Net Loss Per Share
|3 Months Ended|
Mar. 31, 2021
|Earnings Per Share [Abstract]|
|Net Loss Per Share||Net Loss Per Share
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 outstanding as of March 31, 2021 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. 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. In April 2021, Armistice Capital Master Fund Ltd. (an affiliate of Armistice Capital, LLC and collectively “Armistice”), which is a significant
stockholder of the Company and whose chief investment officer, Steven Boyd, currently serves on the Board, converted the remaining 1,257,143 shares of convertible preferred stock into 6,285,715 shares of Cerecor’s common stock. Refer to Note 9 for more information.
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. The weighted average number of common shares outstanding as of March 31, 2021 includes the weighted average effect of the pre-funded warrants issued in connection with the January 2021 underwritten public offering, the exercise of which requires nominal consideration for the delivery of the shares of common stock (refer to Note 9 for more information).
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; and (ii) 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 months ended March 31, 2021 and 2020 (in thousands, except share and per share amounts):
The following outstanding securities have been excluded from the computation of diluted weighted shares outstanding for the three months ended March 31, 2021 and 2020, as they could have been anti-dilutive:
The entire disclosure for earnings per share.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef