Annual report pursuant to Section 13 and 15(d)

Net Loss Per Share

Net Loss Per Share

12 Months Ended

Dec. 31, 2020

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 December 2018, upon Armistice exercising warrants to acquire an aggregate of 2,857,143 shares of the Company’s Series B Convertible Preferred Stock. Such convertible preferred stock has the same rights and preferences

as the Company’s common stock, other than being non-voting, and is convertible into shares of common stock on a 1-for-5 ratio. During the first quarter of 2020, Armistice converted 1.6 million shares of Series B Convertible Preferred Stock into 8.0 million shares of Cerecor's common stock. Under the two-class method, the convertible preferred stock is considered a separate class of stock for EPS purposes and therefore basic and diluted EPS is provided below for both common stock and preferred stock.

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

Diluted net (loss) income per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. Common stock equivalents include: (i) outstanding stock options and restricted stock units, which are included under the “treasury stock method” when dilutive; 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 per share of common stock for continuing and discontinued operations for the years ended December 31, 2020 and 2019, which includes both classes of participating securities:


	Year Ended
	December 31, 2020
	Common stock				Preferred Stock
	Continuing Operations		Discontinued Operations		Continuing Operations		Discontinued Operations
Numerator:
Allocation of undistributed net (loss) income	$	(58,439,575)	$	802,188	$	(5,943,976)	$	81,591
Denominator:
Weighted average shares	66,688,464		66,688,464		1,356,597		1,356,597
Basic and diluted net (loss) income per share	$	(0.87)	$	0.01	$	(4.38)	$	0.06


	Year Ended
	December 31, 2019
	Common stock				Preferred Stock
	Continuing Operations		Discontinued Operations		Continuing Operations		Discontinued Operations
Numerator:
Allocation of undistributed net (loss) income	$	(12,204,552)	$	148,673	$	(4,066,201)	$	49,533
Denominator:
Weighted average shares	42,878,040		42,878,040		2,857,143		2,857,143
Basic and diluted net (loss) income per share	$	(0.28)	$	0.00	$	(1.42)	$	0.01

The following outstanding securities at December 31, 2020 and 2019 have been excluded from the computation of diluted weighted shares outstanding, as they could have been anti-dilutive:


	December 31,
	2020	2019
Stock options	9,830,674	4,480,606
Warrants on common stock	4,002,380	4,024,708
Restricted Stock Units	155,833	267,500
Underwriters' unit purchase option	—	40,000