including but not limited to, recent financings and expansion of its revenue products that substantially enhanced Aytu's cash position and its ability to meet its financial commitments. Based on these facts, management concluded that the expected credit loss of the Guarantee was de minimis as of March 31, 2020 and thus a $1.8 million gain on the change in value was recognized in income from discontinued operations, net of tax within the accompanying condensed consolidated statement of operations for the three months ended March 31, 2020.

Discontinued Operations

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The Company determines if an arrangement is a lease at inception. If an arrangement contains a lease, the Company performs a lease classification test to determine if the lease is an operating lease or a finance lease. The Company has identified one operating lease for its corporate headquarters. Right-of-use ("ROU") assets represent the right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease liabilities are recognized on the commencement date of the lease based on the present value of the future lease payments over the lease term and are included in other long-term liabilities on our condensed consolidated balance sheet. Right-of-use assets are valued at the initial measurement of the lease liability, plus any indirect costs or rent prepayments, and reduced by any lease incentives and any deferred lease payments. Operating right-of-use assets are recorded in property and equipment, net on the condensed consolidated balance sheet and are amortized over the lease term. To determine the present value of lease payments on lease commencement, we use the implicit rate when readily determinable, however as most leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at commencement date. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Furthermore, the Company has elected the practical expedient to account for the lease and non-lease components as a single lease component for the leased property asset class. Lease expense is recognized on a straight-line basis over the life of the lease and is included within general and administrative expenses.

~~Recently Adopted Accounting Pronouncements~~

~~Adoption of ASC 842~~

~~In February 2016, FASB issued ASU No. 2016-02,~~ ~~Leases~~ ~~(Topic 842) ("ASU 2016-02"). This guidance revises existing practice related to accounting for leases under ASC No. 840,~~ ~~Leases~~ (“ASC 840”) for both lessees and lessors. The new guidance in ASU 2016-02 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 finance leases. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840).

The Company adopted the standard using the simplified transition method on its effective date of January 1, 2019 and therefore did not adjust prior comparative periods as permitted by the codification improvements issued by FASB in July 2018. Additionally, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the Company to carryforward the historical lease classification. As a result of the ~~standard,~~sale of the Pediatric Portfolio, the operating results from the Pediatric Portfolio are reported as loss from discontinued operations, net of tax in the accompanying condensed consolidated statements of operations. Accordingly, the accompanying condensed consolidated financial statements for the three months ended March 31, 2020 and 2019 reflect the operations and related assets and liabilities of the Pediatric Portfolio as a discontinued operation.

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



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

Liabilities
Current liabilities:
Accounts payable	—		387,975
Accrued expenses and other current liabilities	6,409,668		3,503,037
Total current liabilities of discontinued operations	6,409,668		3,891,012
Other long-term liabilities	—		1,755,000
Total long-term liabilities of discontinued operations	—		1,755,000

Subsequent to the closing of the Aytu Divestiture on November 1, 2019, Cerecor retains continuing involvement with the divested Pediatric Portfolio mainly surrounding collection of accounts receivable associated with sales of Pediatric Portfolio, future sales returns made after November 1, 2019 relating to sales of the Pediatric Portfolio prior to the close date of the Aytu Divestiture and the Deerfield Guarantee (discussed in detail above).

Pursuant to the Aytu Purchase Agreement, Aytu assumed sales returns of the Pediatric Portfolio made after the closing date of November 1, 2019 and primarily relating to sales prior to November 1, 2019 only to the extent such post-Closing sales returns exceed $2.0 million and are less than $2.8 million (in other words, Aytu will only assume $0.8 million of such returns). Therefore, Cerecor is liable for future sales returns of the Pediatric Portfolio sold prior to November 1, 2019 in excess of the $0.8 million assumed by Aytu. As of March 31, 2020, the Company ~~recorded a lease liability of $1.2 million and a right-of-use asset of $0.7~~estimated its sales return reserve from discontinued operations to be $2.4 million, which is ~~equal to~~included above in accrued expenses and other current liabilities from discontinued operations. Changes in the ~~initial measurement~~Company's estimate of the lease liability reduced by the unamortized balance of lease incentive received and deferred rent. There was no material impact to our condensed consolidated income statement (see Note 12 below for more information).

~~Other Adopted Accounting Pronouncements~~

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532 Disclosure Update and Simplification, to eliminate or modify certain disclosure rules that are redundant, outdated, or duplicative of GAAP or other regulatory requirements. Among other changes, the amendments provide that disclosure requirementssales returns related to the ~~analysis~~Pediatric Portfolio is included within discontinued operations on the statement of ~~stockholders' equity are expanded for interim financial statements. An analysis~~operations and is shown within product sales, net in the table summarizing the results of discontinued operations below. In future periods, as additional information becomes available to the Company, the Company expects to recognize expense (or a benefit) related to actual sales returns of the ~~changes~~Pediatric Portfolio in ~~each caption~~excess (or less than) the returns reserve recorded as of ~~stockholders' equity presented in the balance sheet must~~November 1, 2019, which will be ~~provided in a note or separate statement.~~recognized within discontinued operations. The Company ~~has provided~~expects this ~~disclosure beginning~~involvement to continue until sales returns are no longer accepted on sales of the Pediatric Portfolio made prior to November 1, 2019, which, in line with the ~~first~~products' return policies, returns on these products may be accepted through 2023. Additionally, Cerecor and Aytu are in process of transitioning the collection of accounts receivables associated with post-divestiture sales of the divested Pediatric Portfolio from Cerecor to Aytu. Cash received by Cerecor related to post-divestiture sales is remitted to Aytu on a quarterly basis until the accounts receivable collection process is fully transitioned to Aytu. As of March 31, 2020, Cerecor accrued a $3.9 million liability within accrued expenses and other current liabilities related to cash it will remit to Aytu related to post-divestiture sales. The Company expects this involvement to continue until the second quarter of 2020.

The following table summarizes the results of discontinued operations for the three months ended March 31, 2020 and 2019:

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	Three Months Ended March 31,
	2020			2019
Product revenue, net	$	(717,342	)	$	2,835,074

Operating expenses:
Cost of product sales	—			1,195,344
General and administrative	—			41,374
Sales and marketing	—			2,712,626
Amortization expense	—			744,099
Change in fair value of contingent consideration	—			159,462
Total operating expenses	—			4,852,905
Other income (expense):
Change in value of Guarantee	1,755,000			—
Interest expense, net	—			(238,158		)
Total other income (expense)	1,755,000			(238,158		)
Income (loss) from discontinued operations before tax	1,037,658			(2,255,989		)
Income tax expense	—			35,685
Income (loss) from discontinued operations, net of tax	$	1,037,658		$	(2,291,674	)

The significant non-cash operating items from the discontinued operations for the three months ended March 31, 2020 and 2019 are contained below. There were no non-cash investing items from the discontinued operations for the three months ended March 31, 2020 and 2019.



	Three Months Ended March 31,
	2020			2019
Operating activities
Amortization	$	—		$	744,099
Stock-based compensation, excluding amount included within gain on sale of Pediatric Portfolio	—			49,364
Change in fair value of contingent consideration liability	—			159,462
Change in value of Guarantee	(1,755,000		)	—

3.4. Revenue from Contracts with Customers

The Company generates substantially all of its revenue from sales of prescription ~~pharmaceutical products~~drugs to its customers. ~~The following table presents net revenues disaggregated by type (in thousands):~~

Three Months Ended March 31,
2019 2018
Prescribed dietary supplements $ 1,791
$ 2,231
Prescription drugs 3,620
2,029
Sales force revenue —
223
Total revenue $ 5,411
$ 4,483

~~Table~~Revenue from sales of ~~Contents~~

prescription drugs was $2.8 million and $2.6 million for the three months ended March 31, 2020 and 2019, respectively.

As is typical in the pharmaceutical industry, the Company sells its prescription ~~pharmaceutical products (which include prescribed dietary supplements and prescription drugs)~~drugs in the United States primarily through wholesale distributors and a specialty contracted pharmacy. Wholesale distributors account for substantially all of the Company’s net product revenues and trade receivables. In addition, the Company earns revenue from sales of its prescription ~~pharmaceutical products~~drugs directly to retail pharmacies. For the three months ended March 31, ~~2019,~~2020, the Company’s three largest customers accounted for approximately ~~35%~~39%, ~~33%~~32%, and ~~25%, respectively,~~27% of the Company's total net product revenues from sale of prescription ~~pharmaceutical products.~~drugs from continuing operations.

4.5. Net Loss Per Share

The Company computes earnings per sh~~are~~share ("EPS") using the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared and participation rights in undistributed earnings. The Company has two classes of stock outstanding, common stock and preferred stock. The preferred stock was issued in ~~the fourth quarter of~~December 2018, upon Armistice exercising ~~preferred stock~~ warrants to acquire an aggregate of 2,857,143 shares of the Series B Convertible Preferred Stock ("convertible preferred stock"). The convertible preferred stock has the same rights and preferences as the Company’s common stock, other than being non-voting, and is convertible tointo shares of common stock on a ~~1-to-5~~1-for-5 ratio. During the first quarter of 2020, Armistice converted 1.6 million shares of Series B Convertible Preferred Stock into 8.0

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million shares of Cerecor's common stock. Under the two-class method, the convertible preferred stock is considered a separate class of stock for EPS purposes and therefore basic and diluted EPS is provided below for both common stock and preferred stock.

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

Diluted net (loss) income 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 and restricted stock units, which are included under the "treasury stock method" when ~~dilutive,~~dilutive; (ii) common stock to be issued upon the assumed conversion of the Company's unit purchase option (the "UPO") shares, which are included under the "if-converted method" when dilutive; (iii) prior to issuance, the contingently issuable shares in the TRx acquisition, if contingencies would have been satisfied if the end of the contingency period were as of the balance sheet date under the "if-converted method" when dilutive; and ~~(iv)~~(iii) common stock to be issued upon the exercise of outstanding warrants, which are included under the "treasury stock method" when dilutive. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses. In periods of net loss, losses are allocated to the participating security only if the security has not only the right to participate in earnings, but also a contractual obligation to share in the Company's losses.

The following table sets forth the computation of basic and diluted net loss per share of common stock and preferred stock for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, which includes both classes of participating securities:


	Three Months Ended						Three Months Ended					Three Months Ended
	March 31,						March 31,					March 31, 2020
	2019						2018					Common stock					Preferred stock
	Common stock			Preferred stock			Common stock			Preferred stock		Continuing Operations			Discontinued Operations		Continuing Operations			Discontinued Operations
Net loss per share, basic and diluted
Numerator:
Allocation of undistributed net loss	$	(5,537,787	)	$	(1,916,261	)	$	(3,882,847	)	$	—
Allocation of undistributed net (loss) income												$	(19,204,480	)	$	899,476	$	(2,950,284	)	$	138,182
Denominator:
Weighted average shares	41,284,168			2,857,143			31,316,246			—		53,934,760			53,934,760		1,657,143			1,657,143
Basic and diluted net loss per share	$	(0.13	)	$	(0.67	)	$	(0.12	)	$	—

Basic and diluted net (loss) income per share												$	(0.36	)	$	0.02	$	(1.78	)	$	0.08



	Three Months Ended
	March 31, 2019
	Common stock						Preferred stock
	Continuing Operations			Discontinued Operations			Continuing Operations			Discontinued Operations
Numerator:
Allocation of undistributed net loss	$	(3,835,249	)	$	(1,702,538	)	$	(1,327,125	)	$	(589,136	)
Denominator:
Weighted average shares	41,284,168			41,284,168			2,857,143			2,857,143
Basic and diluted net loss per share	$	(0.09	)	$	(0.04	)	$	(0.46	)	$	(0.21	)

The following outstanding securities ~~at March 31, 2019 and 2018~~ have been excluded from the computation of diluted weighted shares outstanding for the three months ended March 31, 2020 and 2019, as they could have been anti-dilutive:

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	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2019	2018	2020	2019
Stock options	4,345,305	3,909,384	7,712,680	4,345,305
Warrants on common stock	4,024,708	18,986,659	4,024,708	4,024,708
Restricted Stock Units	345,000	—	267,500	345,000
Underwriters' unit purchase option	40,000	40,000	40,000	40,000

~~5. Acquisitions~~

~~Ichorion~~6. Asset Acquisition

Aevi Merger

On ~~September 24, 2018,~~February 3, 2020, the Company ~~entered into, and subsequently~~ consummated its two-step merger with Aevi, in accordance with the ~~transactions contemplated by, an agreement and plan~~terms of ~~merger (the "Merger Agreement")~~the Merger Agreement dated December 5, 2019, by and ~~among the Company and Ichorion Therapeutics,~~between Cerecor, Genie Merger Sub, Inc., a Delaware corporation ~~(the “Ichorion Asset Acquisition”), with Ichorion surviving as a~~and wholly owned subsidiary of Cerecor (“Merger Sub”), Second Genie Merger Sub, LLC (“Second Merger Sub”), a Delaware limited liability company and wholly owned subsidiary of Cerecor, and Aevi. On February 3, 2020, Merger Sub merged with and into Aevi, with Aevi as the Company. The consideration for the Ichorion Asset Acquisition consisted of approximately 5.8 million shares of the Company’s common stock, par value $0.001 per share, as adjusted for Estimated Working Capital as defined in the Merger Agreement. The shares of common stock issuedsurviving corporation, and as part of the ~~acquisition may not be resold until January~~same transaction, Aevi then merged with and into Second Merger Sub, with Second Merger Sub as the surviving entity. The surviving entity from the second merger was renamed Aevi Genomic Medicine, LLC and is disregarded as an entity separate from Cerecor for U.S. federal income tax purposes. Cerecor retained its public reporting and current NASDAQ listing status. Effective upon the consummation of the Merger, Cerecor entered into an employment agreement with Aevi CEO Mike Cola for him to serve as Cerecor's Chief Executive Officer and an employment agreement with Aevi CSO Dr. Garry Neil for him to serve as Cerecor's Chief Medical Officer, and appointed Mike Cola and Dr. Sol Barer to the Company's Board of Directors. Dr. Neil was promoted to Cerecor's Chief Scientific Officer in March 2020. ~~Consideration~~Additionally, the Company extended employment agreements to seven other individuals who were previously employed by Aevi.

The Merger consideration included stock valued at approximately $15.5 million, resulting in the issuance of approximately 3.9 million shares of Cerecor common stock to Aevi stockholders, forgiveness of a $4.1 million loan that Cerecor loaned Aevi in December 2019 contingent value rights for ~~the Ichorion Asset Acquisition includes certain development milestones worth~~ up to an additional ~~$15~~$6.5 million in subsequent payments based on certain development milestones, payable in either in shares of the Company's common stock or in cash at the election of the ~~Company.~~Company, and transaction costs of $1.5 million.

The fair value of the common stock ~~shares~~ transferred at closing was approximately ~~$20~~$15.5 million ~~based on~~using the Company's closing stock price ~~close~~ on ~~September 24, 2018 and offset by an estimated discount for lack of marketability calculated using guideline public company volatility for comparable companies.~~February 3, 2020. The assets acquired consisted primarily of ~~$18.7~~$24.0 million of acquired in-process research and development ("IPR~~&D, $1.6~~&D"), $0.3 million of cash and ~~$0.2~~$0.7 million of assembled workforce. The Company assumed net liabilities of $5.1 million. The Company recorded this transaction as an asset purchase as opposed to a business combination as management concluded that substantially all of the value received was related to one group of similar identifiable assets which was the IPR&D for ~~the three preclinical~~two early phase therapies for ~~inherited metabolic disorders known as CDGs (CERC-801, CERC-802,~~rare and ~~CERC-803)~~orphan diseases (CERC-006 and CERC-007). The Company ~~has~~ considered these assets similar due to similarities in the risks ~~for~~of development, ~~compound type,~~ stage of development, regulatory pathway, patient ~~population~~populations and economics of commercialization. The fair value of the IPR&D was immediately recognized as ~~Acquired In-Process Research~~acquired in-process research and ~~Development~~development expense asin the Company's consolidated statement of operations because the IPR&D asset has no ~~other~~ alternate use due to the stage of development. The ~~$0.2~~$1.5 million of transaction costs incurred were recorded to acquired IPR&D expense. The assembled workforce asset was recorded to intangible assets and will be amortized over an estimated useful life of two years.

The contingent consideration of up to an additional ~~$15~~$6.5 million relates to ~~three~~two future development milestones. The first milestone is the ~~first product being approved for marketing by the FDA on~~enrollment of a patient in a Phase II study related to CERC-002, CERC-006 or CERC-007 prior to ~~December 31, 2021.~~February 3, 2022. If this milestone is met, the Company is required to make a milestone payment of $6$2.0 million. The second milestone is the ~~second product being approved~~receipt of a NDA approval for ~~marketing by~~either CERC-006 or CERC-007 from the FDA on or prior to ~~December 31, 2021.~~February 3, 2025. If this milestone is met, the Company is required to make a milestone payment of ~~$5 million. The third milestone is a protide molecule being approved by the FDA on or prior to December 31, 2023. If this milestone is met, the Company is required to make a milestone payment of $4~~$4.5 million. All milestones are payable in either shares of the Company's common stock or cash, at the election of the Company.

The contingent consideration related to the development milestones will be recognized if and when such milestones are probable and can be reasonably estimated. As of the consummation of the Merger on February 3, 2020 and as of March 31, ~~2019,~~2020, no contingent consideration related to the development milestone has been recognized. The Company will continue to monitor the development milestones at each reporting period.

~~Avadel Pediatric Products Acquisition~~

On February 16, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Avadel US Holdings, Inc., Avadel Pharmaceuticals (USA), Inc., Avadel Pediatrics, Inc., Avadel Therapeutics, LLC and Avadel Pharmaceuticals PLC (collectively, the “Sellers”) to purchase and acquire all rights to the Sellers’ pediatric products. Total consideration transferred to the Sellers consisted of: (1) a cash payment of one dollar, (2) the Company's assumption of existing seller debt due in January 2021 with a fair value of $15.1 million, and (3) contingent consideration relating to royalty obligations through February 2026 with a fair value at acquisition date of approximately $7.9 million. As a result of the Avadel pediatric products acquisition, the Company recorded goodwill of $3.8 million, which is deductible over 15 years for income tax purposes.

The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition,

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with the remaining purchase price recorded as goodwill. The goodwill recognized is attributable primarily to strategic opportunities related to an expanded commercial footprint and diversified pediatric product portfolio that is expected to provide revenue and cost synergies.

During the second quarter of 2018, the Company identified and recorded measurement period adjustments to the preliminary purchase price allocation. These adjustments are reflected in the tables below. The measurement period adjustments were the result of additional analysis performed and information identified during the second quarter of 2018 based on facts and circumstances that existed as of the purchase date. There were no additional measurement adjustments recorded in 2018.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition and as adjusted for measurement period adjustments identified during the second quarter of 2018:

At February 16,
2018 (preliminary)
Measurement Period Adjustments
At February 16,
2018 (as adjusted)

Inventory $ 2,549,000
$ (1,831,000 ) $ 718,000
Prepaid assets —
570,000
570,000
Intangible assets 16,453,000
1,838,000
18,291,000
Accrued expenses —
(362,000 ) (362,000 )
Fair value of debt assumed (15,272,303 ) 197,303
(15,075,000 )
Fair value of contingent consideration (7,875,165 ) (44,835 ) (7,920,000 )
Total net liabilities assumed (4,145,468 ) 367,468
(3,778,000 )
Consideration exchanged 241,000
(240,999 ) 1
Goodwill $ 4,386,468
$ (608,467 ) $ 3,778,001

The purchase price allocation related to the acquisition of Avadel's pediatric products was finalized in 2018. The fair values of intangible assets, including marketing rights, licenses, and developed technology, were determined using variations of the income approach. Varying discount rates were also applied to the projected net cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value. The fair value of intangible assets, both as of the date of acquisition and as adjusted by measurement period adjustments identified during the second quarter of 2018, includes the following:

At February 16,
2018 (preliminary)
Measurement Period Adjustments
At February 16,
2018 (as adjusted)
Useful Life

Acquired Product Marketing Rights - Karbinal $ 6,221,000
$ (21,000 ) $ 6,200,000
10 years
Acquired Product Marketing Rights - AcipHex 2,520,000
283,000
2,803,000
10 years
Acquired Product Marketing Rights - Cefaclor 6,291,000
1,320,000
7,611,000
7 years
Acquired Developed Technology - Flexichamber 1,131,000
546,000
1,677,000
10 years
Acquired IPR&D - LiquiTime formulations 290,000
(290,000 ) —
Indefinite
Total $ 16,453,000
$ 1,838,000
$ 18,291,000

~~TRx Acquisition~~

On November 17, 2017, the Company entered into, and consummated the transactions contemplated by, an equity interest purchase agreement (the “TRx Purchase Agreement”) by and among the Company, TRx, Fremantle Corporation, and LRS International LLC, the selling members of TRx (collectively, the “TRx Sellers”), which provided for the purchase of all of the equity and ownership interests of TRx by the Company (the "TRx Acquisition"). The consideration for the TRx Acquisition consisted of $18.9 million in cash,

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as adjusted for estimated working capital, estimated cash on hand, estimated indebtedness and estimated transaction expenses, as well as 7,534,884 shares of the Company’s common stock having an aggregate value on the closing date of $8.5 million (the "Equity Consideration") and certain potential contingent payments. Upon closing, the Company issued 5,184,920 shares of its common stock to the TRx Sellers. Pursuant to the TRx Purchase Agreement, the issuance of the remaining 2,349,968 shares was subject to the Company's stockholder approval. In May 2018, stockholder approval was obtained and the remaining shares were issued to the TRx Sellers. The contingent shares were initially recorded to contingently issuable shares, which is recorded within stockholder's equity and were reclassed to common stock and additional paid in capital upon issuance, on the consolidating balance sheet date. As a result of the TRx Acquisition, the Company has currently recorded goodwill of $12.6 million, of which $8.7 million was deductible for income taxes.

During the third quarter of 2018, the Company identified and recorded measurement period adjustments to our preliminary purchase price allocation that was disclosed in prior periods. These adjustments are reflected in the tables below. The measurement period adjustments were the result of an arbitration ruling discussed in further detail in Note 13, the facts and circumstances of which existed as of the acquisition date.

The following table summarizes the preliminary acquisition-date fair value of the consideration transferred at the date of acquisition both as disclosed in periods prior to the third quarter of 2018 and as adjusted for measurement period adjustments identified during the third quarter of 2018:

At November 17,
2017 (preliminary)
Measurement Period Adjustments At November 17, 2017 (as adjusted)

Cash $ 18,900,000
$ —
$ 18,900,000
Common stock (including contingently issuable shares) 8,514,419
—
8,514,419
Contingent payments 2,576,633
(1,210,000 ) 1,366,633
Total consideration transferred $ 29,991,052
(1,210,000 ) 28,781,052

The TRx Acquisition was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the remaining purchase price recorded as goodwill. The goodwill recognized is attributable primarily to strategic opportunities related to leveraging TRx’s research and development, intellectual property, and processes.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition both as disclosed in periods prior to the third quarter of 2018 and as adjusted for measurement period adjustments identified during the third quarter of 2018:

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At November 17,
2017 (preliminary)
Measurement Period Adjustments At November 17, 2017 (as adjusted)

Fair value of assets acquired:
Cash and cash equivalents $ 11,068
$ —
$ 11,068
Accounts receivable, net 2,872,545
—
2,872,545
Inventory 495,777
—
495,777
Prepaid expenses and other current assets 134,281
—
134,281
Other receivables —
2,764,515
2,764,515
Identifiable Intangible Assets: —
Acquired product marketing rights - Metafolin 10,465,000
1,522,000
11,987,000
PAI sales and marketing agreement 2,334,000
219,000
2,553,000
Acquired product marketing rights - Millipred 4,714,000
342,000
5,056,000
Acquired product marketing rights - Ulesfia 555,000
(555,000 ) —
Total assets acquired 21,581,671
4,292,515
25,874,186

Fair value of liabilities assumed:
Accounts payable 192,706
—
192,706
Accrued expenses and other current liabilities 4,850,422
3,764,515
8,614,937
Deferred tax liability 839,773
78,840
918,613
Total liabilities assumed 5,882,901
3,843,355
9,726,256
Total identifiable net assets 15,698,770
449,160
16,147,930
Fair value of consideration transferred 29,991,052
(1,210,000 ) 28,781,052
Goodwill $ 14,292,282
$ (1,659,160 ) $ 12,633,122

The purchase price allocation related to the acquisition of TRx was finalized in 2018. The fair values of intangible assets, including marketing rights, licenses and developed technology, were determined using variations of the income approach, specifically the multi-period excess earnings method. Varying discount rates were also applied to the projected net cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value. The final fair value of intangible assets both as disclosed in prior periods and as adjusted by measurement period adjustments identified during the third quarter of 2018 includes the following:

At November 17,
2017 (preliminary) Measurement Period Adjustments At November 17, 2017 (as adjusted) Useful Life

Acquired product marketing rights - Metafolin $ 10,465,000
$ 1,522,000
$ 11,987,000
15 years
PAI sales and marketing agreement 2,334,000
219,000
2,553,000
2 years
Acquired product marketing rights - Millipred 4,714,000
342,000
5,056,000
4 years
Acquired product marketing rights - Ulesfia 555,000
(555,000 ) —

Total $ 18,068,000
$ 1,528,000
$ 19,596,000

The Company received written notice to terminate the PAI sales and marketing agreement in the second quarter of 2018. As a result, the Company reassessed the fair value of the PAI sales and marketing agreement on that date (a level III non-recurring fair value measurement) and concluded due to the absence of future cash flows beyond the date of termination that the fair value was $0. An

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~~impairment charge was recognized in the second quarter of 2018 in the amount of $1.9 million, representing the remaining net book value of the PAI sales and marketing agreement intangible asset.~~

~~Pro Forma Impact of Business Combinations~~

The following supplemental unaudited pro forma information presents Cerecor’s financial results as if the acquisition of the Avadel pediatric products, which was completed on February 16, 2018, had occurred on January 1, 2018:

Three Months Ended
March 31,
2018

Total revenues, net $ 6,187,775
Net loss $ (4,928,446 )
Basic and diluted net loss per share of common stock $ (0.16 )
Basic and diluted net loss per share of preferred stock $ —

The above unaudited pro forma information was determined based on the historical GAAP results of Cerecor and Avadel's pediatric products. The unaudited pro forma consolidated results are provided for informational purposes only and are not necessarily indicative of what Cerecor’s consolidated results of operations would have been had the acquisition of Avadel's pediatric products been completed on the date indicated or what the consolidated results of operations will be in the future.

6.7. 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

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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.

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:

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	March 31, 2019						March 31, 2020
	Fair Value Measurements Using						Fair Value Measurements Using
	Quoted prices in		Significant other		Significant		Quoted prices in		Significant other		Significant
	active markets for		observable		unobservable		active markets for		observable		unobservable
	identical assets		inputs		inputs		identical assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)		(Level 1)		(Level 2)		(Level 3)
Assets
Investments in money market funds*	$	13,965,626	$	—	$	—	$	4,436,860	$	—	$	—
Investment in Aytu							$	—	$	14,708,768	$	—
Liabilities
Contingent consideration	$	—	$	—	$	9,002,288
Warrant liability	$	—	$	—	$	17,750
Unit purchase option liability	$	—	$	—	$	39,993
Warrant liability**							$	—	$	—	$	760
Unit purchase option liability**							$	—	$	—	$	2,014


	December 31, 2018						December 31, 2019
	Fair Value Measurements Using						Fair Value Measurements Using
	Quoted prices in		Significant other		Significant		Quoted prices in		Significant other		Significant
	active markets for		observable		unobservable		active markets for		observable		unobservable
	identical assets		inputs		inputs		identical assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)		(Level 1)		(Level 2)		(Level 3)
Assets
Investments in money market funds*	$	7,324,932	$	—	$	—	$	2,240,230	$	—	$	—
Investment in Aytu							$	—	$	7,628,947	$	—
Liabilities
Contingent consideration	$	—	$	—	$	9,050,564
Warrant liability**	$	—	$	—	$	2,950	$	—	$	—	$	3,460
Unit purchase option liability**	$	—	$	—	$	7,216	$	—	$	—	$	10,594

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

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

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the ~~Company’s~~Company��s financial instruments included cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other current liabilities, ~~short term and long-term debt,~~ warrant liability, and the underwriters' unit purchase option ~~liability, and contingent consideration.~~liability. The carrying amounts reported in the accompanying condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, and other current liabilities approximate their respective fair values because of the short-term nature of these accounts. ~~The estimated~~

Level 2 Valuation

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As part of the consideration for the Aytu Divestiture, Aytu issued to Cerecor 9,805,845 shares of Aytu Series G Convertible Preferred Stock (the "Aytu Series G Preferred Stock" or "Aytu Preferred Stock"). Subsequent to the initial measurement, at each reporting period, the Investment in Aytu is remeasured at the current fair value with the change in fair value recorded to other income, net in the accompanying statements of operations. As of March 31, 2020, the Investment in Aytu was $14.7 million, representing a change in fair value of $7.1 million from December 31, 2019.

In light of changing market conditions and conversations with Aytu’s management beginning in the ~~Company’s long-term debt~~first quarter of ~~$14.9 million as~~2020, on April 10, 2020, Cerecor was permitted to convert the Aytu Preferred Stock into 9,805,845 shares of ~~March 31, 2019 was based on current interest rates for similar types of borrowings~~Aytu’s common stock (the “Aytu Common Shares”), and ~~is in Level 2~~subsequently sold all of the ~~fair value hierarchy.~~Aytu Common Shares in a series of transactions in April, pursuant to an effective registration statement, which generated net proceeds of approximately $12.8 million.

Level 3 Valuation

The tables presented below are a summary of changes in the fair value of the Company’s Level 3 valuations for the warrant liability, ~~unit purchase option~~UPO liability and contingent consideration for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:

Warrant Unit purchase Contingent
liability option liability consideration Total
Balance at December 31, 2018 $ 2,950
$ 7,216
$ 9,050,564
$ 9,060,730
Payment of contingent consideration —
—
(228,678 ) (228,678 )
Change in fair value 14,800
32,777
180,402
227,979
Balance at March 31, 2019 $ 17,750
$ 39,993
$ 9,002,288
$ 9,060,031



	Warrant			Unit purchase			Contingent
	liability			option liability			consideration		Total
Balance at December 31, 2019	$	3,460		$	10,594		$	—	$	14,054
Change in fair value	(2,700		)	(8,580		)	—		(11,280		)
Balance at March 31, 2020	$	760		$	2,014		$	—	$	2,774

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Warrant liability Unit purchase option liability Contingent consideration Royalty Obligation Total
Balance at December 31, 2017 $ 8,185
$ 26,991
$ 2,576,633
$ —
$ 2,611,809
Issuance of contingent consideration and royalty —
—
7,875,165
240,744
8,115,909
Change in fair value 7,405
15,846
199,283
63,486
286,020
Balance at March 31, 2018 $ 15,590
$ 42,837
$ 10,651,081
$ 304,230
$ 11,013,738



	Warrant		Unit purchase		Contingent
	liability		option liability		consideration		Total
Balance at December 31, 2018	$	2,950	$	7,216	$	1,256,210	$	1,266,376
Change in fair value	14,800		32,777		20,940		68,517
Balance at March 31, 2019	$	17,750	$	39,993	$	1,277,150	$	1,334,893

In 2014, the Company issued warrants to purchase 625,208 shares of convertible preferred stock. Upon the closing of ~~our~~the Company's initial public offering ("IPO") in October 2015 these warrants became warrants to purchase 22,328 shares of common stock, in accordance with their terms. The warrants expire in October 2020. The warrants represent a freestanding financial instrument that is indexed to an obligation, which the Company refers to as the warrant liability. The warrant liability is marked-to-market each reporting period with the change in fair value recorded to other income, net in the accompanying statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity. The fair value of the warrant liability is estimated using a Black-Scholes option-pricing model. The significant assumptions used in preparing the option pricing model for valuing the warrant liability as of March 31, ~~2019,~~2020, include (i) volatility of ~~50%~~87.8%, (ii) risk free interest rate of ~~2.33%~~0.15%, (iii) strike price of $8.40, (iv) fair value of common stock ~~$5.84,~~of $2.48, and (v) expected life of ~~1.60 years~~0.6 years.

The underwriters’ ~~unit purchase option (the “UPO”)~~UPO was issued to the underwriters of the Company's IPO in 2015 and provides the underwriters the option to purchase up to a total of 40,000 units. The units underlying the UPO will be, immediately upon exercise, separated into shares of common stock, underwriters’ Class A warrants and underwriters’ Class B warrants (such warrants together referred to as the Underwriters’ Warrants). The Underwriters’ Warrants were warrants to purchase shares of common stock. The Class B warrants expired in April 2017 and the Class A warrants expired in October 2018, while the UPO expires in October 2020. The Company classifies the UPO as a liability, as it is a freestanding marked-to-market derivative instrument that is precluded from being classified in stockholders’ equity. The UPO liability is marked-to-market each reporting period with the change in fair value recorded to other income, net in the accompanying statements of operations until the UPO is exercised, expires or other facts and circumstances lead the UPO to be reclassified to stockholders’ equity. The fair value of the UPO liability is estimated using a Black-Scholes option-pricing model. The significant assumptions used in preparing the simulation model for valuing the UPO as of March 31, ~~2019,~~2020, include (i) volatility of ~~50%~~87.8%, (ii) risk free interest rate of ~~2.33%~~0.15% , (iii) unit strike price of $7.47, (iv) fair value of underlying equity ~~$5.84,~~of $2.48, and (v) expected life of ~~1.6~~0.6 years.

The Company's historical business ~~acquisitions~~acquisition of ~~Avadel's pediatric products and~~ TRx ~~(see Note 5) involve~~involved the potential for future payment of consideration that is contingent upon the achievement of ~~operation~~operational and commercial ~~milestones and royalty payments on future product sales.~~milestones. The fair value of contingent consideration was determined at the acquisition date utilizing unobservable inputs such as the estimated amount and timing of projected cash flows, the probability of success ~~(achievement~~

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(achievement of the contingent event), and the risk-adjusted discount rate used to present value the probability-weighted cash flows. Subsequent to the acquisition date, at each reporting period, the contingent consideration liabilities ~~are~~were remeasured at the current fair value with changes recorded in the ~~condensed~~ consolidated statement of operations.

As part of the acquisition of Avadel's pediatric products, the Company will pay a 15% annual royalty on net sales of the acquired Avadel pediatric products through February 2026, up to an aggregate amount of $12.5 million. The fair value of the future royalty is the expected future value of the contingent payments discounted to a present value. The estimated fair value of the royalty payments as of March 31, 2019 was $7.7 million. The significant assumptions used in estimating the fair value of the royalty payment as of March 31, 2019 include (i) the expected net sales of the acquired Avadel pediatric products for that are subject to the 15% royalty based on the Company's net sales forecast and (ii) the risk-adjusted discount rate of 8.4%, which is comprised of the risk-free interest rate of 2.3% and a counterparty risk of 6.1% utilized to discount the expected royalty payments. The liability is reduced by periodic payments.

Additionally, as part of the initial purchase price allocation for the acquisition of Avadel's pediatric products performed during the first quarter of 2018, contingent consideration of $240,744 was assigned to future royalty obligations for the use of the Sellers' LiquiTime process technology. In the second quarter of 2018, we identified measurement period adjustments which included the adjustment of the fair value of the LiquiTime intangible asset down to $0.

The consideration for the TRx acquisition ~~includes~~included certain potential contingent payments. First, pursuant to the TRx Purchase Agreement, the Company would have been required to pay $3.0 million to the ~~Sellers~~sellers if the gross profit related to TRx products equaled or exceeded $12.6 million in 2018. The Company did not achieve this contingent event in 2018 and therefore no value was assigned to the contingent payout as of December 31, 2018. Additionally, the Company iswas required to pay the following: (1) $2.0 million upon the transfer of the Ulesfia

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NDA to the Company ("NDA Transfer Milestone")~~. Finally, the Company will pay~~, and (2) $2.0 million upon FDA approval of a new dosage of Ulesfia ("FDA Approval Milestone"). ~~The main inputs utilized to determine the fair value of each milestone is the probability~~However, as part of the ~~milestone's success,~~settlement the ~~expected time~~Company entered into during the second quarter of 2019 with Lachlan Pharmaceuticals, an Irish company controlled by the previous owners of TRx, the Company gave up its right to ~~successfully reach~~sell Ulesfia, except for a limited amount of inventory on hand until that inventory is sold or expired. As a result, the ~~milestone,~~Settlement released the Company from the potential contingent payments related to the NDA Transfer Milestone and FDA Approval Milestone and therefore no value was assigned to the ~~risk-adjusted discount rate.~~two milestones as of March 31,2020. The estimated fair value of the NDA Transfer Milestone and NDA Approval Milestone was $1.3 million as of March 31, 2019 ~~was $0.9~~(prior to entering into the settlement during the second quarter of 2019).

Effective upon the consummation of the Aevi Merger on February 3, 2020, Cerecor entered into an employment agreement with Aevi CEO Mike Cola for him to serve as Cerecor's Chief Executive Officer and an employment agreement with Aevi CSO Dr. Garry Neil for him to serve as Cerecor's Chief Medical Officer. Additionally, the Company extended employment agreements to seven other individuals who were previously employed by Aevi. As a result, the Company recognized an assembled workforce intangible asset of $0.7 million ~~and the significant assumptions used in estimating the~~which is a Level 3 non-recurring fair value ~~include (i) probability of milestone success of 45.0%, (ii) expected time~~measurement. The Company utilized the replacement cost method to milestone of 0.2 years, and (iii) risk-adjusted discount rate of 8.5%, which is comprised of the risk-free rate of 2.4% and a counterparty risk of 6.1%. The estimated fair value of the FDA Approval Milestone as of March 31, 2019 was $0.4 million. The significant assumptions used in estimatingestimate the fair value of the ~~FDA Approval Milestone as~~assembled workforce, which considers the costs Cerecor would have incurred to replace a comparable workforce to the workforce acquired from Aevi. Such costs include, but are not limited to, recruiting costs, training costs and cost of ~~March 31, 2019 include (i) probability~~lost productivity. The replacement costs were estimated based on a percentage of ~~milestone success at 22.5%, (ii) expected time to milestone~~each employee's salary. The assembled workforce intangible asset will be amortized over a useful life of ~~1.3 years, and (iii) risk-adjusted discount rate of 8.4%, which is comprised of the risk-free rate of 2.3% and a counterparty risk of 6.1%.~~two years.

No other changes in valuation techniques or inputs occurred during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

7.8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 consisted of the following:


	As of				As of
	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Research and development expenses					$	1,873,361	$	920,901
Compensation and benefits					1,413,014		1,591,964
General and administrative					1,035,454		120,056
Sales and marketing					207,950		360,016
Sales returns and allowances	$	4,249,977	$	3,972,510	1,361,410		2,284,175
Medicaid rebates	2,758,384		2,237,269		95,410		118,271
Minimum sales commitments, royalties payable, and purchase obligations	10,808,083		9,662,901
Compensation and benefits	1,679,572		1,953,065
Research and development expenses	1,123,051		278,132
Sales and marketing	938,437		1,112,378
General and administrative	187,465		235,721
Other	70,128		279,397		207,606		244,869
Total accrued expenses and other current liabilities	$	21,815,097	$	19,731,373	$	6,194,205	$	5,640,252

~~8. Deerfield Obligation~~

~~In relation to~~During the ~~Company's acquisition~~first quarter of ~~Avadel's pediatric products on February 16, 2018, the Company assumed an obligation that Avadel had to Deerfield CSF (the "Deerfield Obligation"). Beginning in July 2018 through October~~ 2020, the Company ~~is required~~and an executive entered into a Separation Agreement (the "Separation Agreement") in which the executive resigned his employment at the Company, effective June 30, 2020 (the "Termination Date"). Following the Termination Date and subject to ~~pay~~the executive entering into a ~~quarterly payment~~release at that time, the executive will receive continued payments of ~~$262,500 to Deerfield. In January 2021,~~his base salary for a ~~balloon payment~~total of ~~$15,250,000 is due. The difference between~~nine months, which resulted in an accrual of $0.3 million recognized in accrued expenses and other current liabilities on the ~~gross value and fair value of these payments will be recorded as interest expense in the~~ Company's condensed consolidated statements of operations through January 2021 using the effective interest method. Interest expense for the three months ended March 31, 2019 was $0.2 million and is included in interest expense, net on the accompanying condensed consolidated ~~statements of operations. The amounts due within the next year are included in current portion of long-term debt on the Company's condensed consolidated~~ balance sheets. The amounts due in greater than one year are included in long-term debt, net of current portion, on the Company's condensed consolidated balance sheets. The Deerfield Obligation was $15.4 millionsheet as of March 31, ~~2019,~~2020 and is shown within the compensation and benefits line above. Additionally, the executive's unvested stock options as of ~~which $1.1 million is recorded as a current liability.~~his Termination Date will immediately vest and be exercisable until 90 days following the Termination Date and his outstanding Restricted Stock Units will immediately vest.

9. Capital Structure

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According to the Company's amended and restated certificate of incorporation, the Company is authorized to issue two classes of stock, common stock and preferred stock. At March 31, ~~2019,~~2020, the total number of shares of capital stock the Company was authorized to issue was 205,000,000 of which 200,000,000 was common stock and 5,000,000 was preferred stock. All shares of common and preferred stock have a par value of $0.001 per share.

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 converts 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 holds no voting rights.

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Convertible Preferred Stock

December 2018 Armistice Private Placement

On December 27, 2018, the Company entered into a series of transactions as part of a private placement with its largest stockholder, Armistice, whose Chief Investment Officer, Steve Boyd, is a Cerecor director, in order to generate cash to continue to develop ~~our~~its pipeline assets and for general corporate purposes. The transactions are considered one transaction for accounting purposes. As part of the transaction, the Company exchanged common stock warrants issued on April 27, 2017 to Armistice for the purchase up to 14,285,714 shares of the Company’s common stock at an exercise price of $0.40 per share (the "original warrants") for like-kind warrants to purchase up to 2,857,143 shares of the Company's newly designated Series B Convertible Preferred Stock with an exercise price of $2.00 per share (the "exchanged warrants"). Armistice immediately exercised the exchanged warrants and acquired an aggregate of 2,857,143 shares of the convertible preferred stock. Net proceeds of the transaction were approximately $5.7 million for the year ended December 31, 2018.

In order to provide Armistice an incentive to exercise the exchanged warrants, the Company also entered into a securities purchase agreement with Armistice in December 2018 pursuant to which the Company issued warrants for 4,000,000 shares of common stock of the Company with a term of 5.5 years and an exercise price of $12.50 per share (the "incentive warrants"). ~~For accounting purposes,~~

During the ~~Company calculated the fair value~~first quarter of ~~the incentive warrants~~2020, Armistice converted 1,600,000 shares of ~~$1.7~~Series B Convertible Preferred Stock (of its 2,857,143 million ~~which was considered a deemed distribution to Armistice for the year ended December 31, 2018.~~shares of convertible preferred stock) into 8,000,000 shares of Cerecor's common stock.

Voting

Holders of the Company's convertible preferred stock are not entitled to vote.

Dividends

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

Liquidation

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

Rights and Preferences

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

Common Stock

March 2020 Financing

On March 17, 2020, the Company entered into a securities purchase agreement with Armistice pursuant to which the Company sold 1,951,219 shares of the Company’s common stock for a purchase price of $2.05 per share, which represents the closing stock price the day prior to entering into the agreement. Net proceeds of the private placement were approximately $3.9 million.

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February 2020 Financing

On February 6, 2020, the Company closed on a registered direct offering with certain institutional investors for the sale by the Company of 1,306,282 shares of the Company's common stock at a purchase price of $3.98 per share, which represents the closing stock price the day prior to entering into the agreement. Armistice participated in the offering by purchasing 1,256,282 shares of common stock from the Company. The net proceeds of the offering were approximately $5 million.

Aevi Merger

On February 3, 2020, under the terms of the Aevi Merger noted above in Note 6, the Company issued 3.9 million shares of common stock.

September 2019 Armistice Private Placement

On September 4, 2019, the Company entered into a securities purchase agreement with Armistice, pursuant to which the Company sold 1,200,000 shares of the Company’s common stock for a purchase price of $3.132 per share, which represents the average closing price of the Common Stock on Nasdaq for the five trading days immediately preceding September 4, 2019. Net proceeds of the private placement were approximately $3.7 million.

March 2019 Common Stock Offering

On March 8, 2019, the Company closed on an underwritten public offering of common stock for 1,818,182 shares of common stock of the Company, at a price to the public of $5.50 per share. Armistice participated in the offering by purchasing 363,637 shares of common stock of the Company from the underwriter at the public price. The ~~gross proceeds to the Company, before deducting underwriting discounts and commissions and offering expenses, were approximately $10.0 million. The~~ net proceeds were approximately $9.0 million.

~~December 2018 Armistice Private Placement~~

As discussed in detail above, on December 27, 2018 the Company exchanged previously outstanding warrants for like-kind warrants for 2,857,143 shares of the Company's convertible preferred stock with an exercise price of $2.00 per share. Armistice immediately exercised these warrants for 2,857,143 shares of convertible preferred stock for net proceeds to the Company of $5.7 million. The convertible preferred stock converts to common stock on a 1-for-5 ratio (or to 14,285,714 shares of common stock in total). Additionally, on December 27, 2018, in order to provide Armistice an incentive to exercise the exchanged warrants, the Company entered into a securities purchase agreement with Armistice pursuant to which the Company issued warrants for 4,000,000 shares of common

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~~stock of the Company with a term of 5.5 years and an exercise price of $12.50 per share (the "incentive warrants"). See "December 2018 Armistice Private Placement" above for more details.~~

~~August 2018 Armistice Private Placement~~

On August 17, 2018, the Company entered into a securities purchase agreement with Armistice, pursuant to which the Company sold 1,000,000 shares of the Company’s common stock, $0.001 par value per share for a purchase price of $3.91 per share, which was the closing price of shares of the Common Stock on August 16, 2018. Net proceeds of this securities purchase agreement were approximately $3.9 million.

~~Ichorion Asset Acquisition~~

~~On September 25, 2018, under the terms of the Ichorion Asset Acquisition noted above in Note 5, the Company issued 5.8 million common stock shares upon closing.~~

~~Contingently Issuable Shares~~

Under the terms of TRx acquisition noted above in Note 5, the Company was required to issue common stock having an aggregate value as calculated in the TRx Purchase Agreement on the Closing Date of $8.1 million (the “Equity Consideration”). Upon closing, the Company issued 5,184,920 shares of its common stock. Pursuant to the TRx Purchase Agreement, the issuance of the remaining 2,349,968 shares as a part of the Equity Consideration was subject to stockholder approval at the Company's 2018 Annual Stockholder's Meeting. This approval was obtained in May 2018 and the remaining shares were issued to the TRx Sellers.

Voting

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

Dividends

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

Liquidation

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

Rights and Preferences

Holders of the Company’s common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the Company’s common stock.

Common Stock Warrants

At March 31, ~~2019,~~2020, the following common stock warrants were outstanding:


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

*Accounted for as a liability instrument (see Note 6)

2120

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

10. 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”).

Upon the 2016 Plan Effective Date, the 2016 Plan reserved and authorized up to 600,000 additional shares of common stock for issuance, as well as 464,476 unallocated shares remaining available for grant of new awards under the 2015 Plan. An Amended and Restated 2016 Equity Incentive Plan (the "2016 Amended Plan") was approved by the Company's stockholders in May 2018, which increased the share reserve by an additional 1.4 million shares. A Second Amended and Restated 2016 Equity Incentive Plan (the "2016 Second Amended Plan") was approved by the Company's stockholders in August 2019 which increased the share reserve by an additional 850,000 shares. During the term of the 2016 Second Amended Plan, the share reserve will automatically increase on the first trading day in January of each calendar year 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. As of March 31, ~~2019,~~2020, there were ~~2.1 million~~3,425,288 shares available for future issuance under the 2016 Second Amended Plan.

Option grants ~~to employees and directors typically~~ expire after ten years. Employee options ~~with service based vesting conditions~~ typically vest over three or four years. Options granted to directors typically vest over one or three years. Directors may ~~also~~ elect to receive stock options in lieu of ~~cash~~ board compensation, which vest immediately. For stock options granted to employees and non-employee directors, the estimated grant date fair market value of the Company’s stock-based awards is amortized ratably over the individuals’ service periods, which is the period in which the awards vest. Stock-based compensation expense includes expense related to stock options, restricted stock ~~unit awards,~~units and ~~ESPP~~employee stock purchase plan shares. The amount of stock-based compensation expense recognized for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 was as follows:


	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
Research and development	$	57,376	$	11,497	$	381,769	$	57,376
General and administrative	489,953		207,382		679,600		469,125
Sales and marketing	49,364		23,945		54,954		20,828
Total stock-based compensation, continuing operations					1,116,323		547,329
Total stock-based compensation, discontinued operations					—		49,364
Total stock-based compensation	$	596,693	$	242,824	$	1,116,323	$	596,693

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 three months ended March 31, ~~2019~~2020 is as follows:


	Options Outstanding							Options Outstanding
	Number of shares		Weighted average exercise price		Grant date fair value of options		Weighted average remaining contractual term (in years)	Number of shares		Weighted average exercise price per share		Weighted average grant date fair value per share		Weighted average remaining contractual term (in years)
Balance at December 31, 2018	3,746,597		$	4.16			7.79
Balance at December 31, 2019								4,180,606		$	4.80	$	2.67	7.9
Granted	134,379		$	4.78	$	334,624		3,550,583		$	3.97	$	2.51
Exercised	(31,288	)	$	3.01				(25,168	)	$	2.95	$	1.90
Forfeited	(4,383	)	$	4.25	$	11,297		(125,000	)	$	5.28	$	2.85
Balance at March 31, 2019	3,845,305		$	4.19			7.61
Exercisable at March 31, 2019	2,269,081		$	4.56			6.76
Expired								(168,341	)	$	6.16	$	3.35
Balance at March 31, 2020								7,412,680		$	4.37	$	2.58	8.5
Exercisable at March 31, 2020								2,104,285		$	4.43	$	2.50	5.9

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In February 2020, the Company granted options to purchase 2.4 million shares of common stock as inducement option grants, pursuant to NASDAQ Listing Rule 5635(c)(4), to certain executives who joined the Company in connection with the Aevi Merger. Additionally, on February 3, 2020, the Company granted 0.5 million options with service-based vesting conditions at an exercise price of $3.98 per share to a non-employee board member, who was appointed to Cerecor's Board of Directors upon the consummation of the Aevi Merger. Finally, on February 3, 2020, the Company granted approximately 0.5 million options with service-based vesting conditions at an exercise price of $3.98 per share to other employees who joined the Company in connection with the Aevi Merger. Additionally, in March 2020, our Chief Executive Officer entered into an amended employment agreement in which his base salary in cash was reduced from an annual rate of $450,000 to an annual rate of $35,568 (the "Reduction"). In consideration for the Reduction, the Company will grant stock options, which vest immediately, to be approved by the independent Compensation Committee at regularly scheduled Compensation Committee meetings, for the purchase of a number of shares of the Company’s common stock with a total value (based on the Black-Scholes valuation methodology) based on a pro rata total annual value of $414,432 since the last Compensation Committee meeting.

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 March 31, ~~2019,~~2020, the aggregate intrinsic value of options outstanding and currently exercisable was ~~$8.1~~$0.6 million and ~~$4.6~~$0.5 million, respectively. ~~The total intrinsic value of~~There were 69,046 options ~~exercised~~that vested during the three months ended March 31, ~~2019 was $0.1 million.~~2020 with a weighted average exercise price of $3.34 per share. The total grant date fair value of shares which vested during the three months ended March 31, ~~2019~~2020 was ~~$0.6~~$0.1 million. ~~The~~

~~Table~~The Company recognized stock-based compensation expense of ~~Contents~~

~~per‑share weighted‑average grant date fair value of the~~$0.8 million related to stock options ~~granted during~~with service-based vesting conditions for the three months ended March 31, ~~2019 was estimated at $2.49. There were 302,901 options that vested during the three months ended March 31, 2019 with a weighted average grant date fair value of $2.09.~~

2020. At March 31, ~~2019,~~2020, there was ~~$3.1~~$11.6 million of total unrecognized compensation cost related to unvested service-based vesting ~~conditions~~condition awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of ~~2.9~~3.3 years.

Stock options with market-based vesting conditions

~~During 2018, the~~The Company has granted awards that ~~vest upon~~contain market-based vesting conditions. The following table summarizes the Company's ~~common stock closing at or above $12.50 per share for three consecutive days. A summary of~~market-based option activity ~~with market-based vesting conditions~~ for the three months ended March 31, ~~2019 is as follows:~~2020:

Options Outstanding
Number of shares Weighted average exercise price Weighted average remaining contractual term (in years) Aggregate intrinsic value (1)
Balance at December 31, 2018 500,000
$ 4.24
9.24
Granted —

Balance at March 31, 2019 500,000
$ 4.24
8.99 $ 800,000
Exercisable at March 31, 2019 —



	Options Outstanding
	Number of shares	Weighted average exercise price per share		Weighted average remaining contractual term (in years)	Aggregate intrinsic value (1)
Balance at December 31, 2019	300,000	$	4.98	9.4
Granted	—
Balance at March 31, 2020	300,000	$	4.98	9.2	$	—
Exercisable at March 31, 2020	—

(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.

The Company recognized stock-based compensation expense of $0.1 million related to stock options with market-based based vesting conditions for the three months ended March 31, 2020. At March 31, ~~2019,~~2020, there was ~~$805,068~~$0.7 million of total unrecognized compensation cost related to unvested market-based vesting conditions awards. This compensation cost is expected to be recognized over a weighted-average period of ~~1.8~~1.7 years. Subsequent to the first quarter of 2020, the outstanding market based options were forfeited due to the resignation of an executive.

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 to employees and members of the board of directors under the Black-Scholes valuation model for the three months ended March 31, ~~2019. There were no stock options granted with market-based vesting conditions for the three months ended March 31, 2019.~~2020:

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Service-based options
Expected dividend yield		—%
Expected volatility		~~55%~~69.9% - 71.5%
Expected life (in years)		5.0 - 6.25
Risk-free interest rate		~~2.23~~0.37 - ~~2.59%~~1.48%

Restricted Stock Units

~~During 2018, the~~The Company has granted restricted stock units ("RSU") to certain employees. The Company measures the fair value of the restricted ~~units~~awards using the stock price aton the date of the grant. The restricted shares typically vest annually over a four-year period beginning on the first anniversary of the award. ~~A summary of~~The following table summarizes the Company's RSU ~~grants~~ activity for the three months ended March 31, ~~2019 is as follows:~~2020:

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RSUs outstanding
Number of shares Weighted average grant date fair value
Non-vested RSUs at December 31, 2018 445,000
$ 4.27
Vested (100,000 ) $ 4.24
Non-vested RSUs at March 31, 2019 345,000
$ 4.27



	RSUs Outstanding
	Number of shares	Weighted average grant date fair value
Unvested RSUs at December 31, 2019	267,500	$	4.92
Granted	—
Unvested RSUs at March 31, 2020	267,500

The ~~stock~~Company recognized stock-based compensation expense of $0.2 million related to RSUs for the three months ended March 31, ~~2019 was $118,656.~~2020. At March 31, ~~2019,~~2020, there was ~~$1,433,329~~$1.0 million of total unrecognized compensation cost related to the RSU grants. ~~The~~This compensation cost is expected to be recognized over a weighted-average period of ~~3.0~~1.8 years.

Employee Stock Purchase Plan

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

Under the ESPP, eligible employees can purchase common stock through accumulated payroll deductions at such times as are established by the administrator. The ESPP is administered by the compensation committee of the Company’s board of directors. Under the ESPP, eligible employees may purchase stock at 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 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 Company reserved and authorized up to 500,000 shares of common stock for issuance under the ESPP. On January 1 of each calendar year, the aggregate number of shares that may be issued under the ESPP shall automatically increase 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. The number of shares increased by ~~408,042~~443,842 on January 1, ~~2019.~~2020. As of March 31, ~~2019, 1,192,025~~2020, 1,562,724 shares remained available for issuance.

In accordance with the guidance in ASC 718-50, Employee Stock Purchase Plans, 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 ~~$35,298~~$36,160 for the three months ended March 31, ~~2019, which is included in the table above with stock-based compensation from stock options.~~2020.

Subsequent Equity Grants

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On April ~~1, 2019,~~9, 2020, the Company granted ~~1.8~~1.1 million options with service-based vesting conditions at an exercise price of ~~$6.22~~$2.57 per share to its employees as part of its annual stock option award. One-quarter of the shares ~~subject to the stock option~~awarded will vest on the first anniversary of the grant date and the remaining three-quarters of the shares will vest in equal monthly installments over the following 36 months.

~~Furthermore, on~~ Subsequent to April ~~15, 2019, the Company granted 300,000 options with service-based vesting conditions at an exercise price of $5.17 to its newly appointed Executive Chairman~~9, 2020, 0.4 million of the Board. One-third of the shares subject to the stock option will vest on the first anniversary of the date of grant and the remaining two-thirds of the shares will vest in equal monthly installments over the following 24 months, based on continuous service.

Additionally, the Company agreed to grant the Executive Chairman of the Board an option to purchase 300,000 additional shares of Company common stock with market-based vesting conditions. The exercise price will equal the market value on the date of the grant with one-third of the shares vesting upon the Company's common stock closing at or above $8.00 per share for three consecutive days, one-third of the shares vesting upon the Company's stock closing at or above $10.50 per share for three consecutive days, and one-t

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hird of these shares vesting upon the Company's stock closing at or above $13.00 per share for three consecutive days. The Company also agreed to grant the Executive Chairman of the Board 250,000 RSUs, of which 50,000 shares will vest immediately on the grant date and the remainder will vest in three equal annual increments based on continued service. These two equity awards will be1.1 million options granted upon the Company having an adequate share reserve available for future issuance under the 2016 Amended Plan as a result of either an increase to the total share reserve subject to shareholder approval orwere forfeited as a result of an ~~increase to the existing available share reserve due to future forfeitures and expirations.~~executive's resignation.

11. Income Taxes

The ~~provision~~Company recognized an income tax benefit of $2.2 million for the three months ended March 31, 2020 and income ~~taxes was $166,358~~tax expense of $0.1 million for the three months ended March 31, 2019. The expense recognized for the three months ended March 31, 2019 was a result of interest on an unpaid tax liability related to the 2017 tax year and ~~is comprised~~state taxes. The discrete benefit recognized for the three months ended March 31, 2020 was a result of ~~several components including~~a current year ~~state income~~ tax law change and the ability of the Company to now carry back certain losses. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The CARES Act provided both stimulus measures and a number of business tax provisions. The tax provisions included temporary changes regarding the utilization and five year carry back of losses generated in 2018, 2019 and 2020, temporary changes regarding interest deductions, technical corrections from prior tax legislation related to ~~one~~qualified improvement property, and various other measures. As of March 31, 2020, the ~~Company's wholly owned subsidiaries and current year amortization of tax-deductible goodwill that gives rise~~Company intended to ~~indefinite lived deferred~~file (and subsequently filed in April 2020) a refund claim with the Internal Revenue Service related to its 2017 tax liability ~~impacting the amount of valuation allowance required. Additionally, discrete to the quarter,~~by carrying back losses not previously claimed. Accordingly, the Company ~~recorded interest and penalties on~~has recognized a discrete tax benefit of $2.2 million for the ~~outstanding taxes payable to the IRS and various state authorities.~~three months ended March 31, 2020.

12. Leases

~~Corporate Headquarter Lease~~

The Company ~~identified one operating lease for its~~occupies two leased properties as of March 31, 2020. The first leased property serves as the Company's corporate headquarters located in Rockville, ~~Maryland.~~ Maryland ("Headquarters' Lease"). See below for more information regarding the Headquarters' Lease.

Upon consummation of the Aevi Merger on February 3, 2020, the Company also occupied leased administrative office space in Wayne, Pennsylvania, which expired on April 30, 2020. The monthly rent payment for this lease was $12,050.

Corporate Headquarters' Lease

The annual base rent for the ~~office space~~Headquarters' Lease is $161,671, subject to annual 2.5% increases over the term of the lease. The lease provides 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 ~~is expected to occur~~occurred in January 2020. The Company has the option to extend the lease two 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 iswas 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 remaining term of the lease at March 31, ~~2019 is 10.83~~2020 was 9.8 years.

Supplemental balance sheet information related to the lease is as follows:


	Three Months Ended March 31,
	2019		2018		As of
					March 31, 2020		December 31, 2019
Property and equipment, net	$	737,658	$	—	$	710,230	$	718,626

Other current liabilities					$	166,403	$	155,815
Other long-term liabilities	$	1,189,277	$	—	$	1,094,307	$	1,111,965

The operating lease ~~right-of-use~~ROU asset is included in property and equipment and the lease liability is included in accrued expenses and other current liabilities and other long-term liabilities in our condensed consolidated balance sheets. In order to determine the present value of lease payments, the Company utilized a discount rate of 7.7%. This rate was determined based on available information of the rate of interest the Company would pay to borrow on a collateralized basis at an amount equal to the lease payments in a similar economic environment over a similar term on the transition date.

The components of lease expense for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 were as follows:

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Three Months Ended March 31,
2019 2018

Operating lease cost* $ 54,606
$ 47,559



	Three Months Ended March 31,
	2020		2019
Operating lease cost*	$	54,508	$	54,506

*Includes short-term leases, which are immaterial.

Because the corporate headquarter lease provides for a 12-month lease abatement, the cash paid for amounts included in the measurement of lease liabilities is $0 for the three months ended March 31, 2019.

The following table shows a maturity analysis of the operating lease liability as of March 31, ~~2019:~~

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2020:



	Undiscounted Cash Flows			Undiscounted Cash Flows
April 1, 2019 through December 31, 2019	$	—
2020	155,815
April 1, 2020 through December 31, 2020				$	124,285
2021	169,510			169,510
2022	173,748			173,748
2023	178,092			178,092
2024				182,544
2025				187,108
Thereafter	1,183,290			813,638
Total lease payments	$	1,860,455		$	1,828,925
Less implied interest	$	(671,178	)	$	(568,215	)
Total	$	1,189,277		$	1,260,710

13. Commitments and Contingencies

Litigation

Litigation - General

The Company ismay become party into various contractual disputes, litigation, and potential claims arising in the ordinary course of business. The Company currently does not believe that the resolution of ~~these~~such matters will have a material adverse effect on ~~our~~its financial position or results of operations except as otherwise disclosed in this ~~document. See below for further discussion~~report.

TRx 2018 Target Gross Profit Dispute

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

~~Purchase obligations~~

However, on December 19, 2019, Cerecor received a letter from an attorney on behalf of the former TRx owners dated December 18, 2019 that enclosed a draft complaint seeking relief against Cerecor and one of the members of its board of directors. The ~~Company~~letter further threatened that if an immediate discussion regarding a settlement did not occur, that the lawsuit would be filed on December 24, 2019. However, as of the date of this filing, no lawsuit has ~~unconditional purchase obligations~~been filed, and the parties have agreed to a pre-lawsuit mediation tentatively set for June 2020. The proposed complaint indicates that the former TRx owners would seek the following relief: (a) $3.0 million on the grounds that commercially reasonable efforts to sell the acquired TRx products would have resulted in the gross profit earn-out target being reached; (b) that the $3.0 million amount be trebled as a result of recent acquisitions that include agreements to purchase goods that are enforceable and legally binding and that specify all significant terms including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; andCerecor's alleged improper conduct; (c) $9.2 million as a result of alleged losses resulting from the ~~approximate timing~~alleged improper treatment of the ~~transaction. Purchase obligations exclude agreements~~former TRx owners as affiliates; and (d) the removal of any restrictions on the former TRx owners shares of common stock in Cerecor. Cerecor disputes that the former TRx owners are ~~cancelable at~~entitled to the relief sought and intends to vigorously defend against any ~~time without penalty. The unconditional purchase obligations outstanding~~lawsuit filed on behalf of the former TRx owners. A loss in this matter is possible in a range of $0 to $18.2 million. As a loss in this matter is not considered probable, there has been no accrual recorded as of March 31, ~~2019 include the following:~~2020.

~~Lachlan Pharmaceuticals Minimum Obligations and Indemnity Receivable~~

As discussed in Note 5, in November 2017, the Company acquired TRx and its wholly-owned subsidiaries, including Zylera. The previous owners of TRx beneficially own more than 10% of our outstanding common stock. Zylera, which is now our wholly owned subsidiary, entered into an agreement with Lachlan Pharmaceuticals, an Irish company controlled by the previous owners of TRx (“Lachlan”), effective December 18, 2015 (the "Lachlan Agreement"). Pursuant to the Lachlan Agreement, Lachlan named Zylera as its exclusive distributor of Ulesfia in the United States and agreed to supply Ulesfia to Zylera exclusively for marketing and sale in the United States.

The Lachlan Agreement requires Zylera to purchase a minimum of 20,000 units per year, or approximately $1.2 million worth of product, from Lachlan, unless and until there has been a “Market Change” involving a new successful competitive product. Zylera must pay Lachlan $58.84 per unit and handling fees that are equal to $4.03 per unit of fully packaged Ulesfia in 2019 and escalate at a rate of 10% annually. The Lachlan Agreement also requires that Zylera make certain cumulative net sales milestone payments and royalty payments to Lachlan with a $3.0 million annual minimum payment unless and until there has been a “Market Change” involving a new successful competitive product. Lachlan is obligated to pay identical amounts to an unrelated third party from which it obtained rights to Ulesfia, with the payments ultimately flowing to Summers Laboratories, Inc. ("Summers Labs"). Because of the dispute described below, the Company has not made any payments to Lachlan under the Lachlan Agreement subsequent to the acquisition date.

On December 10, 2016, Zylera informed Lachlan that a Market Change had occurred due to the introduction of Arbor Pharmaceuticals' lice product, Sklice®. On June 5, 2017, Lachlan and Zylera entered into joint legal representation along with other unrelated third parties in negotiation and arbitration of a dispute with Summers Labs regarding the existence of a Market Change and the concomitant obligations of the parties. The arbitration panel issued an interim ruling on October 23, 2018 that no Market Change had occurred up to and including the date of the hearing. The arbitration panel issued a second interim ruling on December 26, 2018. The second interim award rejected Summers Labs' request to accelerate future minimum royalties, however, it ruled in favor of Summers Labs that it is owed reimbursement for all reasonable costs and expenses, including legal fees, by Shionogi, as well asKarbinal Royalty Make-Whole Provision

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interest, as stipulated in the contract. The arbitration panel issued a final award on March 1, 2019 that dictated the final amount of reimbursable costs and interest as contemplated in the second interim ruling. The final award has no direct bearing on the Company as the Company was not a named defendant to the original claim by Summers Labs and a federal court denied Zylera's ability to be a counterclaimant in the matter. Furthermore, the Company is not subject to the guarantee or interest provisions identified in the second ruling as these elements of the contractual relationship were not passed down to the Company’s agreement with Lachlan. However, the Company has interpreted this ruling's impact on the Lachlan Agreement to mean that the minimum purchase obligation and minimum royalty provisions of the contract are active and due for any prior periods as well as going forward for any future periods.

The Company has recognized an $8.7 million liability for these minimum obligations in accrued liabilities as of March 31, 2019. Under the terms of the TRx Purchase Agreement, the former TRx owners are required to indemnify the Company for 100% of all pre-acquisition losses related this arbitration, including legal costs, and possible minimum payments in excess of $1 million. Furthermore, the former TRx owners are required to indemnify the Company for 50% of post-acquisition Ulesfia losses, which would include losses resulting from having to fund these minimum obligations. The Company has recorded an indemnity receivable of $5.2 million in other receivables as of March 31, 2019, which the Company believes is fully collectible. For the three months ended March 31, 2019, minimum obligations net of amounts recorded within the indemnity receivable of $0.6 million has been recorded in cost of product sales. If the Company fails to make these minimum obligations timely then the Lachlan Agreement may be terminated by Lachlan, in which case the Company would no longer be able to sell the Ulesfia product, but it would also not be subject to future minimum obligations. Lachlan has not requested payment for the minimum obligations.

The Company expects a successful competitive product will enter the market in early 2021 and therefore the future minimum purchase obligations and royalty payments are expected only through 2020. As of March 31, 2019, future minimum purchase obligations and future minimum royalty payments to Lachlan are as follows:

Q2 2019 - Q4 2019* 2020* 2021 2022 Total*

Minimum Purchase Obligations $ 942,994
1,265,378
—
—
$ 2,208,372
Minimum Royalties 2,250,000
3,000,000
—
—
5,250,000
Total $ 3,192,994
4,265,378
—
—
$ 7,458,372

*Per the TRx Purchase Agreement, the previous owners of TRx are required to indemnify the Company for 50% of post-acquisition Ulesfia losses, which include the future minimum purchase obligations and future minimum royalties disclosed above. Thus, the Company's future net payouts related to the Ulesfia product should be significantly reduced as a result of the indemnification.

~~Karbinal Royalty Make-Whole Provision~~

~~As discussed in Note 5, on~~On February 16, 2018, in connection with the acquisition of Avadel's pediatric products, the Company entered into a supply and distribution agreement with TRIS Pharma (the "Karbinal Agreement"). As part of this agreement, the Company ~~has~~had an annual minimum sales commitment, which is based on a commercial year that spans from August 1 through July 31, of 70,000 units through 2033. The Company iswas required to pay TRIS a royalty ~~make-whole~~make whole payment (“Make-Whole Payments”) of $30 for each unit under the 70,000 units annual minimum sales commitment through 2033. ~~The annual payment is due in August of each year.~~

~~The Company paid $0.9 million to TRIS in August 2018 related to~~As a part of the ~~make-whole payment for the commercial year ended July 31, 2018. As of March 31,~~Aytu Divestiture, which closed on November 1, 2019, the Company ~~has accrued $1.1 million in accrued expenses and other current liabilities related~~assigned all payment obligations, including the Make-Whole Payments, under the Karbinal Agreement (collectively, the “TRIS Obligations”) to Aytu. However, under the original license agreement, the Company could ultimately be liable for TRIS Obligations to the ~~Karbinal royalty~~extent Aytu fails to make ~~whole for~~ the ~~commercial year ending July 31, 2019. For the three months ended March 31, 2019, the make-whole provision of $0.4 million has been recorded in cost of product sales.~~required payments. The future ~~royalty make-whole payments~~Make-Whole Payments to be made by Aytu are unknown as the amount owed to TRIS is dependent on the number of units sold.

Millipred License and Supply Agreement

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

Possible future milestone proceeds for out-licensed compounds

CERC-611 License Assignment

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

CERC-501 Sale to Janssen

In August 2017, the Company sold its worldwide rights to CERC-501 to Janssen Pharmaceuticals, Inc. (“Janssen”) in exchange for initial gross proceeds of ~~$25~~$25.0 million. There is a potential future ~~$20~~$20.0 million regulatory milestone payment to the

~~Table~~ Company upon acceptance of ~~Contents~~

~~Company.~~an NDA for any indication. The terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of CERC-501.

Possible future milestone payments

OSI Products Royalty Agreement

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

Prior to Cerecor entering into the Merger Agreement, in July 2019, Aevi entered into a royalty agreement with Mike Cola, our current Chief Executive Officer, Joseph J. Grano, Jr., Kathleen Jane Grano, Joseph C. Grano, The Grano Children's Trust, Joseph C. Grano, trustee and LeoGroup Private Investment Access, LLC on behalf of Garry A. Neil, our current Chief Medical Officer, in exchange for a one-time aggregate payment of $2 million (the “Royalty Agreement”). Collectively, the investors will be entitled to an

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aggregate amount equal to a low-single digit percentage of the aggregate net sales of Astellas' second generation mTORC1/2 inhibitor, CERC-006 (the “OSI Products”). At any time beginning three years after the date of the first public launch of an OSI Product, 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 Merger with Aevi and it is recorded within royalty obligation within the Company's accompanying condensed consolidated balance sheet as of March 31, 2020. Because there is a significant related party relationship between the Company and the Investors, the Company treated its obligation to make royalty payments under the Royalty Agreement as an implicit obligation to repay the funds advanced by the Investors. As the Company makes royalty payments in accordance with the Royalty Agreement, it will reduce the liability balance. At the time that such royalty payments become probable and estimable, and if such amounts exceed the liability balance, the Company will impute interest accordingly on a prospective basis based on such estimates, which would result in a corresponding increase in the liability balance.

Aevi Merger possible future milestone payments

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

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

The contingent consideration related to the development milestones will be recognized if and when such milestones are probable and can be reasonably estimated. As of the consummation of the Merger on February 3, 2020 and as of March 31, 2020, no contingent consideration related to the development milestone has been recognized. The Company will continue to monitor the development milestones at each reporting period.

Ichorion Asset Acquisition possible future milestone payments

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

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

The contingent consideration related to the development milestones will be recognized if and when such milestones are probable and can be reasonably estimated. As of March 31, 2020, no 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 development of product candidates or products, 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 ~~18, 2019, as amended on April 23, 2019~~11, 2020, and in our other filings with the SEC. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, ~~2018~~2019 appearing in our Annual Report on Form 10-K filed with the SEC on March ~~18, 2019~~, ~~as amended on April 23, 2019.~~ 11, 2020.

Overview

Cerecor Inc. (the "Company" or ~~“Cerecor”~~"Cerecor") is a ~~fully integrated~~ biopharmaceutical company ~~with commercial operations~~focused on becoming a leader in development and ~~research~~commercialization of treatments for rare pediatric and ~~development capabilities.~~orphan diseases. The Company is ~~building a~~advancing an emerging clinical-stage pipeline of innovative therapies ~~in neurology,~~that address unmet patient needs within rare pediatric ~~healthcare,~~ and orphan ~~rare~~ diseases. The Company's neurology pipeline is led by CERC-301, which recently received positive interim results from the Phase I safety study of Neurogenic Orthostatic Hypotension ("nOH"). The Company is also developing 2 other neurological compounds, one of which is in preclinical testing and the other is in clinical ready stage. The Company's pediatric ~~orphan~~ rare disease pipeline is led by CERC-801, CERC-802 and ~~CERC-803. All 3 of these compounds~~CERC-803 ("CERC-800 compounds"), which are therapies for inherited metabolic disorders known as Congenital Disorders of Glycosylation ("CDGs") ~~by means of substrate replacement therapy.~~. The U.S. Food and Drug Administration ("FDA") ~~has~~ granted Rare Pediatric Disease designation ("RPDD") and Orphan Drug Designation ("ODD") to all ~~3 compounds. Under~~three CERC-800 compounds, thus potentially qualifying the ~~FDA’s Rare Pediatric Disease~~Company to receive a Priority Review Voucher ("PRV") ~~program,~~ upon ~~the~~ approval of ~~a new drug application~~each New Drug Application ("NDA") for the treatment of a rare pediatric disease, the sponsor of such application would be eligible for a PRV that can be used to obtain priority review for a subsequent new drug application or biologics license application. The. Each PRV may be sold or transferred an unlimited number of times. The Company plans to leverage the 505(b)(2) NDA pathway for all 3three compounds to accelerate development and approval. Additionally, CERC-801 and CERC-802 were granted Fast Track Designation ("FTD") from the FDA, which can help facilitate and potentially expedite development of each compound.

The Company is also indeveloping CERC-002, CERC-006 and CERC-007. CERC-007 is an anti-IL-18 monoclonal antibody being developed for the ~~process~~treatment of ~~developing 1 other preclinical pediatric orphan rare disease compound.~~autoimmune inflammatory diseases such as Adult Onset Stills Disease ("AOSD") and Multiple Myeloma. CERC-006 is a dual mTOR inhibitor being developed for the treatment of complex Lymphatic Malformations. CERC-002 is an anti-LIGHT (Lymphotoxin-like, exhibits Inducible expression, and competes with HSV Glycoprotein D for HVEM, a receptor expressed by T lymphocytes) monoclonal antibody being developed for the treatment of Pediatric-onset Crohn's Disease.

The Company ~~also has~~continues to explore strategic alternatives for its sole commercialized product, Millipred®, an oral prednisolone indicated across a ~~diverse portfolio~~wide variety of marketed products. Our marketed products are led by our prescribed dietary supplements and prescribed drugs. Our prescribed dietary supplements include Poly-Vi-Flor and Tri-Vi-Flor, which are prescription vitamin and fluoride supplements used in infants and children to treat or prevent deficiency of essential vitamins and fluoride.inflammatory conditions. The Company ~~also markets~~has been in discussions with Simon Pedder, a ~~number~~member of ~~prescription drugs that treat~~its Board of Directors, about potentially transferring its non-core neurology pipeline assets, CERC-301 and CERC-406, to a ~~range~~new company to be formed by Dr. Pedder, although it has not agreed to binding terms, and any such transaction might not happen until the third quarter of pediatric diseases, disorders and conditions. Cerecor's prescription drugs include Millipred®, Ulesfia®, Karbinal™ ER, AcipHex® Sprinkle™, and Cefaclor for Oral Suspension. Finally, the Company has 1 marketed medical device, Flexichamber™.2020, if at all.

Recent Developments

Aevi Merger

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approximately 3.9 million shares of Cerecor common stock to Aevi stockholders, forgiveness of a $4.1 million loan that Cerecor loaned Aevi in December 2019 (the "Aevi Loan"), and contingent value rights ("CVRs") for up to an additional $6.5 million in subsequent payments based on certain development milestones. As part of the Merger, Cerecor acquired CERC-002, CERC-006 and CERC-007, expanding Cerecor's pipeline to six clinical stage assets being developed for rare pediatric and orphan diseases. Effective upon the consummation of the Merger, Cerecor entered into an employment agreement with Aevi CEO Mike Cola for him to serve as Cerecor's Chief Executive Officer and an employment agreement with Aevi CSO Dr. Garry Neil for him to serve as Cerecor's Chief Medical Officer, and appointed Mike Cola and Dr. Sol Barer to the Company's Board of Directors. See Note 6 of the accompanying condensed consolidated financial statements for more information.

New Leadership ~~Changes~~Appointments

In April ~~2019,~~2020, the Company ~~announced changes~~appointed Dr. Sol J. Barer to ~~its executive leadership team. Effective~~the Chairman of the Board and Dr. Suzanne Bruhn and Mr. Joseph Miller to the Board. In March 2020, the Company promoted Dr. Garry Neil to Chief Scientific Officer and Dr. Jeffrey Wilkins to Chief Medical Officer. The Company believes the additions to the Board of Directors and Officer promotions will provide valuable insights and guidance as the Company continues to transform into a leader in development and commercialization of treatments for rare pediatric orphan diseases.

In April ~~15, 2019,~~2020, Dr. Simon Pedder ~~Ph.D., was appointed~~resigned as the Company's Executive Chairman, ~~of the Board. Additionally, Patrick Crutcher was promoted to Chief Strategy Officer. Peter Greenleaf resigned from his position as Chief Executive Officer role and~~however he remains on the Board of Directors. In March 2020, Dr. Pericles Calias, Ph.D. resigned as Chief Scientific Officer, however will remain an employee of the Company until June 30, 2020. Finally, in April 2020, Mr. Miller resigned in his role as Chief Financial Officer, but, as discussed above, joined the Company's Board of Directors and Mr. Christopher Sullivan was named the Company's Interim Chief Financial Officer.

Sale of Aytu Shares

In April 2020, the Company converted its shares of Aytu Preferred Stock into approximately 9.8 million shares of common and sold that common stock for net proceeds of approximately $12.8 million.

Recent Financings

On March 17, 2020, the Company entered into a securities purchase agreement with Armistice Capital, LLC ("Armistice"), whose Chief Investment Officer Steve Boyd is a Cerecor director, pursuant to which the Company sold 1,951,219 shares of the Company’s common stock for a purchase price of $2.05 per share, which represents the closing stock price the day prior to entering into the agreement. Net proceeds of the private placement were approximately $3.9 million.

Research and Development ~~Updates~~Update

In March 2020, the Company announced that it will explore the role of an inflammatory cytokine, LIGHT, in patients with COVID-19 induced Acute Respiratory Distress to determine if CERC-002, anti-LIGHT monoclonal antibody, can treat patients infected by COVID-19 who develop acute respiratory distress syndrome ("ARDS") or acute lung injury ("ALI"). The Company subsequently initiated a biomarker study to evaluate the role of LIGHT in the development of ARDS and ALI in hospitalized COVID-19 patients.

In March 2020, the Company paused its Phase 1b open-label, multi-center, dose-escalation proof-of-concept study for CERC-002 for the treatment of Pediatric-onset Crohn's Disease due to a moratorium placed on endoscopy as a result of COVID-19. The Company plans to resume the trial when the moratorium on endoscopy is lifted.

The following chart summarizes key information about our emerging clinical-stage rare disease pipeline and anticipated research & development milestones:

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In April 2019, the Company received positive interim results from the Phase 1 study of CERC-301 for the treatment of Neurogenic Orthostatic Hypotension in Parkinson’s disease patients. All doses showed clinically meaningful increases in blood pressure over placebo, within the six-hour post-dose timepoints. The purpose of the Phase 1 study is to evaluate the single-dose safety, tolerability and pharmacokinetics of CERC-301 in the relevant patient population, as well as explore the effects on blood pressure in nOH patients during an orthostatic challenge at escalating dose levels. The interim results demonstrate a rapid, robust increase in systolic blood pressure (SBP) from baseline to six hours. This early and sustained effect could differentiate CERC-301 from existing nOH treatments. Additionally, all doses tested were safe and well tolerated with no serious adverse events reported. Additionally, in early 2019, a patent was issued for CERC-301, which provides Cerecor with intellectual property rights to CERC-301 until 2035

The FDA granted ODD to CERC-801, CERC-802, and CERC-803 in early 2019. There are numerous benefits associated with receipt of ODD, which include 7-year marketing exclusivity (upon approval) in the United States, tax credits (up to 25% of clinical development costs) and waiver of Prescription Drug User Fee Act application fees (filing fees). Additionally, CERC-801, CERC-802, and CERC-803 were granted RPDD in 2018. RPDD provides eligibility for receipt of a PRV upon approval of an NDA.

In early 2019, the Company received a may proceed letter related to an Investigational New Drug ("IND") application previously submitted to the FDA for CERC-801. Additionally, the FDA designated Fast Track Designation for CERC-801. Fast Track Designation is granted to drugs being developed for the treatment of serious or life-threatening diseases or conditions where there is an unmet medical need. The purpose of the Fast Track Designation provision is to help facilitate development and expedite the review of drugs to treat serious and life-threatening conditions so that an approved product can reach the market expeditiously.

Furthermore, in April 2019, the Company announced positive Phase 1 safety data for CERC-801 in healthy volunteers. The single-center, US-based safety, tolerability and pharmacokinetic study was an open-label, randomized, single-dose, four-way crossover study in 16 healthy adult volunteers. CERC-801 was shown to be safe and well-tolerated at the studied doses, with no serious adverse events. CERC‑801 related adverse events were mild and transient. Cerecor seeks to leverage existing clinical and nonclinical data in conjunction with sponsor-initiated studies, such as this Phase 1 study, to accelerate development and approval of CERC-801 via the 505(b)(2) pathway.

~~Recent Financing~~

During the first quarter of 2019, the Company closed on an underwritten public offering of common stock for 1,818,182 shares of common stock of the Company, at a price to the public of $5.50 per share ("public price"). Armistice Capital Master Fund Ltd. ("Armistice"), our largest stockholder, participated in the offering by purchasing 363,637 shares of common stock of the Company from the underwriter at the public price. Cerecor director Steven J. Boyd is Armistice's Chief Investment Officer. The gross proceeds to the Company, before deducting underwriting discounts and commissions and offering expenses, were approximately $10.0 million. The net proceeds were approximately $9.0 million.

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Our Strategy

Our strategy for increasing shareholder value includes:

Advancing our pipeline of compounds through development and to regulatory approval;

~~Pursuing~~Acquiring or licensing rights to targeted, complementary differentiated preclinical and clinical stage ~~product candidates;~~assets;

Developing the go-to-market strategy to quickly and effectively market, launch, and distribute each of our assets that receive marketing approval;

~~Acquiring or licensing~~Opportunistically out-licensing rights to ~~clinically meaningful and differentiated products that are already on the market for pediatric use~~indications or ~~in late-stage development for pediatric indications;~~geographies; and

~~Growing sales~~Opportunistically out-licensing rights or sale of ~~the existing commercial products in our portfolio, including by identifying and investing in growth opportunities such as new indications and new geographic markets.~~

~~Product Pipeline Assets~~

~~The following table summarizes key information about our product candidates and further detail regarding each product candidate follows:~~

non-core assets.

Results of Operations

During the fourth quarter of 2019, the Company sold its rights, titles and interest in, assets relating to its Pediatric Portfolio as well as the corresponding commercial infrastructure consisting of the right to offer employment to Cerecor’s sales force and the assignment of supporting commercial contracts, retaining as our only commercial product, Millipred, an oral prednisolone indicated across a wide variety of inflammatory conditions. As a result of the Aytu Divestiture, the Pediatric Portfolio met all conditions required in order to be classified as discontinued operations. Accordingly, unless otherwise noted, the following section focuses on results of operations from continuing operations only for all periods discussed.

Comparison of the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019

~~The following table summarizes our~~Product Revenue, net

Net product revenue was $2.8 million for the three months ended March 31, 2020, which was relatively consistent with the net product revenue for the three months ended March 31, 2019 ~~and 2018~~

Three Months Ended March 31,
2019 2018

(in thousands)
Product revenue, net $ 5,411
$ 4,260
Sales force revenue $ —
$ 223
of $2.6 million.

Cost of Product ~~revenue, net~~ Sales

~~Table~~Cost of ~~Contents~~

~~Net~~ product ~~revenue increased $1.2~~sales were $0.1 million for the three months ended March 31, ~~2019~~2020, as compared to the same period in 2018. The increase was due to favorable product mix and unit growth driven by the sales force expansion as well as due to a full quarter of sales of products that were acquired during the prior year quarter.

~~Sales force revenue~~

As part of the acquisition of TRx in November 2017, the Company acquired a sales and marketing agreement with Pharmaceutical Associates, Inc. ("PAI") under which the Company received a monthly marketing fee to promote, market and sell certain products on behalf of PAI. The Company was also entitled to a share of PAI's profits. For the three months ended March 31, 2018, sales force revenue was $0.2 million. The PAI contract was canceled during the second quarter of 2018 and therefore there is no sales force revenue$0.8 million for the three months ended March 31, 2019.

~~Cost of product sales~~

~~Cost~~ The decrease in cost of product sales was ~~$1.9 million~~mainly driven by a shift in product mix. Most notably, cost of product sales for the three months ended March 31, 2019 ~~compared to $0.9 million for the three months ended March 31, 2018. The increase~~was primarily comprised of ~~$1.0 million for the three months ended March 31, 2019 compared~~minimum royalty obligations related to the ~~same period in 2018~~Ulesfia product, which is ~~driven~~no longer sold by the ~~increase in net product revenue~~Company as ~~well as Lachlan Pharmaceuticals' minimum purchase and royalty obligations that arose~~a result of a settlement agreement the Company entered into during the ~~third~~second quarter of ~~2018 as further discussed in Note 13 to the accompanying unaudited financial statements appearing above.~~2019.

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:

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	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019

	(in thousands)				(in thousands)
Preclinical expenses	$	879	$	887	$	1,245	$	879
Clinical expenses	1,590		341		596		1,590
CMC expenses	435		107		1,166		435
Internal expenses not allocated to programs:
Salaries, benefits and related costs	435		240		1,313		435
Stock-based compensation expense	57		11		382		57
Other	5		64		66		5
	$	3,401	$	1,650	$	4,768	$	3,401

Research and development expenses increased ~~$1.8~~$1.4 million for the three months ended March 31, ~~2019~~2020 compared to the same period in ~~2018.~~2019. The overall increase is driven by an increase in research and development activities ~~during~~in the current year as the Company ~~continues~~expanded its pipeline assets as a result of the Aevi Merger and continued to develop its existing pipeline assets during the quarter. Specifically, as part of ~~assets. Clinical expenses increased $1.2 million primarily due to increased activities related to~~ the ~~CERC-301 clinical study~~Aevi Merger, which closed in ~~nOH during~~ the first quarter of ~~2019~~2020, Cerecor acquired CERC-002, CERC-006 and ~~activities related~~CERC-007, expanding Cerecor's pipeline to ~~CERC-801, CERC-802, and CERC-803, which were acquired as part of the Ichorion Acquisition in September 2018.~~ six clinical stage assets.

Chemistry, Manufacturing, and Controls ("CMC") expenses increased ~~$0.3~~$0.7 million for the three months ended March 31, ~~2019~~2020 compared to the same period in ~~2018~~2019 due to additional spending on manufacturing to support clinical ~~development.~~ development as a result of the additional assets acquired as part of the Aevi Merger. Preclinical expenses increased $0.4 million primarily due to additional spending related to the Aevi Merger. These increases were partially offset by a $1.0 million decrease in clinical expenses driven by minimal spend on clinical development of CERC-301 as the Company began exploring strategic alternatives for the asset during 2019.

Salaries, benefits and related costs increased by ~~$0.2~~$0.9 million compared to the same period in ~~2018~~2019 mainly due to an increase in headcount as a result of the Aevi Merger and salary-related ~~costs.~~costs needed to grow our research and development activities as we continue to invest in our expanded pipeline. Additionally, the Company recognized $0.3 million of severance within salaries, benefits and related costs for the three months ended March 31, 2020 related a separation agreement entered into with a research and development executive during the first quarter of 2020. There was no severance for the three months ended March 31, 2019. Stock-based compensation increased by $0.3 million mainly due to an increase in stock option grants as a result of the increased headcount as a result of the Aevi Merger.

Acquired In-Process Research and Development Expenses

On February 3, 2020, the Company consummated its merger with Aevi, which was recorded as an asset acquisition in the first quarter of 2020. As a result, the Company acquired $25.5 million of in-process research and development ("IPR&D") for two clinical stage pipeline assets for rare and orphan diseases (CERC-006 and CERC-007). The fair value of the IPR&D was immediately recognized as acquired in-process research and development expense as the IPR&D asset has no other alternate use due to the stage of development. There was no acquired in-process research and development expense for the three months ended March 31, 2019.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:

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	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019

	(in thousands)				(in thousands)
Salaries, benefits, and related costs	$	1,230	$	617
Legal, consulting, and other professional expenses	887		1,986
Salaries, benefits and related costs					$	1,012	$	1,230
Legal, consulting and other professional expenses					784		887
Stock-based compensation expense	469		207		706		469
Other	131		109		174		90
	$	2,717	$	2,919	$	2,676	$	2,676

General and administrative expenses ~~decreased $0.2~~were $2.7 million for the three months ended March 31, ~~2019 as compared to~~2020, which is consistent with the three months ended March 31, 2018. The overall decrease was driven by a $1.1 million decrease in legal, consulting, and other professional expenses, partially offset by a $0.6 million increase in salaries, benefits, and related costs and a $0.3 million increase in stock-based compensation expense.

Legal, consulting, and other professional expenses decreased $1.1 million as compared to the same period in 2018 mainly due to a substantial decrease in consulting fees. The consulting costs incurred in the prior year were related to the integration of the acquisitions of TRx and Avadel's pediatric products. The Company has since increased corporate headcount and therefore utilizes less consulting services to meet accounting and reporting requirements. Additionally, $0.4 million of litigation fees incurred in the three months ended March 31, 2018 relate to arbitration and legal costs related to Lachlan Pharmaceuticals (explained further in Note 13 to the accompanying unaudited financial statements appearing above). Under the terms of the TRx Purchase Agreement, the former TRx owners are required to indemnify the Company for 100% of all pre-acquisition losses related this arbitration, including legal costs, and possible minimum payments in excess of $1.0 million. The $1.0 million threshold was met in the third quarter of 2018 and therefore the minimal legal costs related to Lachlan Pharmaceuticals incurred in the three months ended March 31, 2019 were offset by a corresponding receivable instead of general and administrative ~~expenses. Salaries, benefits, and related costs increased by $0.6 million due to an increase in headcount and salary-related costs. Stock-based compensation expense increased~~expenses for the three months ended March 31, ~~2019~~2019. Salaries, benefits and related costs decreased by $0.2 million as ~~compared to the same period in 2018 due to equity awards granted to~~ a ~~senior executive who joined~~result of the Company ~~in late March 2018. Due to~~covering the ~~timing~~tax burden of the ~~grant, minimal~~first year's vesting of an executive's restricted stock units which vested in the first quarter of 2019. Such expense was ~~recognized~~not repeated for the three months ended March 31, ~~2018, however~~2020. This decrease was mainly offset by a ~~full~~$0.2 million increase in stock-based compensation expense, which was driven by an increase in stock option grants in the current quarter as a result of options granted on April 1, 2019 as part of the Company's previous year's annual grant and as a result of the increased headcount as a result of the Aevi Merger which was consummated during the first quarter of ~~expense was recognized for the three months ended March 31, 2019.~~2020.

Sales and Marketing Expenses

The following table summarizes our sales and marketing expenses for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019

	(in thousands)				(in thousands)
Salaries, benefits, and related costs	$	1,838	$	952
Logistics, insurance, and other commercial operations expenses	339		91
Salaries, benefits and related costs					$	134	$	185
Stock-based compensation expense	70		24		55		21
Advertising and marketing expense	815		177		481		190
Other	47		280		7		—
	$	3,109	$	1,524	$	677	$	396

Sales and marketing expenses ~~increased $1.6~~of continuing operations consist of expenses related to advertising and marketing initiatives to support the go-to-market strategy of our pipeline assets and the respective salaries and stock-based compensation to support such initiatives. The overall $0.3 million increase for the three months ended March 31, ~~2019~~2020 as compared to the same period in ~~2018. Salaries, benefits and related costs increased $0.9~~2019 was primarily driven by a $0.3 million ~~as a result of increasing sales and sales support personnel needed to maintain and grow our commercial sales activities~~increase in connection with the acquisition of TRx and Avadel's pediatric products. Logistics, insurance, and other commercial operations expenses increased largely due to an increase of FDA fees incurred for the three months ended March 31, 2019. Advertising and marketing expenses increased $0.6 million due to an increased focus on advertising and marketing ~~initiatives during~~expense related to market research in preparation to quickly and effectively market, launch, and distribute each of our pipeline assets, if any, that receive marketing approval in the ~~current quarter to support the portfolio of pediatric drugs.~~future.

Amortization Expense

The following table summarizes our amortization expense for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:



	Three Months Ended March 31,
	2020		2019

	(in thousands)
Amortization of intangible assets	$	431	$	335

Amortization expense of the continuing operations relates to the amortization of the Company's acquired Millipred product marketing rights, and amortization of the assembled workforces acquired as part of the Ichorion Acquisition and Aevi Merger. As a result of the asset acquisition accounting related to the Aevi Merger recognized in the first quarter of 2020, the Company recorded an assembled workforce intangible asset of $0.7 million, which was assigned a two-year useful life. Therefore, the $0.1 million increase to amortization expense for the three months ended March 31, 2020 as compared to the prior period was primarily driven by the recognition of two months of amortization expense of the assembled workforce acquired as part of the Aevi Merger.

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Three Months Ended March 31,
2019 2018

(in thousands)
Amortization of intangible assets $ 1,079
$ 1,017

~~Amortization expense relates to the acquisition of intangible assets as part of the acquisition of TRx in November 2017 and Avadel's pediatric products in February 2018.~~

~~Change in fair value of contingent consideration~~Other Income (Expense), Net

The ~~Company recognized a loss on~~following table summarizes our other income (expense), net for the ~~change in fair value of contingent consideration of $0.2~~three months ended March 31, 2020 and 2019:



	Three Months Ended March 31,
	2020		2019

	(in thousands)
Change in fair value of Investment in Aytu	$	7,080	$	—
Change in fair value of warrant liability and unit purchase option liability	11		(48		)
Other expense, net	—		(9		)
Interest income, net	10		30
	$	7,101	$	(27	)

Other income, net increased $7.1 million for the three months ended March 31, ~~2019~~2020 as compared to ~~a loss of $0.3~~the prior period. This increase was primarily driven by the $7.1 million ~~for~~gain on change in the same period in 2018. The contingent consideration is related to the potential for future payment of consideration that is contingent upon the achievement of operation and commercial milestones and royalty payments on future product sales as partfair value of the Company's ~~acquisitions~~Investment in Aytu. As consideration of ~~Avadel's pediatric products and TRx. The fair value~~the Aytu Divestiture on November 1, 2019, the Company received 9,805,845 shares of ~~contingent consideration was determined at the acquisition date.~~Aytu Series G Preferred Stock. Subsequent to the ~~acquisition date,~~initial measurement, at each reporting period, the ~~contingent consideration liability~~Investment in Aytu is remeasured at the current fair value with ~~changes~~the change in fair value recorded ~~in operating expenses~~to other income, net in the ~~condensed consolidated statement~~accompanying statements of operations. As of March 31, 2020, the Investment of Aytu was $14.7 million, representing a change in fair value of $7.1 million from December 31, 2019.

~~Other expense, net~~Income Tax (Benefit) Expense

The following table summarizes our ~~other~~income tax expense ~~net~~for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31,
	2020			2019

	(in thousands)
Income tax (benefit) expense	$	(2,157	)	$	131

The Company recognized income tax benefit of $2.2 million for the three months ended March 31, 2020 and income tax expense of $0.1 million for the three months ended March 31, 2019. The expense recognized for the three months ended March 31, 2019 was a result of interest on an unpaid tax liability related to the 2017 tax year and ~~2018:~~

Three Months Ended March 31,
December 31,
2019 2018

(in thousands)
Change in fair value of warrant liability and unit purchase option liability $ (48 ) $ (23 )
Other (expense) income, net (9 ) 19
Interest expense, net (208 ) (100 )
$ (265 ) $ (104 )

~~Other expense, net increased $0.2~~state taxes. The discrete benefit recognized for the three months ended March 31, 2020 benefit was a result of a current year tax law change and the ability of the Company to now carry back certain losses. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The CARES Act provided both stimulus measures and a number of business tax provisions. The tax provisions included temporary changes regarding the utilization and five year carry back of losses generated in 2018, 2019 and 2020, temporary changes regarding interest deductions, technical corrections from prior tax legislation related to qualified improvement property, and various other measures. As of March 31, 2020, the Company intended to file (and subsequently filed in April 2020) a refund claim with the Internal Revenue Service (the "IRS") related to its 2017 tax liability by carrying back losses not previously claimed and thus recognized a tax benefit of $2.2 million for the three months ended March 31, 2019 as compared to the same period in 2018, which was primarily driven by a $0.1 million increase in interest expense. The interest expense recognized relates to interest for the Deerfield Obligation, as defined below, assumed as part of the acquisition of Avadel's pediatric products, which took place on February 16, 2018. Due to the timing of the acquisition, approximately 1.5 months of interest was incurred for the three months ended March 31, 2018 as compared to a full quarter in the current year.

~~Income tax expense~~

The provision for income taxes was $0.2 million for the three months ended March 31, 2019 and includes estimated cash taxes and additionally, discrete to the quarter, interest and penalties on the outstanding taxes payable to the IRS and various state authorities.2020.

Liquidity and Capital Resources

In February 2020, the Company closed on a registered direct offering with institutional investors of 1,306,282 shares of the Company's common stock at a purchase price of $3.98 per share. The Company's largest stockholder, Armistice Capital, LLC ("Armistice"), whose Chief Investment Officer Steve Boyd is a Cerecor director, participated in the offering by purchasing 1,256,282 shares of common stock from the Company. The net proceeds of the offering were approximately $5.0 million. In March 2020, the Company entered into a securities purchase agreement with Armistice pursuant to which the Company sold 1,951,219 shares of the Company’s common stock for a purchase price of $2.05 per share, which represents the closing stock price the day prior to entering into the agreement. Net proceeds of the private placement were approximately $3.9 million. Additionally, in April 2020, the Company converted its shares of Aytu preferred stock that were acquired in the fourth quarter of 2019 and ~~Expenditure Requirements~~subsequently sold that common stock, which generated net proceeds of approximately $12.8 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 ~~current commercial product line, the Company's development portfolio~~existing pipeline assets and acquisitions or in-licensing of new assets. For the three months ended March 31, ~~2019,~~2020, Cerecor generated a net loss of ~~$7.5~~$21.1 million and negative cash flow from operations of $3.1 million. As of March 31, 2019, Cerecor had an accumulated deficit of $105.7 million and a balance of $16.1 million in cash and cash equivalents. During the first quarter of 2019, the Company closed an underwritten public offering of common stock for 1,818,182 shares of common stock of the Company, at a price to the public of $5.50 per share ("public price"). Armistice, our largest stockholder, participated in the offering by purchasing 363,637 shares of common stock of the Company from the underwriter at the public price. Cerecor director Steven J. Boyd is Armistice's Chief Investment Officer. The net proceeds of the offering were approximately $9.0 million (see "Common Stock Offering" in Note 9 below for description of the transaction).

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cash flow from operations of $5.7 million. As of March 31, 2020, Cerecor had an accumulated deficit of $135.4 million and a balance of $5.7 million in cash and cash equivalents.

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern; however, the Company expects to incur additional losses in the future in connection with research and development activities and will require additional financing to fund its operations and to continue to execute its strategy. The Company plans to use its current cash ~~and~~on hand, which includes the cash generated from the sale of Aytu common shares in April 2020, the anticipated cash flows from the Company's ~~existing~~profits from Millipred product sales and/or the potential proceeds from a possible out-license or sale of Millipred to a third party to offset costs related to its ~~neurology programs, pediatric rare disease programs,~~pipeline assets, business development, and costs associated with its organizational ~~infrastructure, and debt principal and interest payments.~~infrastructure; however, Cerecor expects to continue to incur significant expenses and operating losses for the immediate future as it continues to invest in the Company's pipeline assets. ~~Our~~The Company’s ability to continue as a going concern through 2020 is dependent upon the Company’s ability to raise additional equity and/or debt capital, sell assets and obtain government funding; however, there can be no assurance that it will be able to do so nor that such activities will generate sufficient amounts on terms acceptable to the Company.

Uses of Liquidity

The Company uses cash ~~and the anticipated positive net cash flows from the Company's existing product sales~~ to fund research and development expenses related to its ~~neurology~~rare pediatric and ~~pediatric rare~~orphan disease ~~pipelines,~~pipeline, business development and costs associated with its organizational ~~infrastructure, and debt principal and interest payments.~~

~~Ichorion Asset Acquisition~~

On September 24, 2018, the Company entered into a merger agreement in which we acquired Ichorion Therapeutics, Inc. The consideration for the Ichorion acquisition at closing consisted of 5.8 million shares of the Company’s Common Stock, par value $0.001 per share, as adjusted for estimated working capital. The shares are subject to a lockup through December 31, 2019. Consideration for the Merger included certain development milestones worth up to an additional $15 million, payable either in shares of Company common stock or in cash, at the election of the Company. There will be future cash outflow for research and development costs associated with the development of the assets acquired as part of the Ichorion acquisition (CERC-801, CERC-802, CERC-803 and CERC-913).

~~Deerfield Debt Obligation~~

In relation to the Company's acquisition of Avadel's pediatric products on February 16, 2018, the Company assumed an obligation that Avadel had to Deerfield (the "Deerfield Obligation"). Beginning in July 2018 through October 2020, the Company will pay a quarterly payment of $262,500 to Deerfield. In January 2021, a balloon payment of $15,250,000 is due. The Deerfield Obligation was $15.4 million as of March 31, 2019, of which $1.1 million is recorded as a current liability.infrastructure.

Cash Flows

The following table summarizes our cash flows for the three months ended March 31, ~~2019~~2020 and ~~2018:~~ 2019:



	Three Months Ended March 31,
	2020			2019

	(in thousands)
Net cash provided by (used in):
Operating activities	$	(5,740	)	$	(3,122	)
Investing activities	(1,251		)	(166		)
Financing activities	9,098			8,817
Net increase in cash and cash equivalents	$	2,107		$	5,529

Net cash used in operating activities

Net cash used in operating activities was $5.7 million for the three months ended March 31, 2020, consisting primarily of a net loss of $21.1 million, which was driven by increased research and development activities as the Company continued to fund its pipeline of development assets, and non-cash adjustments to reconcile net loss to net cash used in operating activities including a $7.1 million gain related to the change in fair value of the Investment in Aytu and a $1.8 million gain related to the change in value of the Guarantee. This decrease was offset by the following non-cash adjustments: non-cash acquired IPR&D expense of $25.5 million and

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non-cash stock-based compensation of $1.1 million. Additionally, changes in net assets, increased by a net $2.9 million, mainly driven by a $2.0 million increase in other receivables. Other receivables increased mainly due to a $2.2 million income tax receivable.

Three Months Ended March 31,
2019 2018

(in thousands)
Net cash provided by (used in):
Operating activities $ (3,122 ) $ (280 )
Investing activities (166 ) (19 )
Financing activities 8,817
363
Net increase (decrease) in cash and cash equivalents $ 5,530
$ 64

~~Net cash used in operating activities~~

Net cash used in operating activities was $3.1 million for the three months ended March 31, 2019 and consisted primarily of a net loss of $7.5 million, offset by depreciation and amortization of $1.1 million, non-cash stock-based compensation expense of $0.6 million, and changes in working capital, primarily, an increase in accrued expenses of $2.0 million, largely related to the ~~Lachlan~~contractual minimum ~~obligations as discussed in Note 13 to the accompanying unaudited financial statements appearing above.~~obligations. The net loss for the three months ended March 31, 2019 was driven by increased research and development activities incurred as the Company ~~continues~~continued to fund its pipeline of development assets and also by increased sales and marketing expenses incurred to support commercial sales activities.

Net cash used in ~~operating~~investing activities

Net cash used in investing activities was ~~$0.3~~$1.3 million for the three months ended March 31, ~~2018~~2020 and consisted primarily of ~~a net loss~~transaction costs incurred as part of $3.9 million, adjusted for non-cash stock-based compensation expense of $0.2 million, depreciation and amortization of $1.0 million, and changes in working capital, primarily driven by a change in accounts payable of $1.9 million and other receivables of $0.4 million,the Aevi Merger, partially offset by ~~a change in inventory~~the cash acquired as part of ~~$0.6 million.~~the merger.

~~Net cash used in investing activities~~

Net cash used in investing activities was $0.2 million for the three months ended March 31, ~~2019, an increase~~2020 and consisted primarily of ~~approximately $0.2 million over the three months ended March 31, 2018. The increase was primarily driven by~~ the purchase of property and equipment in connection with the Company occupying its ~~new~~ corporate headquarters during the first quarter of 2019.

Net cash ~~used in investing~~provided by financing activities

Net cash provided by financing activities was ~~$19,225~~$9.1 million for the three months ended March 31, ~~2018~~2020 and consisted primarily ~~consisted~~ of ~~purchases~~net proceeds of ~~property and equipment.~~$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 of the Company, at a price of $3.98 per share. The Company also received $3.9 million from a private placement of equity securities with Armistice during March 2020.

~~Net cash provided by financing activities~~

Net cash provided by financing activities was $8.8 million for the three months ended March 31, 2019 and consisted primarily of net proceeds of approximately $9.0 million from the underwritten public offering of common stock for 1,818,182 shares of common stock of the Company, at a price to the public of $5.50 per share. The increase was partially offset by $0.2 million payment of contingent consideration related to the Avadel acquisition.

~~Net cash provided by financing activities was $0.4 million for the three months ended March 31, 2018 and consisted of proceeds from option and warrant exercises.~~

Critical Accounting Policies, Estimates, and Assumptions

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited condensed consolidated financial statements, 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 product sales, stock-based compensation, fair value measurements (including those relating to ~~contingent consideration)~~the Guarantee and Investment in Aytu), cash flows used in management's going concern assessment, income taxes, goodwill, and other intangible assets and clinical trial accruals. The Company believes, given current facts and circumstances, 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 estimates and assumptions are included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC on March ~~18, 2019 and amended~~11, 2020 except for the recently adopted accounting standards described in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on ~~April 23, 2019.~~

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Form 10-Q. There have been no material changes to our critical accounting policies during the three months ended March 31, 2020

Off‑Balance Sheet Arrangements

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

Recently Adopted Accounting Pronouncements

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

JOBS Act

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q.

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

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Attestation Report of Registered Public Accounting Firm~~

The Quarterly Report on Form 10-Q does not include an attestation report of our independent registered public accounting firm due to an exemption established by the JOBS Act for emerging growth companies.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

~~Lachlan Pharmaceuticals~~

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

On December 19, 2019, Cerecor, through its law firm, received a letter from an attorney on behalf of the ~~First Amended and Restated Distribution Agreement withLachlan, effective~~former TRx owners dated December 18, ~~2015. Pursuant to the Lachlan Agreement, Lachlan named Zylera as its exclusive distributor of Ulesfia in the United States~~2019, which enclosed a draft complaint seeking relief against Cerecor and ~~agreed to supply Ulesfia to Zylera exclusively for marketing and sale in the United States.~~

Zylera is obligated to purchase a minimum of 20,000 units per year, or approximately $1.2 million worth of product, from Lachlan, subject to certain termination rights. Zylera must pay Lachlan $58.84 per unit and handling fees that are equal to $3.66 per unit of fully packaged Ulesfia in 2018, and escalate at a rate of 10% annually, as well as reimburse Lachlan for all product liability insurance fees incurred by Lachlan. The Lachlan Agreement also requires that Zylera make certain cumulative net sales milestone payments and royalty payments to Lachlan with a $3 million annual minimum payment unless and until there has been a “Market Change” involving a new successful competitive product. Lachlan is obligated to pay identical amounts to an unrelated third party from which it obtained rights to Ulesfia, with the payments ultimately flowing to Summers Laboratories, Inc. (“Summers Labs”). Becauseone of the ~~dispute described below,~~members of its board of directors. The letter further threatened that if an immediate discussion regarding a settlement did not occur, that the ~~Company has not made any payments to Lachlan under the Lachlan Agreement subsequent to the acquisition date.~~

Onlawsuit would be filed on December ~~10, 2016, Zylera informed Lachlan that a Market Change had occurred due to the introduction~~24, 2019. However, as of Arbor Pharmaceuticals' lice product, Sklice®. On June 5, 2017, Lachlan and Zylera entered into joint legal representation along with other unrelated third parties in negotiation and arbitration of a dispute with Summers Labs regarding the existence of a Market Change and the concomitant obligations of the parties. The arbitration panel issued an interim ruling on October 23, 2018 that no Market Change had occurred up to and including the date of this filing, no lawsuit has been filed, and the ~~hearing.~~parties have agreed to a pre-lawsuit mediation tentatively set for June 2020. The ~~arbitration panel issued a second interim ruling~~proposed complaint indicates that the former TRx owners would seek the following relief: (a) $3,000,000 on ~~December 26, 2018. The second interim award rejected Summers Labs' request~~the grounds that commercially reasonable efforts to accelerate future minimum royalties, however, it ruled in favor of Summers Labs that it is owed reimbursement for all reasonable costs and expenses, including legal fees, by Shionogi, as well as interest, as stipulatedsell the acquired TRx products would have resulted in the ~~contract. The arbitration panel issued~~gross profit earn-out target being reached; (b) that the $3,000,000 amount be trebled as a ~~final award on March 1, 2019 that dictated~~result of Cerecor's alleged improper conduct; (c) $9,200,000 as a result of alleged losses resulting from the ~~final amount~~alleged improper treatment of ~~reimbursable costs~~the former TRx owners as affiliates; and ~~interest as contemplated in~~(d) the ~~second interim ruling. The final award has no direct bearing~~removal of any restrictions on the ~~Company as the Company was not a named defendant to the original claim by Summers Labs and a federal court denied Zylera's ability to be a counterclaimant~~former TRx owners' shares of common stock in the matter. Furthermore, the Company is not subject to the guarantee or interest provisions identified in the second ruling as these elements of the contractual relationship were not passed down to the Company’s agreement with Lachlan. However, the Company has interpreted this ruling's impact on the Lachlan Agreement to mean the minimum purchase obligation and minimum royalty provisions of the contract are active and due for any prior periods as well as going forward for any future periods.

~~The Company has recognized an $8.7 million liability for these minimum obligations in accrued liabilities as of March 31, 2019. Under the terms of the TRx Purchase Agreement,~~Cerecor. Cerecor disputes that the former TRx owners are ~~required~~entitled to ~~indemnify~~ the ~~Company for 100%~~relief sought and intends to vigorously defend against any lawsuit filed on behalf of ~~all pre-acquisition losses related this arbitration, including legal costs, and possible minimum payments in excess of $1 million. Furthermore,~~ the former TRx owners are required to indemnify the Company for 50% of post-acquisition Ulesfia losses, which would include losses resulting from having to fund these minimum obligations. The Company has recorded an indemnity receivable of $5.2 million in other receivables as of March 31, 2019, which the Company believes is fully collectible. For the three months ended March 31, 2019, minimum obligations net of amounts recorded within the indemnity receivable of $0.6 million has been recorded in cost of product sales. If the Company fails to make these minimum obligations timely then the Lachlan Agreement may be terminated by Lachlan, in which case the Company would no longer be able to sell the Ulesfia product, but it would also not be subject to future minimum obligations. Lachlan has not requested payment for the minimum obligations.owners.

Item 1A. Risk Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on March ~~18, 2019 and amended on April 23, 2019,~~11, 2020 , which could materially affect our business, financial condition, or future results. ~~Our~~The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K. Except as ofpresented below, there have been no material changes from the ~~date of this Quarterly Report on~~risk factors described in our Form ~~10-Q have not changed materially from those~~10-K. The risks described in our Annual Report on Form 10-K ~~as amended. However, the risks described in our Annual Report on Form 10-K~~and below 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.

A pandemic, epidemic or outbreak of an infectious disease in the United States or elsewhere may adversely affect our business.

If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States or elsewhere, our business may be adversely affected. In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally and, as of March 2020, has spread to over 100 countries, including the United States. The spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. Employers (including us) are also required to prepare and increase as much as possible the capacity and arrangement for employees to work remotely. In addition, on March 11, 2020, the President of the United States issued a proclamation to restrict travel to the United States from foreign nationals who have recently been in certain European countries. We are still assessing the effect on our business, from the spread of COVID-19 and the actions implemented by the governments of the United States and elsewhere across the globe.

The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver supplies to us on a timely basis. Such events may result in a period of business disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. As of the date of this Quarterly Report on Form 10-Q, we do not know the extent to which COVID-19 will impact our business. These impacts will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

With respect to the COVID-19 outbreak specifically, such outbreak could also potentially affect the business of the FDA, or other health authorities, which could result in delays in meetings related to planned clinical trials and ultimately of reviews and approvals of our product candidates. The spread of COVID-19 may also slow potential enrollment of clinical trials and reduce the number of eligible patients for future clinical trials. The COVID-19 outbreak and mitigation measures also have had and may continue

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to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition, including impairing our ability to raise capital when needed. The extent to which the COVID-19 outbreak impacts our business and operations will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

The recent outbreak of COVID-19 may materially and adversely affect our clinical trial operations and our financial results.

The recent outbreak of COVID-19 originated in Wuhan, China, in December 2019 and has since spread to multiple countries, including the United States and several European countries where we expected to initiate enrollment for future clinical trials. The extent to which COVID-19 may impact our clinical trial operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the severity of COVID-19, or the effectiveness of actions to contain and treat for COVID-19. The continued spread of COVID-19 globally could adversely impact our clinical trial operations in the United States and in Europe, including our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. In addition, if the FDA elects to delay face-to-face meetings for an extended period of time, we may have to delay the initiation of any additional clinical trials for which we require additional approval from the FDA, or, if we are seeking to commercialize our product candidates, such delay could force us to delay commercialization. Any decision by the FDA to delay meeting with us in light of COVID-19 could have a material adverse effect on our scheduled clinical trials or on our efforts to obtain commercialization approval, which could increase our operating expenses and have a material adverse effect on our financial results.

Moreover, COVID-19 may also affect employees of third-party contract research organizations located in affected geographies that we rely upon to carry out such enrollments and trials. Any negative impact COVID-19 has to patient enrollment or treatment could cause costly delays to clinical trial activities, which could adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, and have a material adverse effect on our financial results.

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Item 6. Exhibits.



Exhibit Number		Description of Exhibit

10.1		Contingent Value Rights Agreement, effective February 3, 2020, by and between Cerecor Inc. and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on February 3, 2020).

~~31.1~~10.2#		Employment Agreement, effective February 3, 2020, by and between Cerecor Inc. and Michael F. Cola (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on February 3, 2020).

10.3#		Employment Agreement, effective February 3, 2020, by and between Cerecor Inc. and Garry A. Neil (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on February 3, 2020).

10.4		Form of Securities Purchase Agreement, dated February 3, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on February 4, 2020).

10.5#+		Amendment to Employment Agreement, effective March 11, 2020, by and between Cerecor Inc. and Michael F. Cola.

10.6		Securities Purchase Agreement, dated March 17, 2020, between Cerecor Inc. and the investor(s) named therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 18, 2020).

10.7		Registration Rights Agreement, dated March 17, 2020, between Cerecor Inc. and the investor(s) named therein (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on March 18, 2020).

10.8#		Separation Agreement, dated March 25, 2020, by and between Cerecor Inc. and Pericles Calias (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 27, 2020).

10.9*		Sponsored Research Agreement, dated as of November 12, 2014, between Medgenics Medical Israel Ltd. and The Children’s Hospital of Philadelphia (previously filed as Exhibit 10.28 to Aevi’s Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference).

10.10		Amendment #1 to Sponsored Research Agreement, dated December 18, 2015, by and between Medgenics Medical Israel Ltd. and the Children’s Hospital of Philadelphia (previously filed as Exhibit 10.1 to Aevi’s Current Report on Form 8-K filed December 22, 2015 and incorporated herein by reference).

10.11*		License Agreement, dated as of November 12, 2014, between Medgenics Medical Israel Ltd. and The Children’s Hospital of Philadelphia (previously filed as Exhibit 10.29 to Aevi’s Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference).

10.12*		License Agreement, dated as of September 9, 2015, between neuroFix, LLC and The Children’s Hospital of Philadelphia (previously filed as Exhibit 10.2 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and incorporated herein by reference).

10.13*		Clinical Development and Option Agreement, by and between Medgenics, Inc. and Kyowa Hakko Kirin Co., Ltd., dated June 6, 2016 (previously filed as Exhibit 10.1 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 and incorporated herein by reference).

10.14*		Amendment No. 1 to License Agreement, dated as of February 14, 2017, by and between The Children’s Hospital of Philadelphia and Medgenics Medical Israel Ltd. (previously filed as Exhibit 10.1 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and incorporated herein by reference).

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10.15		Amendment No. 2 to Sponsored Research Agreement, dated as of February 16, 2017, by and between The Children’s Hospital of Philadelphia and Medgenics Medical Israel, Ltd. (previously filed as Exhibit 10.2 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 and incorporated herein by reference).

10.16		Amendment No. 1 to License Agreement, dated March 29, 2019, by and between neuroFix LLC and the Children’s Hospital of Philadelphia (previously filed as Exhibit 10.3 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference).

10.17		Amendment No. 2 to License Agreement, dated March 29, 2019, by and between Medgenics Medical Israel Ltd. and the Children’s Hospital of Philadelphia. (previously filed as Exhibit 10.4 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference).

10.18		Amendment No. 3 to Sponsored Research Agreement, dated March 29, 2019, by and between Medgenics Medical Israel Ltd. and the Children’s Hospital of Philadelphia (previously filed as Exhibit 10.5 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference).

10.19		Letter Agreement, dated March 29, 2019, by and between the Company and the Children’s Hospital of Philadelphia (previously filed as Exhibit 10.6 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference).

10.20*		Exclusive License Agreement, dated as of July 15, 2019, by and between Aevi Genomic Medicine, Inc. and OSI Pharmaceuticals, LLC (previously filed as Exhibit 10.1 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference).

10.21		Amendment No. 3 to License Agreement, dated as of August 12, 2019, by and between Medgenics Medical Israel Ltd. and The Children's Hospital of Philadelphia (previously filed as Exhibit 10.3 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference).

10.22		Amendment No. 4 to Sponsored Research Agreement, dated as of August 12, 2019, by and between Medgenics Medical Israel Ltd. and The Children's Hospital of Philadelphia (previously filed as Exhibit 10.4 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference).

10.23*		Option and License Agreement, dated as of August 6, 2019, by and between Aevi Genomic Medicine, Inc. and MedImmune Limited (previously filed as Exhibit 10.1 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 and incorporated herein by reference).

10.24*		Royalty Agreement, dated as of July 19, 2019, between and among Aevi Genomic Medicine, Inc., Michael F. Cola 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 (previously filed as Exhibit 10.2 to Aevi’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference).

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

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

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

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

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101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

# Management contract or compensatory agreement.

* Portions of this exhibit have been omitted pursuant to a request for confidential treatment on file with the Securities and Exchange Commission.

+ Filed herewith.

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

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

Cerecor Inc.

Date: May ~~9, 2019~~7, 2020			/s/ ~~Joseph M. Miller~~Christopher Sullivan
			~~Joseph M. Miller~~Christopher Sullivan
			Interim Chief Financial Officer
			(on behalf of the registrant and as the registrant’s principal ~~executive officer, principal~~ financial officer and principal accounting officer)

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Three Months Ended March 31, 2019:
Balance, December 31, 2018	40,804,189	$	40,804	2,857,143	$	2,857	$	119,082,157		$	—	$	(98,218,070	)	$	20,907,748
Issuance of shares of common stock in underwritten public offering, net of offering costs	1,818,182	1,818		—	—		8,974,142			—					8,975,960
Exercise of stock options and warrants	31,288	31		—	—		94,146			—					94,177
Stock-based compensation	—	—		—	—		596,693			—		—			596,693
Restricted Stock Units vested during period	100,000	101		—	—		(101		)	—		—			—
Net loss	—	—		—	—		—			—		(7,454,048		)	(7,454,048		)
Balance, March 31, 2019	42,753,659	$	42,754	2,857,143	$	2,857	$	128,747,037		$	—	$	(105,672,118	)	$	23,120,530





	At February 16, 2018 (preliminary)			Measurement Period Adjustments			At February 16, 2018 (as adjusted)

Inventory	$	2,549,000		$	(1,831,000	)	$	718,000
Prepaid assets	—			570,000			570,000
Intangible assets	16,453,000			1,838,000			18,291,000
Accrued expenses	—			(362,000		)	(362,000		)
Fair value of debt assumed	(15,272,303		)	197,303			(15,075,000		)
Fair value of contingent consideration	(7,875,165		)	(44,835		)	(7,920,000		)
Total net liabilities assumed	(4,145,468		)	367,468			(3,778,000		)
Consideration exchanged	241,000			(240,999		)	1
Goodwill	$	4,386,468		$	(608,467	)	$	3,778,001





	At November 17, 2017 (preliminary)		Measurement Period Adjustments			At November 17, 2017 (as adjusted)

Cash	$	18,900,000	$	—		$	18,900,000
Common stock (including contingently issuable shares)	8,514,419		—			8,514,419
Contingent payments	2,576,633		(1,210,000		)	1,366,633
Total consideration transferred	$	29,991,052	(1,210,000		)	28,781,052





	Q2 2019 - Q4 2019*		2020*	2021	2022	Total*

Minimum Purchase Obligations	$	942,994	1,265,378	—	—	$	2,208,372
Minimum Royalties	2,250,000		3,000,000	—	—	5,250,000
Total	$	3,192,994	4,265,378	—	—	$	7,458,372