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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2014.

Or

For the transition period from                    to                    .

Commission File Number 000-51171

EPIRUS BIOPHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

(617) 600-4313

(Registrant’s telephone number, including area code)

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  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

Number of shares of the registrant’s Common Stock, $0.001 par value per share, outstanding as of November 7, 2014: 12,934,102 shares

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EPIRUS BIOPHARMACEUTICALS, INC.
QUARTERLY REPORT
ON FORM 10-Q

INDEX

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes statements with respect to EPIRUS Biopharmaceuticals, Inc. and its subsidiaries (“Epirus”, “we”, “our,” “us” or the “Company”), which constitute “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will result,” “seek,” “could,” “may,” “might,” or any variations of such words or other words with similar meanings are intended to identify such forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements regarding our future expectations; statements concerning product candidate development (including clinical and preclinical development), manufacturing and commercialization plans and timelines and related regulatory matters; any projections of financing needs, revenue, expenses, earnings or losses from operations, or other financial items; statements of the plans, strategies and objectives of management for future operations; any statements regarding safety and efficacy of product candidates; statements regarding our plans for partnerships, collaborations or other strategic transactions; any statements of expectation or belief; and any statements regarding other matters that involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to differ materially from results expressed in or implied by this Quarterly Report on Form 10-Q.

The risks, uncertainties and assumptions referred to above include risks that are described in Part II, Item 1A of this Quarterly Report on Form 10-Q in the section entitled “Risk Factors.” You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We specifically disclaim any obligation to update these forward-looking statements in the future, except as required by law.

PRESENTATION FOR REVERSE STOCK SPLIT

On July 15, 2014, our board of directors unanimously approved a 1-for-10 reverse stock split of our common stock, which we effected on July 16, 2014. All share and per share amounts of the Company’s common stock, stock options and warrants in this Quarterly Report on Form 10-Q, including those amounts included in the accompanying condensed consolidated financial statements, have been restated for all periods to give retroactive effect to the July 16, 2014 reverse stock split. The common stock, preferred stock, stock options and warrants of Private Epirus (as defined below), did not undergo any stock split and therefore such share amounts of such company were not restated for the reverse stock split.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(In thousands, except share and per share amounts)

See accompanying notes to condensed consolidated financial statements.

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EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(In thousands, except share and per share amounts)

See accompanying notes to condensed consolidated financial statements

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EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

(In thousands, except share amounts)

See Note 5 for information on the reverse merger and the merger exchange ratio, by which all historical

common stock share and per share amounts have been adjusted.

See accompanying notes to condensed consolidated financial statements

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EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

See accompanying notes to condensed consolidated financial statements

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EPIRUS Biopharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2014

(unaudited)

(In thousands, except share and per share amounts)

1.                                      Organization

On July 15, 2014 EPIRUS Biopharmaceuticals, Inc., a Delaware corporation and private company (“Private Epirus”), completed its merger with EB Sub, Inc., a wholly-owned subsidiary of Zalicus Inc., a Delaware corporation (“Zalicus”), pursuant to the terms of that certain Agreement and Plan of Merger and Reorganization (as amended, the “Merger Agreement”), dated as of April 15, 2014, by and among Private Epirus, Zalicus and EB Sub, Inc., formerly known as BRunning, Inc. (the “Merger”). As part of the Merger, Zalicus was renamed EPIRUS Biopharmaceuticals, Inc. (“Public Epirus”) and Private Epirus was renamed EB Sub, Inc. (“EB Sub”).  The boards of directors of Private Epirus and Zalicus approved the Merger on April 15, 2014, and the stockholders of Private Epirus and Zalicus approved the Merger and related matters on July 15, 2014. Following completion of the Merger, Private Epirus, now known as EB Sub, Inc., is the surviving corporation of the Merger and a wholly-owned subsidiary of Public Epirus.

The term “Company” as used in these notes to condensed consolidated financial statements refers to Private Epirus prior to the completion of the Merger and Public Epirus subsequent to the completion of the Merger.

Prior to the Merger, Zalicus was a biopharmaceutical company developing drug candidates with a focus on the treatment of pain. Following the Merger, Public Epirus became a commercial-stage biotechnology company focused on improving patient access to important biopharmaceuticals by developing, manufacturing, and commercializing biosimilar therapeutics, or biosimilars, in targeted geographies worldwide. The Company has a principal place of business in Boston, Massachusetts. To date, the Company has devoted substantially all of its resources to the development of its drug discovery technologies and the research and development of its drug candidates, including conducting preclinical and clinical trials. The Company focuses on the development of biosimilar monoclonal antibodies (MAbs) for markets outside of North America and Japan. The Company’s lead product candidate is BOW015, a biosimilar version of Remicade (infliximab). Remicade, marketed by Johnson & Johnson, Merck Schering and Mitsubishi Tanabe for the treatment of various inflammatory diseases, achieved approximately $8.4 billion in global sales in 2013. In March 2014, the Company’s manufacturing partner, Reliance Life Sciences Pvt Ltd, or RLS, obtained marketing approval and in July 2014, received manufacturing approval in India for BOW015 as a treatment for rheumatoid arthritis. In July 2014, the Company received product label approval by the Drug Controller General of India. The Company has reported positive bioequivalence and efficacy data in the clinical development program for BOW015, including a Phase 1 clinical trial in the United Kingdom and in an interim analysis for a Phase 3 clinical trial in India, in each case showing equivalence with Remicade. The Company’s pipeline of biosimilar product candidates also includes BOW050, a biosimilar version of Humira (adalimumab), which is marketed by AbbVie and used to treat inflammatory diseases, and BOW030, a biosimilar version of Avastin (bevacizumab), which is marketed by Genentech/Roche and used to treat a variety of cancers and two additional undisclosed preclinical assets. Both BOW050 and BOW030 are in preclinical development. Collectively, Remicade, Humira and Avastin generated $26.2 billion in global sales in 2013 according to EvaluatePharma. In August 2013, the Company transferred all of its intellectual property to its subsidiary, Epirus Switzerland GmbH, a Swiss corporation.

2.                                      Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2014. For further information, refer to the consolidated financial statements and footnotes included in the Company’s annual consolidated financial statements for the year ended December 31, 2013, which are included in Public Epirus’ Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on July 15, 2014.

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Merger and Exchange Ratio

The Merger has been accounted for as a “reverse merger” under the acquisition method of accounting for business combinations with Private Epirus treated as the accounting acquirer of Zalicus. The historical financial statements of Private Epirus have become the historical financial statements of Public Epirus, or the combined company, and are included in this filing labeled EPIRUS Biopharmaceuticals, Inc. As a result of the Merger, historical common stock, stock options and additional paid-in capital, including share and per share amounts, have been retroactively adjusted to reflect the equity structure of Public Epirus, including the effect of the Merger exchange ratio and the Public Epirus common stock par value of $0.001 per share. See Note 5, “Merger,” for additional discussion of the Merger and the exchange ratio.

Reverse Stock Split

On July 16, 2014, Public Epirus effected a 1-for-10 reverse stock split of its outstanding common stock, par value $0.001 per share (“Public Epirus Common Stock”) (the “Reverse Stock Split”). The accompanying condensed consolidated financial statements and notes to the condensed consolidated financial statements, including the Merger exchange ratio (Note 5) applied to historical Private Epirus common stock and stock options, give retroactive effect to the Reverse Stock Split for all periods presented. The shares of Public Epirus Common Stock retained a par value of $0.001 per share.

3.                                      Summary of Significant Accounting Policies

In the nine months ended September 30, 2014, there were no changes to the Company’s significant accounting policies identified in the Company’s most recent annual consolidated financial statements for the fiscal year ended December 31, 2013, which are included in Public Epirus’ Current Report on Form 8-K filed with the SEC on July 15, 2014, except as described below:

Revenue Recognition

Multiple-Element Arrangements

Under the authoritative guidance for revenue recognition related to multiple-element revenue arrangements, each deliverable within a multiple-element revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company’s control. The Company considers a deliverable to have standalone value if the Company sells this item separately or if the item is sold by another vendor or could be resold by the customer. Deliverables not meeting the criteria for being a separate unit of accounting are accounted for on a combined basis.

In the event the Company enters into a contract in which the deliverables are required to be separated, the Company will allocate arrangement consideration to each deliverable in an arrangement based on its relative selling price. The Company determines selling price using vendor-specific objective evidence (“VSOE”), if it exists; otherwise, the Company uses third-party evidence (“TPE”). If neither VSOE nor TPE of selling price exists for a deliverable, the Company uses estimated selling price (“ESP”) to allocate the arrangement consideration. The Company applies appropriate revenue recognition guidance to each unit of accounting.

Milestones

Contingent consideration from research and development activities that is earned upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. At the inception of each arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive. This evaluation includes an assessment of whether: (a) the consideration is commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment.

In-process Research & Development

In-process research & development (“IPR&D”) represents the fair value assigned to research and development assets that were not fully developed at the date of acquisition. IPR&D acquired in a business combination or recognized from the application of push-down accounting is capitalized on the Company’s consolidated balance sheet at its acquisition-date fair value. Until the project is completed, the assets are accounted for as indefinite-lived intangible assets and subject to impairment testing. Upon completion of a project, the carrying value of the related IPR&D is reclassified to intangible assets and is amortized over the estimated useful life of the asset.

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When performing the impairment assessment, the Company first assesses qualitative factors to determine whether it is necessary to recalculate the fair value of its acquired IPR&D. If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of acquired IPR&D is less than its carrying amount, it calculates the asset’s fair value. If the carrying value of the Company’s acquired IPR&D exceeds its fair value, then the intangible asset is written down to its fair value. For the nine months ended September 30, 2014, the Company determined that there was no impairment of its IPR&D.

Intangible Assets

The Company amortizes its intangible assets using the straight-line method over its estimated economic life, which is approximately 16.5 years. The Company evaluates the potential impairment of its other intangible assets if events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful life of the assets is no longer appropriate. The impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset group and its eventual disposition to the carrying value of the asset group. If impairment is indicated, the assets are written down by the amount by which the carrying value of the assets exceeds the related fair value of the assets. Any write-downs are treated as permanent reductions in the carrying value of the assets.

Recent Accounting Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and creates a new Topic 606, Revenue from Contracts with Customers. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption not permitted. Two adoption methods are permitted: retrospectively to all prior reporting periods presented, with certain practical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU recognized at the date of initial application. The Company has not yet determined which adoption method it will utilize or the effect that the adoption of this guidance will have on its consolidated financial statements.

Discontinued Operations and Disposals

In April 2014, the FASB issued ASU No. 2014-8, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-8”). ASU 2014-8 changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has a major effect on an entity’s operations and financial results. This accounting guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale. The guidance is effective for fiscal years beginning after December 15, 2014.

Development Stage Entity

In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation (“ASU 2014-10”). ASU 2014-10 removes all incremental financial reporting requirements from GAAP for development stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification (“ASC”). In addition, the update adds an example disclosure in Risks and Uncertainties, ASC Topic 275, to illustrate one way that an entity that has not begun planned principal operations could provide information about the risks and uncertainties related to the company’s current activities and removes an exception provided to development stage entities in Consolidations, ASC Topic 810, for determining whether an entity is a variable interest entity—which may change the consolidation analysis, consolidation decision, and disclosure requirements for a company that has an interest in a company in the development stage. ASU 2014-10 is effective for fiscal years beginning after December 15, 2014 with the revised consolidation standards effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company early adopted the guidance and eliminated the presentation and disclosure requirements of ASC Topic 915 during the three months ending June 30, 2014.

4.                                      Business Agreements

Ranbaxy Laboratories

In January 2014, the Company and Ranbaxy Laboratories Limited (“Ranbaxy”) executed a royalty-bearing and non-transferrable license agreement (“License Agreement”) for BOW015 to Ranbaxy for a broad range of territories including India, selected Southeast Asian markets and North Africa. Under the terms of the agreement, the Company and Ranbaxy will pursue the commercialization of BOW015 in India and Ranbaxy received the right to sell BOW015 in the territories specified in the agreement. Ranbaxy does not have the right to manufacture BOW015.

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Ranbaxy made an upfront payment of $500 upon the execution of the agreement and is obligated to pay the Company up to $1,000 if certain development and regulatory approval milestones are achieved and up to $10,000 if certain sales milestones are achieved. Additionally, the Company is entitled to receive royalties in the mid-teens on net sales in the territories, which royalties are subject to reduction or renegotiation in certain limited circumstances. Half of the upfront payment and certain development and regulatory milestones may be refundable to Ranbaxy in certain circumstances if the Company does not complete certain specified requirements.

Unless terminated earlier in accordance with the terms of the agreement, the license agreement with Ranbaxy expires 20 years following the first commercial sale in the territories.

Under the agreement, Ranbaxy is responsible for all activities related to the commercialization of BOW015 in the territories. The Company is responsible for performing the development activities required for obtaining regulatory approval in India, joint steering committee participation and clinical and commercial supply of product. The Company also agreed to perform the development activities required to obtain regulatory approval in other parts of the territories. These activities and the related fees will be agreed upon by Ranbaxy and the Company in future written agreements.

The Company has determined that the deliverables under the Ranbaxy agreement are the license, development activities related to regulatory approval in India, joint steering committee services and the obligation to supply clinical and commercial product. The Company’s obligation to perform future development activities to obtain regulatory approval in other parts of the territories is not a deliverable at the inception of the agreement as the Company will be compensated separately for these activities, and it is uncertain at this time if the Company will ever be requested to perform these activities by Ranbaxy.

The Company determined that, the license and the other activities and services do not have standalone value apart from the requirement for the Company to deliver commercial material. Ranbaxy has not been granted a license to manufacture BOW015, which prevents them from using the license and related services for their intended purpose without the involvement of the Company. Therefore, the deliverables are not separable and represent one single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, the Company bases its revenue recognition pattern on the last to be provided deliverable. As a result, no revenue will be recognized until delivery of the commercial supply begins. All amounts received from Ranbaxy have been recorded as deferred revenue as of September 30, 2014. Once such delivery begins, the deferred revenue amounts will be recognized as revenue over the remaining term of the Supply Agreement.

The arrangement includes the delivery of commercial material and therefore does not qualify for the milestone method of revenue recognition as the agreement is not a research and development arrangement. As a result, upon achievement of a milestone, the amounts will be included in the total arrangement consideration. In January 2014, the Company invoiced Ranbaxy $125 related to the filing for approval in India. In March 2014, the Drug Controller General in India approved BOW015 for commercial sale to the Indian market, upon which a payment from Ranbaxy of $250 became due and payable and was invoiced in April 2014. In September 2014, the Company executed a supply agreement with Ranbaxy, upon which an additional milestone payment of $125 became due. The Company has invoiced Ranbaxy for a total of $1,000, including the upfront payment, and received payments related to the agreement totaling $1,000 during the nine months ended September 30, 2014.

On September 9, 2014, the Company entered into an amendment (the “Amendment”) to the License Agreement. The Amendment amended the License Agreement to revise (i) the royalty tiers for net sales based on final product sale forecasts and supply costs in the territory, and (ii) Ranbaxy’s obligations with respect to minimum annual sales targets in any given country such that the obligations are subject to a final grant of approval for BOW015 by the applicable regulatory authority for all indications as have been granted for the innovator product in such country. Other than as set forth in the Amendment, the License Agreement remains in full force and effect following the parties’ execution of the Amendment.

In September 2014, the Company and Ranbaxy entered into a supply agreement for BOW015 under which Epirus, through its third party manufacturing supplier, will provide Ranbaxy with finished products for clinical use, regulatory use and commercialization in accordance with the License Agreement. Under the terms of the supply agreement, the Company’s designated manufacturer will receive consideration from Ranbaxy for commercial finished product. Unless terminated earlier in accordance with terms, the Company’s supply agreement with Ranbaxy expires 10 years from the effective date, subject to five two-year automatic renewal periods.

Orygen Biotechnology

In September 2013, the Company entered into a binding Heads of Agreement (“Orygen Heads of Agreement”) with Orygen Biotechnology (“Orygen”), a Brazilian corporation, for the negotiation of the terms of a definitive agreement under which Orygen would be granted exclusive rights to commercialize BOW015 in Brazil. As consideration for entry into the Orygen Heads of Agreement, and the rights to be granted under the definitive agreement, the Company received a non-creditable, non-refundable initial upfront cash payment of $250 from Orygen.

The Orygen Heads of Agreement, as extended by the parties, was terminated on May 19, 2014. The Company recognized the $250 upfront cash payment as other income in the condensed consolidated statement of operations and comprehensive loss in the nine months ended September 30, 2014.

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Livzon Mabpharm

In September 2014, the Company entered into an Exclusive License and Collaboration Agreement (the “Agreement”) with Livzon Mabpharm Inc. (“Livzon”) for the global development and commercialization of certain antibodies or related biological compounds, including the Company’s BOW015, a biosimilar version of infliximab.

Under the Agreement, the Company and Livzon each granted the other party, in the other party’s territory, exclusive, royalty-bearing licenses under certain patent rights and know-how to develop, manufacture and commercialize BOW015 and up to four additional compounds chosen by mutual agreement of the parties (collectively, the “Collaboration Compounds”). Livzon’s territory consists of China, Hong Kong, Macau and Taiwan (the “Livzon Territory”), and the Company’s territory consists of the rest of the world.  The parties share pre-clinical development expenses for each Collaboration Compound based on certain factors specific to each compound. Each party bears the responsibility and expenses for clinical development and commercialization of each Collaboration Compound in its territory. Livzon will be the preferred supplier of each Collaboration Compound for pre-clinical, clinical, and commercialization purposes, subject to Livzon’s satisfaction of certain performance criteria.

As consideration for the license granted to Livzon to develop and commercialize BOW015, the Company is eligible to receive from Livzon a milestone payment of $2,500 upon the achievement of a specified regulatory milestone in the Livzon Territory. The Company is also eligible to receive from Livzon tiered royalties based on a percentage of net sales of BOW015 products in the Livzon Territory ranging from the low- to high-single digits. Any future Collaboration Compounds have cross-milestone and royalty obligations in amounts to be mutually agreed upon at a later date.

If not terminated earlier or extended by mutual agreement of the parties, the Agreement expires in its entirety 20 years from the effective date.

Moksha8 Pharmaceuticals

In September 2014, the Company entered into an amendment (the “Amendment”) to that certain Revenue and Negotiation Rights Agreement between the Company and Moksha8 Pharmaceuticals, Inc. (“Moksha8”), dated as of December 31, 2010 (the “Moksha8 Revenue Agreement”). Under the terms of the Moksha8 Revenue Agreement, the Company was required to pay to Moksha8 royalties based on nets sales of BOW015 by the Company or its affiliates at a percentage in the very low double digits, and a portion of all licensing revenue received by the Company from third parties to commercialize BOW015 at a percentage in the mid-teens, subject in each case to reduction in certain circumstances.

The Amendment amends the Moksha8 Revenue Agreement to terminate the Company’s revenue sharing payment obligations with respect to products that are biosimilars to infliximab, which includes the Company’s BOW015 product, in exchange for the Company’s payment of $1,500 in two installments.

In October 2014, the Company entered into a second amendment (the “Second Amendment”) to the Amendment between the Company and Moksha8. Under the terms of the Second Amendment, the $1,500 of payments described in the Amendment was reduced to $1,400. As of September 30, 2014, no payments were made by the Company to Moksha8 and the Company recorded an accrued liability of $1,400, an extinguishment of previously accrued royalty obligations of $150 and an intangible asset of $1,250 (Note 6). Pursuant to the Amendment and the Second Amendment, in October 2014, the Company made payments to Moksha8 totaling $1,400.

Moksha8 is owned in part by Montreaux Equity Partners and TPG Capital, which are also shareholders of the Company. As of September 30, 2014, Montreaux Equity Partners and TPG Capital each own approximately 17% of the Company. TPG Capital is a legal affiliate of the Company.

5.                                      Merger

As described in Note 1, “Organization,” on July 15, 2014, the Company completed the Merger with Zalicus.  Pursuant to the Merger Agreement, each share of capital stock of Private Epirus was exchanged for 0.13259 shares of Public Epirus Common Stock (the “Exchange Ratio”). All Private Epirus stock options granted under the Private Epirus stock option plans (whether or not then exercisable) that were outstanding prior to the effective time of the Merger, and all warrants to purchase Private Epirus capital stock that were outstanding prior to the effective time of the Merger were exchanged at the same ratio as described below. Upon the consummation of the Merger, equity holders of Private Epirus were issued an aggregate of 10,288,180 shares of Public Epirus Common Stock, plus 1,152,042 and 21,996 shares of Public Epirus Common Stock which could be issued in the future upon exercise of stock options and warrants, respectively.

All Private Epirus stock options granted under the Private Epirus stock option plans (whether or not then exercisable) that were outstanding prior to the effective time of the Merger and all warrants to purchase Private Epirus capital stock that were outstanding prior to the effective time of the merger were exchanged for options to purchase Public Epirus Common Stock or warrants to purchase Public Epirus Common Stock, as applicable. After the Effective Time, all outstanding and unexercised Private Epirus

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stock options assumed by Zalicus may be exercised solely for shares of Public Epirus Common Stock and all outstanding and unexercised warrants to purchase Private Epirus capital stock may be exercised solely for shares of Public Epirus Common Stock. The number of shares of Public Epirus Common Stock subject to each Private Epirus stock option or warrant assumed by Zalicus was determined by multiplying (a) the number of shares of Private Epirus common stock that were subject to such Private Epirus stock option or warrant, as in effect immediately prior to the Effective Time, by (b) the exchange ratio, as defined in the merger agreement, and rounding the resulting number down to the nearest whole number of shares of Public Epirus Common Stock. The per share exercise price for the Public Epirus Common Stock issuable upon exercise of each Private Epirus stock option or warrant assumed by Zalicus was determined by dividing (a) the per share exercise price of Private Epirus common stock subject to such Private Epirus stock option or warrant, as in effect immediately prior to the Effective Time, by (b) the Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent.

All Zalicus equity awards granted prior to the Merger remained legally outstanding.

The Merger has been accounted for as a reverse acquisition under the acquisition method of accounting with Private Epirus treated as the accounting acquirer and Zalicus treated as the acquired company for financial reporting purposes. Private Epirus was determined to be the accounting acquirer based upon the terms of the Merger and other factors, such as relative voting rights and the composition of the combined company’s board of directors and senior management. Accordingly, the Zalicus tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the excess consideration transferred recorded as goodwill.

See Note 12, “Stock-Based Compensation,” for additional details regarding the accounting treatment for the equity awards of Private Epirus and Zalicus.

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

(1) The stock transferred in the table above is comprised of 2,610,871 common shares outstanding at the time of the Merger plus 25,000 restricted stock units (RSUs) that vested immediately upon the closing of the Merger. The fair value of shares of Public Epirus Common Stock owned by Zalicus shareholders of $31,104 includes approximately $1 related to fractional shares resulting from the Reverse Stock Split.

(2) The shares outstanding are multiplied by the closing trading price of Public Epirus Common Stock as of the Merger date.

(3) Consideration transferred includes approximately $220 of Zalicus equity awards assumed and deemed attributable to precombination services to Zalicus. This amount excludes approximately $355 of acquisition-date fair value attributable to postcombination service, which was recorded to reflect the acceleration of nonvested equity awards of Zalicus upon the termination of certain Zalicus employees after the Merger. The Company recognized the $355 as stock-based compensation expense in the postcombination period ended September 30, 2014 (Note 12). The fair value of the equity awards at July 15, 2014 was determined using a Black-Scholes option-pricing model with the following ranges of assumptions: exercise price of $14.70 per share to $591.00 per share; underlying stock value of $11.80 per share; expected volatility of 66.02%; expected term of 0.1 years to 6.0 years; and risk-free interest rate of 1.91%.

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

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 the liabilities assumed. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from July 15, 2014, the acquisition date.

For acquired working capital accounts such as accounts receivable, prepaid expenses and other current assets, accounts payable and certain accrued expenses, the Company determined that no fair value adjustments were required due to the short timeframe until settlement for these assets and liabilities.

The fair value of the IPR&D was determined using the multi-period excess earnings method, a variation of the income approach, including a discount rate of 13.1% applied to the projected cash flows. The Company believes the assumptions used are consistent and representative of those a market participant would use in estimating the fair value of the IPR&D. The Company will not begin amortizing the IPR&D asset until the research and development is complete and the asset is reclassified to a definite-lived amortizing asset.

Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist.

Other liabilities of $391 plus $376 out of the $757 of accrued expenses and other liabilities relates to a sublease liability assumed for Zalicus’ Cambridge, Massachusetts facility. The liability represents the fair value of the difference between the total sublease payments and the total payments for the facility per the lease agreement. The original lease and the sublease agreement terminate in January 2017.

The deferred tax liability of $2,166 relates to the temporary difference associated with the $5,500 value of the IPR&D asset, which is not deductible for tax purposes. The deferred tax liability was recorded based on a 39.39% effective tax rate.

The operating results of Zalicus for the period from July 16, 2014 to September 30, 2014, including an operating loss of $25, have been included in the Company’s condensed consolidated financial statements as of and for the three and nine months ended September 30, 2014.

The Company incurred a total of $5,665 in transaction costs in connection with the Merger, excluding Zalicus transaction costs, which were included in selling, general and administrative expense within the consolidated statements of income for the nine months ended September 30, 2014.  The following supplemental unaudited pro forma information presents the Company’s financial results as if the acquisition of Zalicus had occurred on January 1, 2013:

The above unaudited pro forma information was determined based on the historical GAAP results of the Company and Zalicus. The unaudited pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations actually would have been if the acquisition was completed on January 1, 2013. The unaudited pro forma consolidated net

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loss includes pro forma adjustments primarily relating to the following non-recurring items directly attributable to the business combination:

(1) Elimination of $8,559 of transaction costs for both the Company and Zalicus from the nine months ended September 30, 2014, and inclusion of these transaction costs in the nine months ended September 30, 2013;

(2) Elimination of $355 of stock-based compensation expense related to the acceleration of vesting of previously unvested Zalicus awards in connection with the Merger from the nine months ended September 30, 2014, and inclusion of this charge in the nine months ended September 30, 2013;

(3) Elimination of $1,980 of expense related to severance agreements from the nine months ended September 30, 2014, and inclusion of this charge in the nine months ended September 30, 2013; and

(4) Elimination of $222 and $805 of other expense related to the change in the fair values of liability-classified warrants from the nine months ended September 30, 2014 and 2013, respectively, as the Company’s outstanding warrants were reclassified to equity in connection with their exchange in the Merger.

6.                                      Goodwill, IPR&D and Intangible Assets, Net

The following table represents changes in goodwill for the nine months ended September 30, 2014:

As of September 30, 2014, there were no accumulated impairment losses. Goodwill has been assigned to the Company’s single reporting unit, which is the single operating segment by which the chief decision maker manages the Company.

IPR&D of $5,500 was recognized in connection with the Merger.  See Note 5, “Merger,” for additional details.

In July 2014, upon receipt of the necessary approvals to manufacture and market BOW015 in India, the Company reclassified the $2,437 of IPR&D associated with its lead product BOW015 from an indefinite-lived asset to a finite-lived asset. During the three months ended September 30, 2014, the Company began amortizing the intangible asset over its expected useful life of approximately 16.5 years. The Company determined the useful life of the asset based upon the period over which the Company expects to earn future economic benefit for BOW015. The Company recognizes amortization expense utilizing the straight-line method.

As described in Note 4, “Business Agreements,” in September 2014 and October 2014, the Company entered into the Amendment and Second Amendment, respectively, which amended the Moksha8 Revenue Agreement to terminate the Company’s revenue sharing payment obligations with respect to products that are biosimilars to infliximab, in exchange for payments of $1,400. In connection with the payments under the Amendment and Second Amendment, in September 2014, the Company recorded an intangible asset of $1,250, which will be amortized over the expected useful life of the intangible asset associated with BOW015, described above.

Intangible assets, net of accumulated amortization is as follows:

Amortization expense, which is included within research and development expense in the condensed consolidated statements of operations and comprehensive loss, was $26 and $0 for the nine months ended September 30, 2014 and 2013, respectively.

The estimated aggregate amortization of intangible assets as of September 30, 2014, for each of the five succeeding years and thereafter is as follows:

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7.                                      Accrued Expenses and Other Current Liabilities

Accrued expenses consisted of the following:

8.                                      Debt

2013 Notes

On March 10, 2014, the $12,500 principal amount of convertible notes outstanding at December 31, 2013, plus accrued but unpaid interest of $684, was converted into 13,184,383 shares of Series A convertible preferred stock (“Series A Preferred”).

March 2014 Notes

On March 10, 2014, the Company issued and sold $5,000 of convertible notes to finance the operations of the Company. The notes bore interest at a rate of 8% per annum, had a maturity date of April 30, 2014 and provided the holders of the notes with 20% warrant coverage.

The 2014 note agreements contained the following settlement provisions: (1) in the event of a qualified financing in which the Company issues and sells shares of preferred stock for gross proceeds of at least $20,000 from one or more persons that are not current holders of capital stock, prior to the maturity date of the note, all outstanding principal and accrued interest automatically converts into the same class and series of capital stock at the price paid per share by the other purchasers in the qualified financing event; (2) in the event of a corporate merger, all outstanding principal and accrued interest automatically converts into the Company’s Series A Preferred at a conversion price equal to $1.00 per share; (3) in the event of an acquisition or asset transfer, the Company shall pay the outstanding note holders an amount in cash accrued and unpaid interest through the date of the payment and three times the outstanding principal balance; (4) in the event of a non-qualified financing, holders of the notes shall have the option to either convert all outstanding principal and any accrued but unpaid interest into shares of the same class and series of capital stock at the conversion price equal to the price per share of the non-qualified financing securities, or into shares of Series A Preferred, at a conversion price equal to $1.00 per share; (5) following the maturity date of the note, upon a written election by a majority of note holders, all outstanding principal and accrued interest converts into Series A Preferred; and (6) in the event of a default, all outstanding principal and accrued interest becomes immediately due and payable without notice or demand. The warrants were immediately exercisable into 1,000,000 shares of Series A Preferred at an exercise price of $0.01 per share. In the event of a qualified financing, the warrants become exercisable into a number of shares of the preferred stock issued in the qualified financing that represents $1,000 divided by the price per share of the preferred stock.

The provisions requiring conversion or prepayments of the 2014 notes upon a qualified financing, a corporate merger, an acquisition or asset transfer, or an event of default constituted an embedded compound derivative that is being accounted for separately. The Company determined that the fair value of this embedded compound derivative upon the issuance of the 2014 notes was $23, which was subtracted from the original carrying amount of the 2014 notes and reflected as a debt discount, and also increased liabilities by $23. As of March 31, 2014, the liability was accounted for at fair value, with changes in fair value recognized as other income (expense) in the statement of operations and comprehensive loss. As of March 31, 2014, the fair value of the embedded derivative was $23 and the Company did not record a gain or loss in the accompanying statements of operations and comprehensive loss for the three months ended March 31, 2014.

The Company determined the 2014 notes contained a beneficial conversion feature (“BCF”) measured at $2,071, which was recorded as a discount to the convertible notes.

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The aggregate fair value of the warrants at their issuance date was $1,171, which was also recorded as a discount to the convertible notes.

The total debt discount resulting from the embedded compound derivative, BCF, warrants and lender fees is being amortized as interest expense using the effective interest method over the period between the convertible notes’ issuance and maturity date.

On April 15, 2014, upon the closing of a qualified financing, the issuance of Series B convertible preferred stock (“Series B Preferred”) (Note 11), the $5,000 principal amount of convertible notes issued in March 2014, plus accrued and unpaid interest of $13, were converted into 3,947,363 shares of Series B Preferred and the warrants became exercisable into 787,402 shares of Series B Preferred at an exercise price per share of $0.01.

The conversion of the notes into Series B Preferred was accounted for as an extinguishment of the notes and a repurchase of the BCF. In accordance with the accounting guidance for extinguishments of convertible debt with embedded BCFs, the Company recorded a reduction of additional paid-in capital of $1,150, which represents the intrinsic value of the BCF at the time of extinguishment, and a gain on the extinguishment of the notes of $22 during the nine months ended September 30, 2014, which represents the difference between the net carrying value of the notes at the time of extinguishment in excess of the remainder of the consideration transferred after the $1,150 allocated to the repurchase of the BCF, plus the derecognition of the $23 derivative liability. Consideration transferred was $5,013, which is the fair value of the shares of Series B Preferred into which the notes converted. The gain was recorded to other income (expense) within the condensed consolidated statement of operations and comprehensive loss.

Hercules Notes

On September 30, 2014, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Technology Growth Capital, Inc. (“Hercules”). Under the Loan Agreement, Hercules will provide the Company with access to two term loans with an aggregate principal amount of up to $15,000. The first term loan, of a principal amount of $7,500, was funded on October 1, 2014, and is repayable in monthly installments until April 1, 2018, including an initial interest-only period of 18 months after closing. The second term loan, of a principal amount of up to $7,500, can be drawn down at the Company’s option at any time between September 30, 2014 and May 30, 2015, and interest and principal is repayable upon the same schedule as the repayment for the first term loan, including the same interest-only period. The interest-only period for both term loans may be extended at the Company’s request to November 1, 2016 contingent upon the Company’s first patient being dosed in a pivotal clinical study of BOW015 (infliximab) for approval in the European Union prior to May 1, 2016. The Company may elect to pay, in whole or in part, any regularly scheduled installment of principal up to an aggregate maximum amount of $2,000 by converting a portion of the principal into shares of the Company’s common stock at a rate of $8.06, but only if the Company’s stock is trading at a level greater than the exercise price for seven consecutive trading days and the shares to be issued do not exceed 15% of the Company’s total trading volume for the previous 22 consecutive trading days. The Company may prepay all or part of the term loans at its election, provided that it will be required to pay a prepayment fee equal to 2.00% of the amount prepaid, if prepaid in the first 18 months following closing. If the Company prepays all or part of the term loans 18 months or later following closing, there is no prepayment fee. The Company will be required to pay a fee of 3.00% of the aggregate original principal amount at the earliest to occur of; loan maturity date, the date the Company prepays the outstanding obligations or the date the obligations become due and payable upon acceleration. As a security interest, the Company is obligated to collateralize all available receivables, equipment, fixtures, intangibles, inventory, deposit accounts and cash of the Company, other than the Company’s intellectual property.

Pursuant to the Loan Agreement, Hercules was granted the right to participate, in an amount of up to $1,000, in subsequent private placements of the Company’s equity securities.

In connection with the Loan Agreement, on September 30, 2014, the Company issued to Hercules a warrant to purchase 64,194 shares of Public Epirus Common Stock at an exercise price of $7.01 per share. See Note 9, “Warrants,” for further description of the warrant.

9.                                      Warrants

In March 2014, the Company issued warrants, in connection with a convertible notes issuance, to purchase 1,000,000 shares of Series A Preferred with an exercise price of $0.01 per share (Note 8). Upon the Series B Preferred financing described in Notes 8 and 11, these warrants became exercisable into 787,402 shares of Series B Preferred at an exercise price of $0.01 per share. The aggregate fair value of such warrants at their issuance date was $1,171. Each warrant was immediately exercisable and expires approximately seven years from the original date of issuance. Each warrant was exercisable on either a physical settlement or net share settlement basis.

In April 2014, warrants to purchase 5,101,816 shares Series A Preferred were exercised into 5,101,816 shares of Series A Preferred. In April 2014, the warrants to purchase Series B Preferred were exercised into 787,402 shares of Series B Preferred.

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In connection with the Merger on July 15, 2014, all of the Company’s outstanding warrants exercisable for shares of preferred stock were exchanged for warrants exercisable for shares of Public Epirus Common Stock, which resulted in the reclassification of the liability-classified warrants to additional paid-in capital.

See Note 10, “Fair Value Measurements,” for additional details.

As described in Note 8, the Company entered into a Loan Agreement with Hercules under which the Company was given access to up to $15,000 of term loans. As consideration for the Loan Agreement, the Company issued Hercules a five-year warrant to purchase 64,194 shares of its common stock at an exercise price of $7.01 per share (the “Warrant”). The Warrant’s fair value of $248 at September 30, 2014 was determined using a Black-Scholes option-pricing model with the following assumptions: expected volatility of 61.68%; contractual term of five years; and risk-free interest rate of 1.78%. The fair value of the common stock warrants was recorded to prepaid expenses and other current assets and credited to additional paid-in capital upon their issuance on September 30, 2014. In October 2014, upon issuance and recognition of the Hercules notes, the other current asset will be reclassified to a debt discount.

As of September 30, 2014, all of the Company’s outstanding warrants were classified in equity. As of September 30, 2014, the following warrants to purchase common stock were outstanding:

As of December 31, 2013, the following liability-classified warrants to purchase preferred stock were outstanding:

10.                               Fair Value Measurements

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis in the accompanying balance sheets as of September 30, 2014 and December 31, 2013:

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As of September 30, 2014, the Company did not have any liabilities measured at fair value on a recurring basis.

Warrant Liability

The warrant liability represented the liability for warrants to purchase shares of Series A Preferred issued to investors in connection with the Company’s Series A Preferred financings and issued to holders of the Company’s convertible notes. The warrant liability was calculated using the Black-Scholes option-pricing model. This valuation method used inputs such as fair value of the Company’s Series A Preferred and Series B Preferred shares, historical volatility, the term of the warrant and risk-free interest rates. At June 30, 2014, April 15, 2014, March 31, 2014 and December 31, 2013, the fair value of the Series A Preferred and Series B Preferred were determined using a hybrid of the probability-weighted expected return method (“PWERM”) and the option-pricing method (“OPM”) (“Hybrid Method”). At September 30, 2014, the Company did not have any warrants classified as liabilities.

The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options.

The hybrid method is a hybrid between the PWERM and the OPM, estimating the probability-weighted value across multiple scenarios but using the OPM to estimate the allocation of value within one of or more of those scenarios. In this valuation the hybrid model considers two possible outcomes: (1) an initial public offering (“IPO”) or a reverse merger scenario and (2) continued operations as a private company scenario, which is modelled using the OPM.

For the IPO or reverse merger scenario, equity value was estimated using the guideline public company (“GPC”) method under the market approach and the discounted cash flow (“DCF”) method under the income approach. Under the GPC method, equity value was estimated as a multiple of paid-in capital, using the median multiple indicated by selected initial public offerings by biotechnology companies. For the DCF method used in the April 15, 2014, March 31, 2014 and December 31, 2013 valuation, a discount rate of 22%, 30% and 35%, respectively, was assumed.

In the OPM, equity value was estimated by back-solving the overall hybrid value such that the result is equal to the anticipated price of a future preferred stock series. The OPM used in the March 31, 2014 and December 31, 2013 valuation assumed 2.53 and 2.75 years to liquidity, respectively, and annual volatility of 58% and 53%, respectively.

In the OPM analysis as of April 15, 2014, equity value was estimated by back-solving the overall hybrid value to the actual price per share of Series B Preferred paid in the issuance on April 15, 2014. The OPM used in the April 15, 2014 valuation assumed 2.46 years to liquidity and annual volatility of 59%.

For the valuation analysis as of June 30, 2014, equity value under the IPO scenario was calculated based on the actual terms of the Merger, as described in Note 1, “Organization,” and Note 5, “Merger,” and the closing trading price per share of Zalicus common stock as of June 30, 2014. In the OPM analysis as of June 30, 2014, equity value was estimated using by back-solving the overall equity value to the actual price per share of Series B Preferred paid in the issuance on April 15, 2014. The OPM used in the June 30, 2014 valuation assumed 2.25 years to liquidity and annual volatility of 59%.

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In connection with the Merger on July 15, 2014, all of the Company’s outstanding warrants exercisable for shares of preferred stock were exchanged for warrants exercisable for shares of Public Epirus Common Stock, which resulted in the reclassification of the liability-classified warrants to additional paid-in-capital. As of July 15, 2014, immediately prior to their exchange and reclassification, all of the Company’s outstanding warrants were remeasured at fair value with the increase in the fair value recorded to other expense in the condensed consolidated statement of operations and comprehensive loss. The fair value of such warrants of $167 at July 15, 2014 was determined using a Black-Scholes option-pricing model with the following ranges of assumptions: exercise price of $0.08 per share to $7.55 per share; underlying stock value of $11.80 per share; expected volatility of 61.58% to 64.96%; contractual term of 3.53 years to 5.10 years; and risk-free interest rate of 1.34% to 1.70%. As of September 30, 2014, the Company does not have any warrants measured using Level 3 inputs.

Changes in the fair value of the warrant liability where fair value is determined using Level 3 inputs, were as follows:

Embedded Derivative

On March 10, 2014, the Company issued $5,000 of convertible notes that contained an embedded compound derivative as described in Note 8. The fair value of the embedded compound derivative was calculated using the “with and without” method. This valuation method first values the notes with the embedded compound derivative (“with” scenario) and subsequently values the notes without the embedded compound derivative (“without” scenario). The difference between the fair value of the notes in the “with and without” scenarios is determined to be the fair value of the embedded compound derivative as of the valuation date.

Accordingly, the valuation of the embedded compound derivative was determined using Level 3 inputs.

Changes in the fair value of the embedded compound derivative where fair value is determined using Level 3 inputs, were as follows:

The following table provides quantitative information about the fair value measurements, including the range of assumptions for the significant unobservable inputs used in the hybrid method valuations of the warrant liability and “with and without” method used for the embedded compound derivative:

Significant increases (decreases) in the significant unobservable inputs used in the fair value measurement of the warrant liability and the embedded compound derivative in isolation would result in significantly higher (lower) fair value measurements.

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11.                               Convertible Preferred Stock

In April 2014, Epirus closed an initial Series B Preferred financing with an issuance of 24,409,444 shares for aggregate proceeds of approximately $31,000. Upon the closing of such financing, the $5,000 principal amount of convertible notes issued in March 2014, plus accrued and unpaid interest of $13, were converted into 3,947,363 shares of Series B Preferred (Note 8).

Upon the closing of the Merger, all outstanding shares of preferred stock were exchanged for shares of Public Epirus Common Stock as part of the Merger at the Exchange Ratio.  See Note 5, “Merger,” for additional details. As of September 30, 2014, the Company did not have any convertible preferred stock issued or outstanding.

Prior to the exchange of preferred stock for Public Epirus Common Stock, the Series A Preferred and Series B Preferred had the following terms:

Series A Preferred

Conversion

Each share of Series A Preferred was convertible at the option of the holder, at any time and from time to time, into fully paid and non-assessable shares of common stock as was determined by dividing the original issuance price by the then applicable conversion price (equal to the original issuance price at all dates Series A Preferred was outstanding).

Voting Rights

The holders of Series A Preferred and Series B Preferred were entitled to vote as one class, with common stockholders, based on the number of shares of common stock each holder would receive upon conversion of their Series A Preferred or Series B Preferred into shares of common stock, for all matters except for the approval of certain major actions by the Company and the election of directors. Subject to certain ownership thresholds and approval rights set forth in the Company’s amended and restated certificate of incorporation and an amended and restated voting agreement by and among certain stockholders of the Company, directors were elected as follows: the holders of Series B Preferred voted as a separate class for the election of one director; the holders of Series A Preferred voted as a separate class for the election of three directors; the holders of common stock voted as a separate class for the election of one director, which shall have been the currently serving chief executive officer; and the holders of common stock, and Series A Preferred and Series B Preferred, on an as-converted basis, voted together as a single class for the election of any remaining directors. If the common stock of the Company or any affiliate of the Company was not listed on a national securities exchange or other public trading platform on or prior to October 15, 2014, then the Series B Preferred stockholders would thereafter have been entitled to elect two members of the board of directors.

Dividends

Holders of Series A Preferred were entitled to receive, when and if declared by the board of directors, dividends at the rate of 8% of the original issuance price. Series A Preferred dividends were non-cumulative. In addition to the non-cumulative 8% dividend, the Series A Preferred shares would have also received (on an “as-converted” basis) the same dividend as that declared on common stock shares. The order of preference in the event of a dividend distribution, when and if declared by the board of directors, would have been first made to holders of Series B Preferred, then to holders of Series A Preferred and lastly to holders of common stock. No dividends were ever declared or paid.

Liquidation Rights

In the event of a voluntary or involuntary liquidation, dissolution, change in control or winding up of the Company, holders of Series A Preferred were entitled to be paid out second, following holders of Series B Preferred, of the assets available at a rate of the original issue price, plus any accrued but unpaid dividends, prior to any payment being made to holders of common stock.

If the assets of the Company available for distribution to stockholders were insufficient to permit payment of the full amount to which each stockholder is entitled, holders of shares of the Series A Preferred would have shared ratably in any distribution of the remaining assets of the Company in proportion to the respective amounts which would otherwise have been payable under the circumstances in the order of liquidation preference.

After the payment of the full liquidation preference of the preferred stock, the remaining assets, if any, would have been distributed ratably to the holders of preferred stock and common stock on an as-if-converted to common stock basis provided that if the aggregate amount the holders of the Series A Preferred were entitled to receive exceeded three times the original issue price plus all declared and unpaid dividends thereon (the “Maximum Participation Amount”), such holders would have been entitled to receive the greater of the Maximum Participation Amount or the amount they would have received if all shares of preferred stock had been converted into common stock immediately prior to the liquidation event.

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Because liquidation rights included a change in control, the Series A Preferred was classified within temporary equity. However, since a change in control was not considered probable, no adjustment to the carrying amount was required at any date the Series A Preferred was outstanding.

Series B Preferred

Conversion

Each share of Series B Preferred was convertible at the option of the holder, at any time and from time to time, into fully paid and non-assessable shares of common stock as was determined by dividing the original issuance price by the then applicable conversion price (equal to the original issuance price at all dates Series A Preferred was outstanding).

Voting Rights

Holders of Series B Preferred and Series A Preferred were entitled to vote as one class, with common stockholders, based on the number of common stock each holder would receive upon conversion of their Series A or Series B Preferred into shares of common stock, for all matters except for the approval of certain major actions by the Company and the election of directors. Subject to certain ownership thresholds and approval rights set forth in the Company’s amended and restated certificate of incorporation and an amended and restated voting agreement by and among certain stockholders of the Company, directors were elected as follows: the holders of Series B Preferred voted as a separate class for the election of one director; the holders of Series A Preferred voted as a separate class for the election of three directors; the holders of common stock voted as a separate class for the election of one director, which would have been the currently serving chief executive officer; and the holders of common stock, and Series A Preferred and Series B Preferred, on an as-converted basis, voted together as a single class for the election of any remaining directors. If the common stock of the Company or any affiliate of the Company was not listed on a national securities exchange or other public trading platform on or prior to October 15, 2014, then the Series B Preferred stockholders would thereafter have been entitled to elect two members of the board of directors.

Dividends

Holders of Series B Preferred were entitled to receive, when and if declared by the board of directors, dividends at the rate of 8% of the original issuance price. Series B Preferred dividends were non-cumulative. In addition to the non-cumulative 8% dividend, the Series B Preferred shares would have also received (on an “as-converted” basis) the same dividend as that declared on common stock shares. The order of preference in the event of a dividend distribution, when and if declared by the board of directors, would have been first made to holders of Series B Preferred, then to holders of Series A Preferred and lastly to holders of common stock. No dividends were ever declared or paid.

Liquidation Rights

In the event of a voluntary or involuntary liquidation, dissolution, change in control or winding up of the Company, holders of Series B Preferred were entitled to be paid out first of the assets available at a rate of their original issue price, plus any accrued but unpaid dividends, prior to any payment being made to holders of Series A Preferred or common stock.

If the assets of the Company available for distribution to stockholders were insufficient to permit payment of the full amount to which each stockholder is entitled, holders of shares of the Series B Preferred would have shared ratably in any distribution of the remaining assets of the Company in proportion to the respective amounts which would otherwise have been payable under the circumstances in the order of liquidation preference.

After the payment of the full liquidation preference of the preferred stock, the remaining assets, if any, would have been distributed ratably to the holders of preferred stock and common stock on an as-if-converted to common stock basis, provided that if the aggregate amount the holders of the Series B Preferred were entitled to receive exceeded three times the original issue price plus all declared and unpaid dividends thereon (the “Maximum Participation Amount”), such holders would have been entitled to receive the greater of the Maximum Participation Amount or the amount they would have received if all shares of preferred stock had been converted into common stock immediately prior to the liquidation event.

Because liquidation rights included a change in control, the Series B Preferred was classified within temporary equity. However, since a change in control was not considered probable, no adjustment to the carrying amount was required at any date the Series B Preferred was outstanding.

12.                               Stock-Based Compensation

In April 2014, the Private Epirus board of directors amended the terms of the 2011 Equity Incentive Plan (“2011 Plan”) to increase the authorized number of shares of common stock available for issuance under the 2011 Plan from 740,470 to 1,504,752.

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In August 2014, the Company submitted a Form S-8 Registration Statement (“S-8”) to the SEC. As reflected in the S-8, the Company amended its 2004 Equity Plan to increase the number of shares available for issuance under the 2004 Plan by 3,000,000 shares of common stock. As of September 30, 2014, the Company had 2,818,071 shares available for issuance.