Table of Contents



 
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 June 30, 2019
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 ¨
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 August 5, 2019, the registrant had 42,906,744 shares of common stock outstanding.
 



Table of Contents


CERECOR INC.
 
FORM 10-Q
 
For the Quarter Ended June 30, 2019
 
TABLE OF CONTENTS 

 
 
 
 
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
a)
 
 
 
 
 
 
 
 
 
b)
 
 
 
 
 
 
 
 
 
c)
 
 
 
 
 
 
 
 
 
d)
 
 
 
 
 
 
 
 
 
e)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements.
CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets
 
 
 
June 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Assets
 
    
 
    
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
9,386,865

 
$
10,646,301

Accounts receivable, net
 
2,860,288

 
3,157,555

Other receivables
 
143,011

 
5,469,011

Inventory, net
 
617,609

 
1,110,780

Prepaid expenses and other current assets
 
865,062

 
1,529,516

Restricted cash, current portion
 
26,265

 
18,730

Total current assets
 
13,899,100

 
21,931,893

Property and equipment, net
 
1,525,846

 
586,512

Intangible assets, net
 
27,632,653

 
31,239,468

Goodwill
 
16,411,123

 
16,411,123

Restricted cash, net of current portion
 
152,162

 
81,725

Total assets
 
$
59,620,884

 
$
70,250,721

Liabilities and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
1,445,475

 
$
1,446,141

Accrued expenses and other current liabilities
 
13,347,741

 
19,731,373

Income taxes payable
 
1,392,474

 
2,032,258

Long-term debt, current portion
 
1,050,000

 
1,050,000

Contingent consideration, current portion
 
1,529,386

 
1,956,807

Total current liabilities
 
18,765,076

 
26,216,579

Long-term debt, net of current portion
 
14,279,198

 
14,327,882

Contingent consideration, net of current portion
 
6,329,975

 
7,093,757

Deferred tax liability, net
 
88,108

 
69,238

License obligations
 
1,250,000

 
1,250,000

Other long-term liabilities
 
1,212,268

 
385,517

Total liabilities
 
41,924,625

 
49,342,973

Stockholders’ equity:
 
 
 
 
Common stock—$0.001 par value; 200,000,000 shares authorized at June 30, 2019 and December 31, 2018; 42,898,251 and 40,804,189 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
 
42,898

 
40,804

Preferred stock—$0.001 par value; 5,000,000 shares authorized at June 30, 2019 and December 31, 2018; 2,857,143 shares issued and outstanding at June 30, 2019 and December 31, 2018
 
2,857

 
2,857

Additional paid-in capital
 
129,545,721

 
119,082,157

Accumulated deficit
 
(111,895,217
)
 
(98,218,070
)
Total stockholders’ equity
 
17,696,259

 
20,907,748

Total liabilities and stockholders’ equity
 
$
59,620,884

 
$
70,250,721

 
See accompanying notes to the condensed consolidated financial statements.

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CERECOR INC. and SUBSIDIARIES
 
Condensed Consolidated Statements of Operations (Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
 
Product revenue, net
 
$
4,449,404

 
$
4,710,919

 
$
9,860,847

 
$
8,971,038

Sales force revenue
 

 
74,219

 

 
296,875

Total revenues, net
 
4,449,404

 
4,785,138

 
9,860,847

 
9,267,913

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Cost of product sales
 
(141,822
)
 
1,422,957

 
1,806,070

 
2,286,582

Research and development
 
3,712,596

 
1,082,698

 
7,113,785

 
2,732,475

General and administrative
 
2,382,007

 
3,041,955

 
5,098,990

 
5,949,318

Sales and marketing
 
2,936,851

 
2,042,015

 
6,045,753

 
3,578,378

Amortization expense
 
1,078,847

 
1,233,035

 
2,157,694

 
2,250,444

Impairment of intangible assets
 
1,449,121

 
1,701,875

 
1,449,121

 
1,701,875

Change in fair value of contingent consideration
 
(992,350
)
 
13,239

 
(811,948
)
 
276,008

Total operating expenses
 
10,425,250

 
10,537,774

 
22,859,465

 
18,775,080

Loss from operations
 
(5,975,846
)
 
(5,752,636
)
 
(12,998,618
)
 
(9,507,167
)
Other (expense) income:
 
 
 
 
 
 
 
 
Change in fair value of warrant liability and unit purchase option liability
 
18,910

 
3,918

 
(28,668
)
 
(19,332
)
Other (expense) income, net
 

 

 
(9,400
)
 
18,654

Interest expense, net
 
(199,746
)
 
(242,407
)
 
(407,685
)
 
(342,810
)
Total other expense, net
 
(180,836
)
 
(238,489
)
 
(445,753
)
 
(343,488
)
Net loss before taxes
 
(6,156,682
)
 
(5,991,125
)
 
(13,444,371
)
 
(9,850,655
)
Income tax expense
 
66,417

 
16,351

 
232,776

 
39,664

Net loss
 
$
(6,223,099
)
 
$
(6,007,476
)
 
$
(13,677,147
)
 
$
(9,890,319
)
Net loss per share of common stock, basic and diluted
 
$
(0.11
)
 
$
(0.19
)
 
$
(0.24
)
 
$
(0.31
)
Net loss per share of preferred stock, basic and diluted
 
$
(0.55
)
 
$

 
$
(1.21
)
 
$

 
See accompanying notes to the condensed consolidated unaudited financial statements.



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CERECOR INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
Six Months Ended June 30,
 
 
2019
 
2018
Operating activities
 
    
 
    
Net loss
 
$
(13,677,147
)
 
$
(9,890,319
)
Adjustments to reconcile net loss provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
2,203,423

 
2,262,570

Impairment of intangible assets
 
1,449,121

 
1,701,875

Stock-based compensation
 
1,123,402

 
851,255

Deferred taxes
 
18,870

 
23,764

Amortization of inventory fair value associated with acquisition of TRx and Avadel's pediatric products
 
40,240

 
177,238

Non-cash interest expense
 

 
351,566

Change in fair value of warrant liability and unit purchase option liability
 
28,668

 
19,333

Change in fair value of contingent consideration
 
(811,948
)
 
276,008

Changes in assets and liabilities:
 
 
 
 
Accounts receivable, net
 
297,267

 
(373,299
)
Other receivables
 
5,326,000

 
339,221

Inventory, net
 
452,931

 
(617,619
)
Prepaid expenses and other assets
 
664,454

 
318,771

Escrowed cash receivable
 

 
(5,287
)
Accounts payable
 
(666
)
 
1,640,959

Income taxes payable
 
(639,784
)
 
(88,100
)
Accrued expenses and other liabilities
 
(6,313,686
)
 
2,397,968

Net cash used in operating activities
 
(9,838,855
)
 
(614,096
)
Investing activities
 
 
 
 
Acquisition of business
 

 
(1
)
Purchase of property and equipment
 
(256,926
)
 
(25,931
)
Net cash used in investing activities
 
(256,926
)
 
(25,932
)
Financing activities
 
 
 
 
Proceeds from exercise of stock options and warrants
 
256,816

 
390,473

Proceeds from sales of common stock under employee stock purchase plan
 
127,537

 
8,400

Restricted stock units withheld for taxes
 
(18,057
)
 

Proceeds from underwritten public offering, net
 
8,975,960

 

Payment of contingent consideration
 
(379,255
)
 

Payment of long-term debt
 
(48,684
)
 

Net cash provided by financing activities
 
8,914,317

 
398,873

Decrease in cash, cash equivalents and restricted cash
 
(1,181,464
)
 
(241,155
)
Cash, cash equivalents, and restricted cash at beginning of period
 
10,746,756

 
2,605,499

Cash, cash equivalents, and restricted cash at end of period
 
$
9,565,292

 
$
2,364,344

Supplemental disclosures of cash flow information
 
 
 
 
Cash paid for interest
 
$
525,000

 
$

Cash paid for taxes
 
$
852,025

 
$

Supplemental disclosures of non-cash activities
 
 
 
 
Leased asset obtained in exchange for new operating lease liability
 
$
743,025

 
$

Debt assumed in Avadel Pediatric Products acquisition
 
$

 
$
(15,075,000
)
 
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:

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June 30,
 
 
2019
 
2018
 
 
 
 
 
Cash and cash equivalents
 
$
9,386,865

 
$
2,179,775

Restricted cash, current
 
26,265

 
9,527

Restricted cash, non-current
 
152,162

 
175,042

Total cash, cash equivalents and restricted cash
 
$
9,565,292

 
$
2,364,344


See accompanying notes to the condensed consolidated financial statements.


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CERECOR INC. and SUBSIDIARIES

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

 
Common stock
 
Preferred Stock
 
Additional paid‑in
 
Contingently issuable stock
 
Accumulated
Total stockholders’
 
Shares
 
Amount
 
Shares
 
Amount
 
capital
 
Amount
 
deficit
 
equity
Three Months Ended June 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2018
31,410,335

 
$
31,411

 

 
$

 
$
83,944,208

 
$
2,655,464

 
$
(62,048,103
)
 
$
24,582,980

Issuance of contingently issuable shares in acquisition of TRx
2,349,968

 
2,350

 

 

 
2,653,114

 
(2,655,464
)
 

 

Exercise of stock options and warrants
10,383

 
11

 

 

 
27,071

 

 

 
27,082

Shares purchased through employee stock purchase plan
20,000

 
20

 

 

 
8,380

 

 

 
8,400

Stock-based compensation

 

 

 

 
608,431

 

 

 
608,431

Net loss

 

 

 

 

 

 
(6,007,476
)
 
(6,007,476
)
Balance, June 30, 2018
33,790,686

 
$
33,792

 

 
$

 
$
87,241,204

 
$

 
$
(68,055,579
)
 
$
19,219,417


Six Months Ended June 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
31,266,989

 
$
31,268

 

 
$

 
$
83,338,136

 
$
2,655,464

 
$
(58,165,260
)
 
$
27,859,608

Issuance of contingently issuable shares in acquisition of TRx
2,349,968

 
2,350

 

 

 
2,653,114

 
(2,655,464
)
 

 

Exercise of stock options and warrants
153,729

 
154

 

 

 
390,319

 

 

 
390,473

Shares purchased through employee stock purchase plan
20,000

 
20

 

 

 
8,380

 

 

 
8,400

Stock-based compensation

 

 

 

 
851,255

 

 

 
851,255

Net loss

 

 

 

 

 

 
(9,890,319
)
 
(9,890,319
)
Balance, June 30, 2018
33,790,686

 
$
33,792

 

 
$

 
$
87,241,204

 
$

 
$
(68,055,579
)
 
$
19,219,417



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Common stock
 
Preferred Stock
 
Additional paid‑in
 
Contingently issuable stock
 
Accumulated
Total stockholders’
 
Shares
 
Amount
 
Shares
 
Amount
 
capital
 
Amount
 
deficit
 
equity
Three Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2019
42,753,659

 
$
42,754

 
2,857,143

 
$
2,857

 
$
128,747,037

 
$

 
$
(105,672,118
)
 
$
23,120,530

Exercise of stock options and warrants
43,125

 
43

 

 

 
162,596

 

 

 
162,639

Restricted Stock Units vested during period
61,250

 
61

 

 

 
(61
)
 

 

 

Restricted Stock Units withheld for taxes
(3,723
)
 
(4
)
 

 

 
(18,053
)
 

 

 
(18,057
)
Shares purchased through employee stock purchase plan
43,940

 
44

 

 

 
127,493

 

 

 
127,537

Stock-based compensation

 

 

 

 
526,709

 

 

 
526,709

Net loss

 

 

 

 

 

 
(6,223,099
)
 
(6,223,099
)
Balance, June 30, 2019
42,898,251

 
$
42,898

 
2,857,143

 
$
2,857

 
$
129,545,721

 
$

 
$
(111,895,217
)
 
$
17,696,259

Six Months Ended June 30, 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
74,413

 
74

 

 

 
256,742

 

 

 
256,816

Restricted Stock Units vested during period
161,250

 
162

 

 

 
(162
)
 

 

 

Restricted Stock Units withheld for taxes
(3,723
)
 
(4
)
 

 

 
(18,053
)
 

 

 
(18,057
)
Shares purchased through employee stock purchase plan
43,940

 
44

 

 

 
127,493

 

 

 
127,537

Stock-based compensation

 

 

 

 
1,123,402

 

 

 
1,123,402

Net loss

 

 

 

 

 

 
(13,677,147
)
 
(13,677,147
)
Balance, June 30, 2019
42,898,251

 
$
42,898

 
2,857,143

 
$
2,857

 
$
129,545,721

 
$

 
$
(111,895,217
)
 
$
17,696,259


See accompanying notes to the condensed consolidated financial statements.







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CERECOR INC. and SUBSIDIARIES
 
Notes to Unaudited Condensed Consolidated Financial Statements 

 

1. Business

Cerecor Inc. (the Company or “Cerecor”) is a fully integrated biopharmaceutical company with commercial operations and research and development capabilities. The Company is building a pipeline of innovative therapies in orphan diseases, neurology and pediatric healthcare. The Company's pediatric orphan disease pipeline is led by CERC-801, CERC-802 and CERC-803. All three compounds are therapies for inborn errors of metabolism, specifically 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 three CERC-800 compounds, thus qualifying the Company to receive a Priority Review Voucher ("PRV") upon approval of a new drug application ("NDA"). The 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. The Company is also in the process of developing one other preclinical pediatric orphan rare disease compound, CERC-913, for the treatment of mitochondrial DNA Depletion Syndrome. The Company's neurology pipeline is led by CERC-301, a Glutamate NR2B selective, NMDA Receptor antagonist, which Cerecor is currently developing as a novel treatment for orthostatic hypotension ("OH"). The Company is also developing CERC-406, a CNS-targeted COMT inhibitor for Parkinson's Disease.

The Company also has a diverse portfolio 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. The Company also markets a number of prescription drugs that treat a range of pediatric diseases, disorders and conditions. Cerecor's prescription drugs include Millipred®, Karbinal™ ER, AcipHex® Sprinkle™ and Cefaclor for Oral Suspension.

Cerecor was incorporated in 2011 and commenced operations in 2011 and completed an initial public offering in October 2015.

On November 17, 2017, the Company acquired TRx Pharmaceuticals, LLC (“TRx”) and its wholly-owned subsidiaries (see "TRx Acquisition" in Note 5 below for a description of this transaction).

On February 16, 2018, Cerecor acquired all rights to Avadel Pharmaceuticals PLC’s (“Avadel”) marketed pediatric products (the “Acquired Products”) 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, the Company acquired Ichorion Therapeutics, Inc., a privately-held biopharmaceutical company focused on developing treatments and increasing awareness of inherited metabolic disorders known as CDGs (see "Ichorion Asset Acquisition" in Note 5 below for a description of this transaction).

Liquidity

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 and acquisitions or in-licensing of new assets. For the six months ended June 30, 2019, Cerecor generated a net loss of $13.7 million and negative cash flow from operations of $9.8 million.  As of June 30, 2019, Cerecor had an accumulated deficit of $111.9 million and a balance of $9.4 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 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 net proceeds of the offering were approximately $9.0 million (see "Common Stock Offering" in Note 9 below for description of the transaction).

The Company plans to use cash and the anticipated cash flows from the Company's existing product sales to offset costs related to its neurology programs, pediatric rare disease programs, business development, costs associated with its organizational infrastructure, and debt principal and interest payments. 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 ability to achieve and maintain profitability in

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the future is dependent on, among other things, the development, regulatory approval, and commercialization of our new product candidates and achieving a level of revenues from our existing product sales adequate to support our cost structure, which includes significant investment in our 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 and some combination of equity or debt financings, collaborations, out-licensing arrangements, strategic alliances, federal and private grants, marketing, distribution or licensing arrangements or the sale of current or future assets. 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. If the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, the Company may have 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 in excess of what the Company expects our current commercial operations to generate.  However, 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 August 2020.

2. Basis of Presentation and Significant Accounting Policies
 
Basis of Presentation
 
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the Company’s financial position, results of operations, and cash flows. The condensed consolidated balance sheet at December 31, 2018 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, 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 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 $13,239 and $276,008 from other expenses to operating expenses in the three and six months ended June 30, 2018, respectively, on the statement of operations to conform with current period presentation.

Significant Accounting Policies

During the six months ended June 30, 2019, there 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, as filed with the SEC on March 18, 2019 and amended on April 23, 2019, except for the recently adopted accounting standards described below.

The following significant accounting policy was updated in 2019 to reflect changes upon our adoption of ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02").

Leases


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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, which is 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. ROU 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 ROU 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 2016-02, which revises existing practice related to accounting for leases under ASC 840, Leases (“ASC 840”) for both lessees and lessors. The new guidance in ASU 2016-02 requires lessees to recognize a ROU 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 modified retrospective 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, the Company recorded a lease liability of $1.2 million and a ROU asset of $0.7 million, which is equal to the initial measurement 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

SEC Simplification

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 requirements related to the analysis of stockholders' equity are expanded for interim financial statements. An analysis of the changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The Company began providing this disclosure in the first quarter of 2019 within a separate statement.

New 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 and interim periods therein. Early adoption is permitted for annual periods beginning after

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December 15, 2018 and interim periods therein. The Company does not expect that the adoption of this new standard will have a material impact on the Company's disclosures.

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 will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact of the adoption of this standard on its financial statements.

3. Revenue from Contracts with Customers

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

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
Prescribed dietary supplements
 
$
1,800

 
$
1,926

 
$
3,591

 
$
3,670

Prescription drugs
 
$
2,649

 
$
2,785

 
$
6,270

 
$
5,301

Sales force revenue
 

 
74

 

 
297

Total revenue
 
$
4,449

 
$
4,785

 
$
9,861

 
$
9,268


As is typical in the pharmaceutical industry, the Company sells its prescription pharmaceutical products (which include prescribed dietary supplements and prescription 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 directly to retail pharmacies.   For the three months ended June 30, 2019, the Company’s three largest customers accounted for approximately 38%, 27%, and 26% of the Company's total net product revenues from sale of prescription pharmaceutical products. For the six months ended June 30, 2019, the Company's three largest customers accounted for approximately 37%, 30%, and 25% of the Company's total net product revenues from sale of prescription pharmaceutical products.

4. 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 was issued in the fourth quarter of 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 common stock other than being non-voting and convertible to shares of common stock on a 1-to-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. 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, 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) common stock to be issued upon the exercise of outstanding warrants, which are included under the "treasury stock method" when dilutive. Because

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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 and six months ended June 30, 2019 and 2018, which includes both classes of participating securities: 

 
 
Three Months Ended
 
 
June 30,
 
 
2019
 
2018
 
 
Common stock
 
Preferred stock
 
Common stock
 
Preferred stock
Net loss per share, basic and diluted
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
Allocation of undistributed net loss
 
$
(4,665,795
)
 
$
(1,557,304
)
 
$
(6,007,476
)
 
$

Denominator:
 
 
 
 
 
 
 
 
Weighted average shares
 
42,801,045

 
2,857,143

 
32,245,281

 

Basic and diluted net loss per share
 
$
(0.11
)
 
$
(0.55
)
 
$
(0.19
)
 
$

 
 
 
 
 
 
 
 
 


 
 
Six Months Ended
 
 
June 30,
 
 
2019
 
2018
 
 
Common stock
 
Preferred stock
 
Common stock
 
Preferred stock
Net loss per share, basic and diluted
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
Allocation of undistributed net loss
 
$
(10,209,000
)
 
$
(3,468,147
)
 
$
(9,890,319
)
 
$

Denominator:
 
 
 
 
 
 
 
 
Weighted average shares
 
42,052,100

 
2,857,143

 
31,783,875

 

Basic and diluted net loss per share
 
$
(0.24
)
 
$
(1.21
)
 
$
(0.31
)
 
$

 
 
 
 
 
 
 
 
 

The following outstanding securities at June 30, 2019 and 2018 have been excluded from the computation of diluted weighted shares outstanding, as they could have been anti-dilutive: 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
Stock options
 
5,476,547
 
4,104,574
 
5,476,547
 
4,104,574
Warrants on common stock
 
4,024,708
 
18,986,559
 
4,024,708
 
18,986,559
Restricted Stock Units
 
278,750
 
400,000
 
278,750
 
400,000
Underwriters' unit purchase option
 
40,000
 
40,000
 
40,000
 
40,000

5. Acquisitions

Asset Acquisitions

Ichorion Asset Acquisition


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On September 24, 2018, the Company entered into, and subsequently consummated the transactions contemplated by, an agreement and plan of merger (the "Merger Agreement") by and among the Company and Ichorion Therapeutics, Inc., a Delaware corporation (the “Ichorion Asset Acquisition”), with Ichorion surviving as a wholly owned subsidiary of 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 issued as part of the acquisition may not be resold until January 2020. Consideration for the Ichorion Asset Acquisition includes certain development milestones worth up to an additional $15.0 million, payable either in shares of the Company's common stock or in cash, at the election of the Company.

The fair value of the common stock shares transferred at closing was approximately $20.0 million based on the Company's 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. The assets acquired consisted primarily of $18.7 million of IPR&D, $1.6 million of cash and $0.2 million assembled workforce. 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 therapies for inherited metabolic disorders known as CDGs (CERC-801, CERC-802 and CERC-803). The Company has considered these assets similar due to similarities in the risks for development, compound type, stage of development, regulatory pathway, patient population and economics of commercialization.  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. The $0.2 million of transaction costs incurred were recorded to acquired IPR&D expense. The assembled workforce asset recorded to intangible assets will be amortized over an estimated useful life of two years.

The contingent consideration of up to an additional $15.0 million relates to three future development milestones. 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 June 30, 2019, 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, with the remaining purchase price recorded as goodwill. The goodwill recognized was 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:    

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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)
 
 
 
 
 
Acquired Product Marketing Rights - Karbinal
 
$
6,221,000

$
(21,000
)
$
6,200,000

Acquired Product Marketing Rights - AcipHex
 
2,520,000

283,000

2,803,000

Acquired Product Marketing Rights - Cefaclor
 
6,291,000

1,320,000

7,611,000

Acquired Developed Technology - Flexichamber
 
1,131,000

546,000

1,677,000

Acquired IPR&D - LiquiTime formulations
 
290,000

(290,000
)

     Total
 
$
16,453,000

$
1,838,000

$
18,291,000

Subsequent to the finalization of the purchase price allocation related to the acquisition of Avadel's pediatric products, during the second quarter of 2019, the Company made a strategic decision to eliminate sales force efforts related to selling Flexichamber (other than the limited inventory currently on hand). As a result of this decision, paired with significant deviations from forecasted sales, management identified an impairment indicator for Flexichamber during the second quarter of 2019. Accordingly, the Company performed a test for recoverability and concluded that the sum of its estimated future undiscounted cash flows was less than its carrying value of $1.4 million. Management then measured the impairment loss by calculating the excess of Flexichamber's carrying amount over its fair value. Management determined that due to the absence of future material cash flows that the fair value of Flexichamber as of June 30, 2019, which is considered a Level 3 nonrecurring fair value measurement, was $0. Accordingly, a full impairment was recognized in the impairment of intangible asset line for Flexichamber in the amount of $1.4 million for the three and six months ended June 30, 2019. In addition, because the Company expects the sale of remaining inventory on hand will not generate material cash flows, the Company wrote down the existing inventory on hand as of June 30, 2019 to $0, which resulted in $0.2 million charge to cost of product sales during the three and six months ended June 30, 2019.

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, as adjusted for estimated working capital, estimated cash on hand, estimated indebtedness and estimated

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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)
 
 
 
 
 
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
 
$
18,068,000

$
1,528,000

$
19,596,000

The Company received written notice to terminate the Pharmaceutical Associates, Inc. ("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

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that the fair value was $0. An 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 Avadel pediatric products, which was completed on February 16, 2018, had occurred on January 1, 2018:

 
Six Months Ended
 
June 30,
 
2018
 
 
Total revenues, net
$
10,972,913

Net loss
$
(10,935,919
)
     Basic and diluted net loss per share of common stock
$
(0.34
)
     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 condensed 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. Fair Value Measurements
 
ASC No. 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value standard also establishes a three‑level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:
Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.
 
Level 2—inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model‑derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability. 
Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability.
 
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: 
 
 
June 30, 2019
 
 
Fair Value Measurements Using
 
 
Quoted prices in
 
Significant other
 
Significant
 
 
active markets for
 
observable
 
unobservable
 
 
identical assets
 
inputs
 
inputs
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets
 
    
 
    
 
    
Investments in money market funds*
 
$
6,532,339

 
$

 
$

Liabilities
 
 
 
 
 
 
Contingent consideration
 
$

 
$

 
$
7,859,361

Warrant liability**
 
$

 
$

 
$
11,520

Unit purchase option liability**
 
$

 
$

 
$
27,314


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December 31, 2018
 
 
Fair Value Measurements Using
 
 
Quoted prices in
 
Significant other
 
Significant
 
 
active markets for
 
observable
 
unobservable
 
 
identical assets
 
inputs
 
inputs
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets
 
    
 
    
 
    
Investments in money market funds*
 
$
7,324,932

 
$

 
$

Liabilities
 
 
 
 
 
 
Contingent consideration
 
$

 
$

 
$
9,050,564

Warrant liability**
 
$

 
$

 
$
2,950

Unit purchase option liability**
 
$

 
$

 
$
7,216

*Investments in money market funds are reflected in cash and cash equivalents on the accompanying condensed consolidated balance sheets.
**Warrant liability and UPO liability are reflected in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets.

As of June 30, 2019 and December 31, 2018, the 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, the underwriters' UPO liability, and contingent consideration. 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 fair value of the Company’s long-term debt of $14.9 million as of June 30, 2019 was based on current interest rates for similar types of borrowings and is in Level 2 of the fair value hierarchy.

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, UPO liability and contingent consideration for the six months ended June 30, 2019 and 2018:

 
 
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
 

 

 
(379,255
)
 
(379,255
)
Change in fair value due to Lachlan Settlement
 

 

 
(1,277,150
)
 
(1,277,150
)
Other changes in fair value
 
8,570

 
20,098

 
465,202

 
493,870

Balance at June 30, 2019
 
$
11,520

 
$
27,314

 
$
7,859,361

 
$
7,898,195



 
 
Warrant
 
Unit purchase
 
Contingent
 
 
 
 
liability
 
option liability
 
consideration
 
Total
Balance at December 31, 2017
 
$
8,185

 
$
26,991

 
$
2,576,633

 
$
2,611,809

Issuance of contingent consideration
 

 

 
7,920,000

 
7,920,000

Change in fair value
 
6,145

 
13,188

 
276,008

 
295,341

Balance at June 30, 2018
 
$
14,330

 
$
40,179

 
$
10,772,641

 
$
10,827,150


In 2014, the Company issued warrants to purchase 625,208 shares of convertible preferred stock. Upon the closing of our 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,

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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 June 30, 2019, include (i) volatility of 50%, (ii) risk free interest rate of 1.87%, (iii) strike price of $8.40, (iv) fair value of common stock of $5.44, and (v) expected life of 1.3 years.
 
The underwriters’ 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 June 30, 2019, include (i) volatility of 50%, (ii) risk free interest rate of 1.87% , (iii) unit strike price of $7.47, (iv) fair value of underlying equity of $5.44, and (v) expected life of 1.3 years.
 
The Company's business acquisitions of Avadel's pediatric products and TRx (see Note 5) involve 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. 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 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 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 June 30, 2019 was $7.9 million. The significant assumptions used in estimating the fair value of the royalty payment as of June 30, 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 8.11%, which is comprised of the risk-free interest rate of 1.86% and a counterparty risk of 6.25% utilized to discount the expected royalty payments. The liability is reduced by periodic payments.

The consideration for the TRx acquisition 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 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 may have been required to pay the following: (1) $2.0 million upon the transfer of the Ulesfia NDA to the Company ("NDA Transfer Milestone"), and (2) $2.0 million upon FDA approval of a new dosage of Ulesfia ("FDA Approval Milestone"). However, as part of the settlement the Company entered into during the second quarter of 2019 with Lachlan Pharmaceuticals, an Irish company controlled by the previous owners of TRx, among additional terms discussed in Note 13, the Company gave up its right to sell Ulesfia, except for a limited amount of inventory on hand until that inventory is sold or expired. As a result, the 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 two milestones as of June 30, 2019 resulting in the Company recognizing a gain on the change of fair value of contingent consideration of $1.3 million for the three and six months ended June 30, 2019.

No other changes in valuation techniques or inputs occurred during the six months ended June 30, 2019 and 2018. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the six months ended June 30, 2019 and 2018.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of June 30, 2019 and December 31, 2018 consisted of the following: 

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As of
 
 
June 30, 2019
 
December 31, 2018
Sales returns and allowances
 
$
4,579,975

 
$
3,972,510

Medicaid rebates
 
2,658,184

 
2,237,269

Minimum sales commitments, royalties payable, and purchase obligations
 
2,154,613

 
9,662,901

Compensation and benefits
 
1,974,655

 
1,953,065

Research and development expenses
 
1,132,456

 
278,132

Sales and marketing
 
627,025

 
1,112,378

General and administrative
 
182,835

 
235,721

Other
 
37,998

 
279,397

Total accrued expenses and other current liabilities
 
$
13,347,741

 
$
19,731,373


8. Deerfield 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 CSF, (the "Deerfield Obligation"). Beginning in July 2018 through October 2020, the Company is required to pay a quarterly payment of $262,500 to Deerfield. In January 2021, a balloon payment of $15,250,000 is due. The difference between 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 and six months ended June 30, 2019 was $0.2 million and $0.5 million, respectively, and is included in interest expense, net on the accompanying consolidated statement 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 $15.3 million as of June 30, 2019, of which $1.1 million is recorded as a current liability.
    
9. Capital Structure
 
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 June 30, 2019, 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.

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 Armistice in order to generate cash to continue to develop our 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 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, the Company calculated

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the fair value of the incentive warrants of $1.7 million, which was considered a deemed distribution to Armistice for the year ended December 31, 2018.

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

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 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


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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 June 30, 2019, the following common stock warrants were outstanding: 
Number of shares
 
Exercise price
 
Expiration
underlying warrants
 
per share
 
date
22,328*
 
$
8.40

 
October 2020
2,380*
 
$
8.68

 
May 2022
4,000,000
 
$
12.50

 
June 2024
4,024,708
 
 
 
 
*Accounted for as a liability instrument (see Note 6)

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. During the term of the 2016 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 June 30, 2019, there were 934,972 shares available for future issuance under the 2016 Amended Plan.

Option grants expire after ten years. Employee options typically vest over three or four years. Options granted to directors typically vest over three years. Directors may elect to receive stock options in lieu of board compensation, which vest immediately. For

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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 units and ESPP shares. The amount of stock-based compensation expense recognized for the three and six months ended June 30, 2019 and 2018 was as follows: 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019

2018
 
2019

2018
Research and development
 
$
120,709

 
$
20,379

 
$
178,085


$
31,876

General and administrative
 
196,211

 
549,199

 
665,336


756,581

Sales and marketing
 
209,789

 
38,853

 
279,981


62,798

Total stock-based compensation
 
$
526,709

 
$
608,431

 
$
1,123,402


$
851,255

    
In April 2019, the former CEO resigned, however he remains on the Company's board of directors. Subsequent to his resignation, during the second quarter of 2019, the former CEO agreed to forfeit the unvested portion of his equity awards granted to him during his service as CEO. As a result, he forfeited a total of 1,489,583 equity awards, which included 689,583 unvested service-based vesting options, 500,000 unvested market-based options and 300,000 unvested restricted stock units. The Company accounts for forfeitures as they occur. Because the requisite service period of 2.8 years was not rendered for the market-based options, the forfeiture of the market-based options resulted in the reversal in the second quarter of 2019 of the full expense recognized to date of $0.5 million, which was recorded as a reduction to general and administrative expense.

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 six months ended June 30, 2019 is as follows:
 
 
Options Outstanding
 
 
Number of shares
 
Weighted average exercise price per share
 
Weighted average grant date fair value of options
 
Weighted average remaining contractual term (in years)
Balance at December 31, 2018
 
3,746,597

 
$
4.16

 


 
7.8
Granted
 
2,381,627

 
$
5.96

 
$
7,691,720

 

Exercised
 
(74,902
)
 
$
3.44

 
 
 
 
Forfeited
 
(796,063
)
 
$
5.12

 
$
2,325,463

 

Expired
 
(80,712
)
 
$
7.95

 
$
279,812

 
 
Balance at June 30, 2019
 
5,176,547

 
$
4.79

 


 
8.3
Exercisable at June 30, 2019
 
2,321,047

 
$
4.38

 


 
7.0

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. As of June 30, 2019, the aggregate intrinsic value of options outstanding and currently exercisable was $6.3 million and $4.3 million, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2019 was $0.1 million. The total grant date fair value of shares which vested during the six months ended June 30, 2019 was $1.0 million. The per‑share weighted‑average grant date fair value of the options granted during the six months ended June 30, 2019 was estimated at $3.23. There were 480,680 options that vested during the six months ended June 30, 2019 with a weighted average exercise price of $3.49 per share.

The Company recognized stock-based compensation expense of $0.6 million and $0.9 million related to stock options with service-based vesting conditions for the three and six months ended June 30, 2019, respectively. At June 30, 2019, there was $7.5 million of total unrecognized compensation cost related to unvested service-based vesting condition awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 3.3 years.
Stock options with market-based vesting conditions

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The Company has granted awards that contain market-based vesting conditions. The following table summarizes the Company's market-based option activity for the six months ended June 30, 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, 2018
 
500,000

 
$
4.24

 
9.2
 
 
Granted
 
300,000

 
$
4.98

 
 
 
 
Exercised
 

 
 
 
 
 
 
Forfeited
 
(500,000
)
 
$
4.24

 
 
 
 
Balance at June 30, 2019
 
300,000

 
$
4.98

 
9.9
 
$
138,000

Exercisable at June 30, 2019
 

 
 
 
 
 
 
(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.
 
During the second quarter of 2019, the Company granted the Executive Chairman of the Board an option to purchase 300,000 shares of Company common stock with market-based vesting conditions at an exercise price of $4.98 per share. One-third of the shares vest upon the Company's common stock closing at or above $8.00 per share for three consecutive days, one-third of the shares vest upon the Company's stock closing at or above $10.50 per share for three consecutive days, and one-third of the shares vest upon the Company's stock closing at or above $13.00 per share for three consecutive days. Each vesting tranche represents a unique requisite service period and therefore the compensation cost for each vesting tranche is recognized on a straight-line basis over its respective vesting period.

The Company recognized stock-based compensation expense of $(0.4) million and $(0.3) million for the three and six months ended June 30, 2019, which includes the reversal of expense for the former CEO's forfeited options and the expense related to the market-based options granted during the quarter. At June 30, 2019, there was $1.0 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 2.5 years.

Stock-based compensation assumptions

The following table shows the assumptions used to compute stock-based compensation expense for stock options granted to employees and members of the board of directors under the Black-Scholes valuation model and the assumptions used to compute stock-based compensation expense for market-based stock options grants under a Monte Carlo simulation for the six months ended June 30, 2019:
 
Service-based options
 
 
Expected dividend yield
 
—%
Expected volatility
 
55%
Expected life (in years)
 
5.0 - 6.25
Risk-free interest rate
 
1.76 - 2.59%
 
 
Market-based options
 
 
Expected dividend yield
 
—%
Expected volatility
 
60%
Expected life (in years)
 
10
Risk-free interest rate
 
2.32%
    

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Restricted Stock Units

The Company has granted restricted stock units ("RSU") to certain employees. The Company measures the fair value of the restricted awards using the stock price on the date of the grant. The restricted shares typically vest annually over a four-year period beginning on the first anniversary of the award. The following table summarizes the Company's RSU activity for six months ended June 30, 2019:
 
 
RSUs Outstanding
 
 
Number of shares
 
Weighted average grant date fair value
Unvested RSUs at December 31, 2018
 
445,000

 
$
4.27

Granted
 
295,000

 
$
4.98

Vested
 
(161,250
)
 
$
4.49

Forfeited
 
(300,000
)
 
$
4.24

Unvested RSUs at June 30, 2019
 
278,750