Annual report pursuant to Section 13 and 15(d)

Acquisition

Acquisition

12 Months Ended

Dec. 31, 2017

On November 17, 2017, Cerecor Inc. (the “Company”) entered into, and consummated the transactions contemplated by, an Equity Interest Purchase Agreement (the “Purchase Agreement”) by and among the Company, TRx Pharmaceuticals, LLC, a North Carolina limited liability company (“TRx”), Fremantle Corporation and LRS International LLC, the selling members of TRx (collectively, the “Sellers”) which agreement provided for the purchase of all of the equity and ownership interests of TRx by the Company. The consideration for the acquisition consists of $18.9 million in cash, 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 and certain Contingent Payments, if any become payable. Upon closing, the Company issued 5,184,920 shares of our common stock. Pursuant to the Purchase Agreement, the issuance of the remaining 2,349,968 shares as a part of the Equity Consideration is subject to stockholder approval and entirely contingent upon gaining such stockholder approval. These shares have been recorded within stockholder's equity on the consolidating balance sheet date. As a result of the TRx acquisition, the Company recorded goodwill of $14.3 million, of which $9.2 million was deducible for income taxes.

The acquisition-date fair value of the consideration transferred is as follows:



	At
	November 17,
	2017

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

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, with the remaining purchase price recorded as goodwill. The goodwill recognized is attributable primarily to strategic opportunities related to leveraging TRx’s R&D, intellectual property, and processes.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition:



	At
	November 17,
	2017
Fair value of assets acquired:
Current assets:
Cash and cash equivalents	$	11,068
Accounts receivable, net	2,872,545
Inventory	495,777
Prepaid expenses and other current assets	134,281
Identifiable intangible assets
Acquired product marketing rights - Metafolin	10,465,000
PAI sales and marketing agreement	2,334,000
Acquired product marketing rights - Millipred	4,714,000
Acquired product marketing rights - Ulesfia	555,000
Total assets acquired	21,581,671

Fair value of liabilities assumed:
Accounts payable	192,706
Accrued expenses and other current liabilities	4,850,422
Deferred tax liability	839,773
Total liabilities assumed	5,882,901
Total identifiable net assets	15,698,770
Fair value of consideration transferred	29,991,052
Goodwill	$	14,292,282

Based on valuation estimates utilizing the income approach, a step-up in the value of inventory of $0.2 million was recorded in the opening balance sheet, of which approximately $138,000 was charged to cost of goods sold during the post-acquisition period, November 18, 2017 through December 31, 2017.

The purchase price allocation has been prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the November 17, 2017 acquisition date.

The intangible assets acquired included a sales and marketing agreement with an estimated useful life of two years; and the product marketing rights to Metafolin, Millipred, and Ulesfia, which are estimated to have useful lives of fifteen, four, and three years, respectively. The fair values of intangible assets, including product marketing rights, 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 preliminary fair value of intangible assets includes the following:



	At
	November 17, 2017

Acquired product marketing rights - Metafolin	$	10,465,000
PAI Sales & Marketing Agreement	2,334,000
Acquired product marketing rights - Millipred	4,714,000
Acquired product marketing rights - Ulesfia	555,000
Fair value of identified intangible assets	$	18,068,000

Pro Forma Impact of Business Combinations

The following supplemental unaudited pro forma information presents Cerecor's financial results as if the acquisition of TRx had occurred on January 1, 2016:



	Years Ended December 31,
	2017		2016

Total revenues, net	$	43,602,212	$	19,586,923
Net income	$	14,564,584	$	(19,499,137	)