Quarterly report pursuant to Section 13 or 15(d)

Net Loss Per Share

Net Loss Per Share

6 Months Ended

Jun. 30, 2020

The Company computes earnings per 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 December 2018, upon Armistice exercising 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 into shares of common stock on a 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 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; (ii) common stock to be issued upon the assumed conversion of the Company's unit purchase option (the "UPO") shares issued in 2015 to the underwriters of the Company's initial public offering ("IPO"), which are included under the "if-converted method" when dilutive; and (iii) common stock to be issued upon the exercise of outstanding warrants, which are included under the "treasury stock method" when dilutive. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses. In 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) income per share of common stock and preferred stock for the three and six months ended June 30, 2020 and 2019, which includes both classes of participating securities:


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


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


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


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

The following outstanding securities have been excluded from the computation of diluted weighted shares outstanding for the three months ended June 30, 2020 and 2019, as they could have been anti-dilutive:


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