9 Meters Biopharma, Inc. (the “Company”) is a clinical-stage company pioneering novel treatments for people with rare digestive diseases, gastrointestinal conditions with unmet needs, and debilitating disorders in which the biology of the gut is a contributing factor. The Company’s pipeline includes drug candidates vurolenatide, a proprietary long-acting GLP-1 agonist for short bowel syndrome (“MDI”SBS”), an orphan designated disease, larazotide, a Delaware corporation (formedtight junction regulator being evaluated for multi-system inflammatory syndrome in November 2010)children (“MIS-C”), and its subsidiary, SDJ Technologies, Inc. (“SDJ”) (collectively referred to as the “Company”), is an importera robust pipeline of high-end memory storage products, flash memory and action sports cameras marketed and sold under the Monster Digital brand name acquired under a long-term licensing agreement with Monster, Inc. The Company sources its products from China, Taiwan and Hong Kong.

Public Offering: The Company closed its initial public offering (the “Offering”) on July 13, 2016 and its common stock and warrants are now listed on the Nasdaq Capital Market under the symbols “MSDI” and “MSDIW”, respectively. The Offering generated gross proceeds of $9,132,750 on the sale of 2,025,000 common shares at $4.50 per share and 2,025,000 warrants at $0.01 per warrant.

early-stage candidates for undisclosed rare diseases and/or unmet needs.

The accompanying unaudited condensed consolidated interim financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the balance sheets, operating results, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the SEC’s instructions for interim financial information. They do not include all information and footnotes necessary for a fair presentation of financial position, operating results and cash flows in conformity with U.S. GAAP for complete financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2016 which are included in Form 10-K filed by the Company on March 31, 2017. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the operating results for the periods presented have been included in the interim periods.. Operating results for the three and ninesix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results that may be expected for other interim periods or the fiscal year ending December 31, 2017. For2022 or any other future period. Certain information and footnote disclosure normally included in the annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the SEC’s rules and regulations for interim reporting. The Company’s financial reporting purposes, income taxesposition, results of operations and cash flows are recorded based upon estimated annual effective income tax rates taking into consideration discrete items occurringpresented in a quarter. The consolidated balance sheet as ofU.S. Dollars. These financial statements and related notes should be read in conjunction with the audited financial statements and related notes thereto for the year ended December 31, 2016 is derived from2021, included in the 2016 auditedCompany’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 23, 2022.

Except as noted below under the section entitled “Recently Issued Accounting Standards—Accounting Pronouncements Adopted,” there have been no material changes to the Company’s significant accounting policies during the three and six months ended June 30, 2022, as compared to the significant accounting policies disclosed in Note 1 of the Company’s financial statements.

Principlesstatements for the years ended December 31, 2021 and 2020 included in the Company’s Annual Report on Form 10-K. However, the following accounting policies are the most critical in fully understanding the Company’s financial condition and results of operations.

The accompanying consolidated financial statements includereflect the operations of the Company and its wholly owned subsidiaries. All intercompany accounts of MDI and SDJ. All significant intercompany transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported amounts of assetsin the financial statements and liabilities (including sales returns, price protection allowances, bad debts, inventory reserves, warranty reserves, and asset impairments), disclosure of contingent assets and liabilities atdisclosures made in the dateaccompanying notes to the financial statements. Areas of the financial statements where estimates may have the most significant effect include accrued expenses, share-based compensation, valuation allowance for income tax assets, and management’s assessment of the Company’s ability to continue as a going concern. The Company considered the impact of the COVID-19 pandemic on its estimates and assumptions, and concluded there was not a material impact to its condensed consolidated financial statements as of and for the three and six months ended June 30, 2022. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could differ from these estimates.

The Company incurs periodic expenses such as research and development, licensing fees, salaries and benefits, and professional fees. The Company is required to estimate its expenses resulting from obligations under contracts with clinical research organizations, vendors and consulting agreements that have been incurred by the Company prior to being invoiced. This process involves reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating the level of service performed and the reportedassociated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice monthly in arrears for services performed or when contractual milestones are met. The Company estimates accrued expenses as of each balance sheet date based on facts and circumstances known at that time.

Costs for preclinical studies and clinical trial activities are recognized based on an evaluation of the vendors’ progress towards completion of specific tasks, using data such as patient enrollment, clinical site activations or information provided by vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services were performed. The Company determines accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of trials, or the services completed. The estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time. Although the Company does not expect its estimates to be materially different from amounts of revenuesincurred, the Company’s estimates and expenses during the reporting period. Actual resultsassumptions for clinical trial costs could differ significantly from those estimates

Concentration of Cash:  The Company maintains its cashactual costs incurred, which could result in bank accounts which, at times, may exceed federally insured limits. increases or decreases in research and development expenses in future periods when actual results are known.

The Company has acquired, and may in the future acquire, rights to develop and commercialize new drug candidates and/or other in-process research and development assets. The up-front acquisition payments, as well as future milestone payments that are deemed probable to achieve and do not experienced any lossesmeet the definition of a derivative, are expensed as acquired in-process research and development provided that the drug has not achieved regulatory approval for marketing, and, absent obtaining such approval, have no alternative future use.

Share-based compensation expense includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in such accounts. Management believessubsequent periods if actual forfeitures differ from those estimates. Under the Black-Scholes option-pricing model, fair value is calculated based on assumptions with respect to:

Fair value is an exitdefined as the price representing the amount that would be received to sellfor sale of an asset or paid tofor transfer of a liability, in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Fair value is based on a hierarchy of valuation techniques, which is determined on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own market assumptions. These two types of inputs createU.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1:

Quoted prices for identical instruments in active markets.

Level 2:

Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3:

Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

value. The carrying amounthierarchy gives the highest priority to unadjusted quoted prices in active markets for other financial instruments, which include cash, accounts receivable, accounts payable and notes payable, approximate fair value based upon their short-term nature and maturity.

Revenue Recognition:  Revenue is realizedidentical assets or realizable and earned when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the sales price is fixed or determinable, (3) collectability is reasonably assured, and (4) products have been shippedliabilities (Level 1 measurements) and the customer has taken ownership and assumed the risk of loss. Distributors and retailers take full ownership of their product upon delivery and sales are fully recognized at that time.

Revenue is reduced by reserves for price protection, sales returns, allowances and rebates. The Company’s reserve estimates are based upon historical data as well as projections of sales, customer inventories, market conditions and current contractual sales terms. If the Company reduces the list price of its products, certain customers may receive a credit from the Company (i.e., price protection)lowest priority to unobservable inputs (Level 3 measurements). The Company estimates the impact of such pricing changes on a regular basis and adjusts its allowances accordingly. Amounts charged to operations for price protection are calculated based on actual price changes on individual products and customer inventory levels. The reserve is then reduced by actual credits given to these customers at the time the credits are issued. We calculate the allowance for doubtful accounts and provision for sales returns and rebates based on management’s estimate of the amount expected to be uncollectible or returned on specific accounts. We provide for future returns, price protection and rebates at the time the products are sold. We calculate an estimate of future returns of product by analyzing units shipped, units returned and point of sale data to ascertain consumer purchases and inventory remaining with retail to establish anticipated returns. Price protection is calculated on a product by product basis. The objective of price protection is to mitigate returns by providing retailers with credits to ensure maximum consumer sales. Price protection is granted to retailers after they have presented the Company an affidavit of existing inventory.

The Company also offers market development credits (“MDF credits”) to certain of its customers. These credits are also charged against revenue.

Shipping and Handling Costs:  Historically, the Company has not charged its customers for shipping and handling costs, which is a component of marketing and selling expenses. These costs totaled approximately $18,000 and $24,000Financial instruments recorded in the three months ended September 30, 2017 and 2016, respectively, and approximately $71,000 and $118,000 in the nine months ended September 30, 2017 and 2016, respectively.

Income Taxes:  Deferred tax assets and liabilitiesaccompanying condensed consolidated balance sheets are determinedcategorized based on the temporary differences betweeninputs to valuation techniques as follows:

The fair value of the deferred tax assets will not be realized.

The Company uses a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more likely than not to be realized upon settlement. As of September 30, 2017 and December 31, 2016, there are no known uncertain tax positions.

The Company’s policy is to classify the liability for unrecognized tax benefits as current to the extent that it is more likely than not to be realized upon settlement and to the extent that the Company anticipates payment (or receipt) of cash within one year. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in the tax provision.

Product Warranty:  The Company’s memory products are sold under various limited warranty arrangements ranging from three years to five years on solid state drives and a limited lifetime warranty on all other products. Company policy is to establish reserves for estimated product warranty costs in the period when the related revenue is recognized. The Company has the right to return defective products to the manufacturer. As of September 30, 2017 and December 31, 2016, the Company has established a warranty reserve of $96,000 and $118,000, respectively. The warranty reserve is included in accrued expenses in the accompanying consolidated balance sheets.

Research and Development:  The Company incurs costs to improve the appeal and functionality of its products. Research and development costs are charged to expense when incurred.

Earnings (Loss) per Share:  Basic earnings (loss) per share is calculated by dividing net earnings (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is calculated similarly but includes potential dilution from the exercise of common stock warrants and options and conversion of debt to equity, except when the effect would be anti-dilutive. Earnings (loss) per share are computed using the “treasury stock method.” At September 30, 2017, outstanding warrants to acquire 4,421,676 shares of common stock (2,025,000 issued further to the Offering, 1,405,007embedded derivative issued in connection with the conversion of preferred stock and bridge loans upon closing2020 Convertible Note, further described in Note 5—Debt, was determined by using a Monte Carlo simulation technique (“MCS”) to value the embedded derivative associated with the note. As part of the MCS valuation, a discounted cash flow (“DCF”) model was used to value the debt on a stand-alone basis and determine the discount rate to utilize in both the DCF and MCS models. The significant estimates used in the DCF model include the time to maturity of the convertible debt and calculated discount rate, which includes an estimate of the Company’s specific risk premium. The MCS methodology calculates the theoretical value of an option based on certain parameters, including: (i) the threshold of exercising the option, (ii) the price of the underlying security, (iii) the time to expiration, or expected term, (iv) the expected volatility of the underlying security, (v) the risk-free rate and (vi) the number of paths. These valuation techniques involve management’s estimates and judgment based on unobservable inputs and are classified in Level 3. We expect similar accounting treatment of the debt under the securities purchase agreement and related convertible note described in Note 10—Subsequent Events.

Deferred offering costs consist principally of legal, accounting and 991,669 other warrants), 16,834underwriters’ fees related to offerings or the Company’s shelf registration statement. Offering costs incurred prior to an offering are initially capitalized and then subsequently reclassified to additional paid-in capital upon completion of the offering. If the equity offering is not completed, any costs deferred will be expensed immediately upon termination of the offering.

The Company calculates net loss per share as a measurement of the Company’s performance while giving effect to all potentially dilutive shares that were outstanding during the reporting period. Because the Company had a net loss for all periods presented, the inclusion of common stock options or other similar instruments would be anti-dilutive. Therefore, the weighted average shares outstanding used to calculate both basic and $1,346,500 in convertible notes payablediluted net loss per share are the same. For the three and six months ended June 30, 2022 and 2021, 52.2 million and 47.2 million shares, respectively, underlying potentially dilutive warrants and stock options issued and outstanding have been excluded from the computation of diluted loss per shareweighted average shares outstanding because theirthe effect waswould be anti-dilutive. At September 30, 2016, outstanding warrants to acquire 3,755,100 shares of common stock (2,025,000 issued further to the Offering, 1,405,007 issued in connection with the conversion of preferred stock and bridge loans upon closingThe potentially dilutive securities consisted of the Offering,following:

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and 325,093 other warrants),regularly reviewed by the chief operating decision maker in deciding how to allocate resources and $38,000 in convertible notes payable have been excluded fromassessing performance. The Company operates and manages its business as 1 operating segment and the computation of diluted loss per share because their effect was anti-dilutive.

Company’s primary operations are in North America. 

Based on the Company’s limited operating history, recurring negative cash flows from operations, current plans and available resources, the Company will need substantial additional funding to support future operating activities. The Company has concluded that the prevailing conditions and ongoing liquidity risks faced by the FASB with future effective dates are either not applicable or not significant to the consolidated financial statements of the Company.

NOTE 2 — GOING CONCERN

As of September 30, 2017, the Company has incurred cumulative net losses from its inception of approximately $37 million, has incurred a year to date loss of approximately $5.4 million, and has negative operating cash flows, a working capital deficit and stockholders’ deficit. These circumstances raise substantial doubt as toabout the Company’s ability to continue as a going concern. In response to this uncertainty, Management has taken certain measures in 2016 and toconcern for at least one year following the date in 2017 and has plans for the remainder of 2017 and beyond, with the objective of alleviating this concern. They include the following:

While the Company believes it will be successful in obtaining the necessary financing to fund its operations, there are no assurances that such additional funding will be achieved and that it will succeed in its future operations. Theaccompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should the Company be unable to continue in existence as a going concern.

NOTE 3 — POTENTIAL MERGER

On July 3, 2017, the Company entered into an Agreement and Plan of Merger with Innovate Biopharmaceuticals, Inc. (“Innovate”). The Merger Agreement is filed as Exhibit 2.1 to the Company’s Form 8K filed with the Securities and Exchange Commission on July 6, 2017 and this discussion regarding the potential merger should be read in conjunction with the Merger Agreement. Under the terms of the Merger Agreement, pending stockholder approval of the transaction, the Company will merge into Innovate with Innovate surviving the Merger and becoming a wholly-owned subsidiary of the Company. Subject to the terms of the Merger Agreement, at the effective time of the Merger, Innovate stockholders will receive a number of newly issued shares of the Company’s common stock determined using an exchange ratio defined in the Merger Agreement. The exchange ratio will be based on a pre-transaction valuation of $60 million for Innovate’s business and $6 million for the Company’s business. As a result, current stockholders of the Company would collectively own approximately 9% and Innovate stockholders would collectively own approximately 91% of the combined company on a pro-forma basis, subject to adjustment based on the Company’s net cash balance and the relative capitalization of the two companies at closing, as described more fully in the Merger Agreement. Following the Merger, stockholders of Innovate will become the majority owners of the Company.

On September 27, 2017, Monster Digital, Inc. transferred all of its businesses and assets, including all shares of SDJ Technologies, Inc., and those liabilities of the Company not assumed by Innovate further to the Merger to MD Holding Co. Inc., a wholly owned subsidiary. If approved by the stockholders of the Company, the shares of MD Holding Co., Inc. are expected to be spun off pro rata to holders of the Company’s common stock immediately prior to the Merger (the “Spin-Off”).

The Company filed a definitive Schedule 14A, Information Required in a Proxy Statement with the Securitiesmay seek to raise additional funding through dilutive and Exchange Commission on October 12, 2017 in order to obtain the required stockholder approval for the Merger transaction and the Spin-Off referenced above, as well as other related matters.non-dilutive financings. There can be no assurance that such stockholder approval will be attained or that, if such stockholder approval is attained, the Merger transaction will be completed or the Spin-Off consummated.

NOTE 4 — DEBT AND EQUITY FINANCING

Credit Facility

In June 2015, the Company secured an accounts receivable financing facility with Bay View Funding. The contract provides for maximum funding of $4 million and a factoring fee of 1.35% for the first 30 days and .45% for each 10-day period thereafter that the financed receivable remains outstanding. Upon the execution of this contract, the balance owed under a prior credit facility was repaid and that contract was terminated. There was $107,000 outstanding under this facility as of September 30, 2017 and no amount outstanding as of December 31, 2016. There are no financial or similar covenants associated with this facility.

Convertible Debt Financing

On July 24, 2017, the Company entered into a Private Placement Engagement Agreement with WestPark Capital, Inc. for the purpose of raising up to $1,150,000 in convertible debt. An aggregate of $540,000 in convertible debt raised in June and July 2017 prior to the consummation of the WestPark Capital, Inc. agreement are under the same terms. The Promissory Notes bear interest at 15% and are convertible to common stock concurrent with a potential merger (see Note 3) at the lesser of $0.75 per share or 75% of the average market value of the Company’s common stock for the five days preceding the consummation of such merger. Otherwise, the Notes become due March 31, 2019. For every $2.50 in note principal purchased, investors receive one warrant, exercisable for five years, to purchase shares of common stock at $2.00. The Company has raised $1,346,500 pursuant to this agreement and, as of September 30, 2017, a total of $1,346,500 in principal of the convertible Notes remains outstanding. As of September 30, 2017 and December 31, 2016, a total of $38,000 in principal of convertible Notes payable that matured in the second quarter of 2015 remains outstanding.

Promissory Notes

From October 2015 through March 7, 2016, the Company issued promissory notes; the notes were due and payable at the earlier of one year from the date of issuance or the closing date of the Company’s initial public offering, bore an interest rate of 15% that was accrued upon issuance, irrespective of whether the promissory note was outstanding for part or full term until maturity, and had a loan origination fee of $.225 for each dollar loaned. The loan origination fee associated with the notes as of September 30, 2016 was $756,000 and was recorded as accrued interest and debt discount to the notes payable and is being amortized over the life of the notes. Debt discount amortized as interest expense in the three and nine months ended September 30, 2016 was approximately $25,000 and $389,000, respectively. All principal, fees and interest were payable on the due date. In July 2016, the Company completed the Offering whereby 90% of the outstanding promissory notes totaling $3,024,000 were converted to 672,000 shares of common stock and 672,000 warrants at the offering price of $4.50 per share. The 15% accrued interest and the 22.5% origination fee were waived as part of the conversion. The remaining, unconverted $336,000 of promissory notes were paid out of the proceeds of the Offering along with the accrued interest and origination fee attributable to those notes. No balance is due as of September 30, 2017 and December 31, 2016.

Due to Monster, Inc.

In addition to the issuance of shares of common stock and common stock purchase warrants, the Company agreed to pay Monster, Inc. $500,000 as consideration for use of the name Monster Digital, Inc. pursuant to Amendment No. 3 to the Trademark License Agreement between the Company and Monster, Inc. Of this total balance, the Company agreed to pay $125,000 in December 2015 and the balance from the proceeds of the planned IPO. The Company paid $50,000 of the $125,000 in December 2015 and the balance in January 2016. The remaining $375,000 was paid in September 2016.

Notes payable consists of the following (in thousands):

		September 30, 2017				December 31, 2016
Notes payable, convertible debt		$	38			$	38
Convertible notes payable, net of debt discount of $40 and net of issuance cost of $75			1,232				—
Total		$	1,270			$	38

NOTE 5 — ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

		September 30, 2017				December 31, 2016
Royalties		$	375			$	125
Reserve for charges against sales			196				334
Accrued purchase orders			150				158
Deferred gain			273				—
Due to customer for promotion credits			59				445
Others			453				724
Total		$	1,506			$	1,786

NOTE 6 — STOCKHOLDERS’ EQUITY

Common Stock Purchase Warrants:   In 2016, the Company issued warrants to acquire 3,755,100 shares of common stock, 2,025,000 issued further to the Offering and 1,405,007 issued in connection with the conversion of preferred stock and bridge loans upon closing of the Offering. In March and April 2016, the Company issued 171,000 warrants to purchase shares of common stock at $2.00 per share in connection with the issuance of restricted stock. In May 2017, 39,392 warrants to purchase common stock at $0.0052 were exercised, in a cashless exercise, in exchange for the net equivalent shares of common stock. In June 2016, 102,041 warrants to purchase shares of common stock at $2.00 per share were issued in connection with the conversion of debt to equity. In the three months ended September 30, 2017, 538,600 warrants to purchase shares of common stock at $2.00 per share were issued in connection with the issuance of convertible promissory notes. As of September 30, 2017 and December 31, 2016, warrants to purchase 4,421,676 and 3,991,015 shares of common stock, respectively, are outstanding. Unexercised warrants will expire from 2017 to 2025.

The Company filed Tender Offer Statements with the Securities and Exchange Commission on October 13, 2017, offering the Company’s warrant holders the opportunity to purchase one share of common stock for each warrant held at a price of $0.45. The consummation of the offer is dependent upon stockholder approval and said approval is presented as a proposal to stockholders in the Company’s definitive Proxy Statement filed with the Securities and Exchange Commission on October 12, 2017. The proceeds of the offer will be held in escrow pending the result of the shareholder vote. The offer expires on November 17, 2017.

Restricted Shares:  In August 2015, the Company issued 84,170 shares of restricted common stock to the Company’s Chairman of the Board pursuant to a consulting agreement. The consulting agreement was effective in May 2015.

In August 2015, the Company issued 382,575 shares of restricted common stock in connection with the Trademark License Agreement with Monster, Inc. The fair value of the 382,575 shares approximating $2,103,000 were recorded as part of the Trademark in August 2015. In regards to the valuation of the Company’s common stock, the Board of Directors (“Board”) engaged an independent third party valuation of the Company.

In August 2016, the Company authorized the issuance of 40,000 shares of restricted common stock pursuant to a services agreement with an investment relations firm and recognized $7,000 and $21,000 of compensation expense related to restricted shares in the three and nine months ended September 30, 2017, respectively. In addition, the Company authorized the issuance of 125,000 shares of restricted common stock to Jawahar Tandon pursuant to a consulting agreement and recognized the full $563,000 of compensation expense related to the restricted shares during the year ended December 31, 2016.

In November 2016, the Company entered into a securities purchase agreement providing for the issuance and sale to an investor of 333,333 shares of our common stock. The shares issued in the Private Placement were sold at a purchase price per share of $1.50, for aggregate gross proceeds to us of approximately $500,000 and aggregate net proceeds to us, after deducting for placement agent fees and expenses, of approximately $446,000. The investor was issued an additional 80,000 shares in May 2017 in a non-cash transaction. The additional share issuance was intended to adjust the aggregate shares awarded to the investor in relation to future investment rounds that were transacted at $1.15 per share. Under the same Private Placement Memorandum, the Company issued 151,515 shares of restricted common stock to its Chairman of the Board at a purchase price of $1.65 per share for gross proceeds of $250,000 and net proceeds of approximately $226,000.

In March 2017, the Company issued 226,000 shares of common stock at $1.50 per share pursuant to a Private Placement Memorandum for aggregate gross proceeds of $339,000 and net proceeds, after deducting for commission and placement agent fees and expenses, of approximately $307,000. These shareholders were issued an additional 47,478 shares in July 2017 in a non-cash transaction to adjust the aggregate shares awarded to those investors in relation to a future investment round at $1.15. In April 2017, the Company issued an additional 116,000 shares at $1.15 for aggregate gross proceeds of $133,400 and net proceeds, after deducting for commission, of approximately $112,000.

On June 23, 2017, the Company issued 172,414 shares of common stock at $0.58 per share in exchange for a $100,000 promissory note dated June 7, 2017 due to GSB Holdings, Inc., a family owned company of David Clarke, the Company’s CEO and Chairman of the Board. The issuance price was $0.05 greater than the closing price of the Company’s common stock on the issuance date.

During the second quarter of 2017, the Company issued 87,500 fully vested shares of restricted common stock and recognized $56,150 of non-cash, stock-based compensation at the time of issuance. The Company issued 15,000 of the 87,500 shares for product marketing, 12,500 shares pursuant to an employee severance agreement, 25,000 additional shares to its investor relations firm and 35,000 shares as compensation for the activities of a special committee of its Board.

Also, during the second quarter of 2017, the Company issued 95,000 shares of restricted common stock to certain employees. During the three and nine months ended September 30, 2017, the Company recognized $8,000 and $14,000 of non-cash, stock-based compensation, respectively. Another $53,000 of stock-based compensation remains to be amortized over 19 months.

During the three months ended September 30, 2017, the Company issued 30,000 shares of restricted stock to the three independent members of its Board, recognizing $16,000 of non-cash, stock-based compensation with $16,000 remaining to be amortized over three months.

Preferred Stock: In March 2016, the Company issued a confidential Private Placement Memorandum (“PPM”) for a maximum of 3,000,000 shares of Series A Convertible Preferred Stock, with a purchase price of $1.00 per share and convertible into one share of the Company’s common stock and having an 8%, noncumulative dividend. Pursuant to the PPM, as of June 30, 2016, 2,802,430 shares of Series A Preferred Stock were subscribed for net proceeds of approximately $2.4 million. In July 2016, the Company completed the Offering in which all shares of Series A referred Stock was converted into 622,762 shares of common stock and 622,762 warrants at the public offering price of $4.50 per share and the issuance of 134,044 shares of common stock further to the conversion.

NOTE 7 — STOCK OPTIONS

In 2012, the Company’s Board approved the 2012 Omnibus Incentive Plan (the “Plan”) which allows for the granting of stock options, stock appreciation rights, awards of restricted stock and restricted stock Units, stock bonuses and other cash and stock-based performance awards. A total of 970,350 shares of common stock have been approved and reserved for issuance under the Plan, which includes a 600,000 share increase approved by the Company’s stockholders in May 2016. During the nine months ended September 30, 2017, no options were granted under the Plan. In addition, during the nine months ended September 30, 2017 and 2016, 46,100 and 51,512 options, respectively, were forfeited for employees who were no longer with the Company and were returned to the pool of available options. There were 150,049 and 778,949 shares of common stock available to grant as options or restricted stock at September 30, 2017 and December 31, 2016, respectively.

On December 23, 2015, the Company authorized restricted stock grants under its 2012 Omnibus Incentive Plan of 47,135 to two executives of the Company, the grants accepted and effective January 4, 2016. In August 2016, 33,688 shares were forfeited and returned to the option pool.

On the effective date of the Offering, 111,332 shares of restricted stock were granted to four executives of the Company. In January 2017, an additional 30,000 shares were granted to two of the same executives. Subsequent to the granting of the restricted stock, 101,332 shares were forfeited and returned to the option pool. Also concurrent to the Offering, 10,000 shares of restricted stock were granted to each of the Company’s four outside directors. In January 2017, an additional 5,000 shares were granted to three of the directors. Since 45,000 of these shares were issued during the quarter fully vested, the Company recognized $29,000 of stock-based compensation at grant. Also in January 2017, 175,000 shares of restricted stock were issued to the Company’s CEO fully vested and the Company recognized $266,000 of stock-based compensation at the time of the grant.

Also granted on the effective date of the Offering were previously approved options to acquire 86,502 common shares at an exercise price per share of $4.50 to four executives of the Company. Subsequent to the granting of the stock options, 69,668 options were forfeited and returned to the option pool.

In August 2016, pursuant to a services agreement and outside of the Plan, the Company granted options to acquire 38,143 shares of common stock to an investor relations firm.

The Company follows the provision of ASC Topic 718,Compensations – Stock Compensation which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and non-employee directors, including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is generally recognized as an expense over the requisite service period.

In 2016, the following stock option grants were made:

Option Date		Options Granted				Exercise Price				Estimated Fair Value of Underlying Stock				Intrinsic Value
August 2016			6,004			$	5.00			$	3.00				None
August 2016			7,230			$	7.00			$	3.00				None
August 2016			9,986			$	9.00			$	3.00				None
August 2016			14,923			$	11.00			$	3.00				None

The Company utilizes the Black-Scholes valuation method to value stock options and recognizes compensation expense over the vesting period. The expected life represents the period that the Company’s stock-based compensation awards are expected to be outstanding. The Company uses a simplified method provided in Securities and Exchange Commission release Staff Accounting Bulletin No. 110 which averages an awards weighted average vesting period and contractual term for “plain vanilla” share options. The expected volatility was estimated by analyzing the historic volatility of similar public companies. No dividend payouts were assumed as the Company has not historically paid, and is not anticipating to pay, dividends in the foreseeable future. The risk-free rate of return reflects the weighted average interest rate offered for U.S. treasury rates over the expected life of the options.

A summary of significant assumptions used to estimate the fair value of the stock options granted in 2016 are as follows:

Weighted average fair value of options granted		$1.70
Expected term (years)		6.0 to 10.0
Risk-free interest rate		1.21% to 1.51%
Volatility		45.4%
Dividend yield		None

A summary of option activity for the Plan as of September 30, 2017 and changes for the nine months then ended are represented as follows:

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contract Term (Years)				Aggregate Intrinsic Value
Options outstanding January 1, 2017			62,934			$	4.50				9.50			$	—
Granted			—				—				—				—
Forfeited			(46,100	)			—				—				—
Outstanding at September 30, 2017			16,834			$	4.50				8.75			$	—

The following table summarizes restricted share activity for the nine months ended September 30, 2017:

		Number of Shares				Weighted Average Grant Date Fair Value
Outstanding January 1, 2017			128,467			$	3.87
Granted			1,124,103				1.18
Vested			(622,570	)			1.21
Forfeited			(70,000	)			3.06
Outstanding at September 30, 2017			560,000			$	1.46

The Company recorded non-cash stock-based compensation related to stock options and restricted stock of $189,000 and $848,000 during the three and nine months ended September 30, 2017, respectively. The Company recorded $943,000 non-cash stock-based compensation in the nine months ended September 30, 2016.

As of September 30, 2017, the total compensation expense related to unvested options and restricted stock not yet recognized totaled approximately $384,000. The weighted average vesting period over which the total compensation expense will be recorded related to unvested options and restricted stock not yet recognized at September 30, 2017 was approximately 10 months.

NOTE 8 — RELATED PARTY TRANSACTIONS

Borrowings:  From time to time, the Company receives short-term, non-interest bearing loans from Tandon Enterprises, Inc. for the purpose of funding temporary working capital needs. For the nine months ended September 30, 2016, the Company borrowed $24,000, net of repayments. The $346,100 owed to Tandon Enterprises at June 30, 2016 was converted into 76,911 shares of common stock and warrants at the effective date of the Offering.

In September 2015, David Clarke, the Company’s Chairman of the Board and a significant stockholder of the Company, loaned the Company $100,000 further to a promissory note bearing interest at 5% per annum, principal and unpaid interest payable on demand. In addition, Mr. Clarke incurred expenses on behalf of the Company totaling approximately $50,000. Concurrent with the closing of the Offering, the loan and liability related to the expenses were converted into 33,333 shares of common stock and 33,333 warrants at the public offering price of $4.50.

On June 7, 2017, GSB Holdings, Inc., a family owned company of David Clarke, the Company’s CEO and Chairman of the Board, loaned the Company $100,000 further to a promissory note and issued 102,041 three-year warrants at an exercise price of $2.00 in lieu of interest. On June 23, 2017, the Company issued 172,414 shares of common stock at $0.58 per share in exchange for the promissory note. The issuance price was $0.05 greater than the closing price of the Company’s common stock on the issuance date.

Restricted Shares:  In November 2016, the Company issued 151,515 shares of restricted common stock to its Chairman of the Board at a purchase price of $1.65 per share pursuant to a Private Placement Memorandum. In March 2017, the Company issued 70,000 shares of restricted stock to its Chairman of the Board at a purchase price of $1.50 per share pursuant to a Private Placement Memorandum.

NOTE 9 — INCOME TAXES

For the nine months ended September 30, 2017 and 2016, the income tax provision recorded was $0 and $2,000, respectively. The Company’s income tax provision generally consists of state income taxes currently paid or payable.

The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Due to the uncertainty surrounding the realization of these deferred tax assets, the Company has recorded a 100% valuation allowance. Net operating loss carryforwards expire between the years 2029 and 2036. Tax years ended December 31, 2016, 2015, 2014 and 2013 are open and subject to audit.

The effective income tax provision as a percentage of pre-tax loss differs from expected combined federal and state income tax of 40% as a result of the full valuation allowance.

Management is not aware of any uncertain tax positions and does not expect the total amount of recognized tax benefits to change significantly in the next twelve months.

NOTE 10 — CUSTOMER AND VENDOR CONCENTRATIONS

Customers:

Approximately 20%, 15% and 14% of the Company’s gross sales were made to three customers for the nine months ended September 30, 2017. At September 30, 2017, the amount included in outstanding accounts receivable related to these customers was approximately $251,000. Approximately 42% of the Company’s gross sales were made to one customer for the nine months ended September 30, 2016.

Vendors:

Approximately 97% of the Company’s purchases were provided by three vendors for the nine months ended September 30, 2017. At September 30, 2017, the amount in accounts payable related to these vendors was approximately $6,000. Approximately 95% of the Company’s purchases were provided by three vendors for the nine months ended September 30, 2016.

NOTE 11 — COMMITMENTS AND CONTINGENCIES

Royalty

The Company entered into the initial trademark license agreement with Monster, Inc. (formerly Monster Cable Products, Inc.) effective July 7, 2010. In 2012, the agreement was amended giving the Company exclusive rights to utilize the name “Monster Digital” on memory products for a period of 25 years (expires July 7, 2035) under the following payment schedule of royalties to Monster, Inc. This license agreement contains various termination clauses that include (i) change in control, (ii) breach of contract and (iii) insolvency, among others. The Company is required to remit royalty payments to Monster, Inc. on or before the 30^th day following the end of each calendar quarter. At any time during the term of the agreement, a permanent license may be negotiated.

The royalty schedule became effective in August 2011 and was further amended in April 2012. As amended, royalties under this contract are as follows:

Effective July 1, 2014, the royalty rate on certain products was reduced from 4% to 2% for a period of 12 months, based on a mutual understanding between the Company and the licensor.

For the three months ended September 30, 2017 and 2016, royalty expense amounted to approximately $125,000. For the nine months ended September 30, 2017 and 2016, royalty expense amounted to approximately $375,000 and $246,000, respectively, and is included as a component of selling and marketing expenses in the accompanying consolidated statements of operations. At September 30, 2017, $375,000 is due for royalties and the Company is not in compliance with the royalty payment schedule.

Operating Lease

The Company occupied executive offices in Simi Valley, CA pursuant to a lease through January 31, 2018. Effective as of March 31, 2017, the Company terminated the lease by mutually accepted and favorable terms with the lessor. Effective April 1, 2017, the Company entered into a one-year lease for warehouse space in Ontario, CA.

Customer Payment Agreement

In July 2015, the Company entered into an agreement with a customer under which the Company will pay the customer a total of $835,000 owed to the customer for promotional and other credits related to sales that occurred in 2014. The credits were accrued as contra-sales in 2014. Under the terms of the agreement, there is no interest and the Company will make 12 monthly payments of $65,000 beginning in August 2015, and one final payment of $65,000 in August 2016. The Company is not in compliance with the payment agreement and the balance owed is $57,000 at September 30, 2017.

In January 2017, the Company entered into an agreement with a customer under which the Company settled an amount due of $1.84 million for $1.5 million, recording a $341,000 deferred gain and recognizing a current period gain of $68,000. The settlement included an initial payment of $250,000 with the remaining balance to be paid in monthly installments through December 2018. The Company and the customer entered into an addendum to the agreement in September 2017 whereby the customer agreed to accept a one-time payment of $600,000. The funds for this payment are from an investor who was offered shares of common stock below market and, as such, are held in escrow pending shareholder approval as one of the proposals in the Company’s proxy. The addendum, and consequently the offer to accept this one-time payment, become null and void if payment is not released from escrow by November 30, 2017 at which time the original January 2017 settlement will remain in full force.

Legal Matters

The Company is subject to certain legal proceedings and claims arising in connection with the normal course of its business.

On February 16, 2016, the Company received a letter from GoPro, Inc., or GoPro, alleging that the Company infringes on at least five U.S. patents held by GoPro, and requesting that the Company confirms in writing that it will permanently cease the sale and distribution of its Villain camera, along with any camera accessories, including the waterproof camera case and standard housing. The five patents specifically identified by GoPro in the letter were U.S. Patent No. D710,921: camera housing design, U.S. Patent No. D702,747: camera housing design, U.S. Patent No. D740,875: camera housing design, U.S. Patent No. D737,879: camera design and U.S. Patent No. 721,935: camera design. Based upon our preliminary review of these patents, the Company believes it has some defenses to GoPro’s allegations, although there can be no assurance that the Company will be successfulable to obtain additional capital on terms acceptable to the Company, on a timely basis or at all. The failure to obtain sufficient additional funding could adversely affect the Company’s ability to achieve its business objectives and product development timelines and could have a material adverse effect on the Company’s results of operations.

On July 19, 2021, the Company closed an asset purchase agreement (the “Lobesity Asset Purchase Agreement”) with Lobesity LLC (“Lobesity”) pursuant to which the Company acquired global development rights to a proprietary and highly specific humanized monoclonal antibody that targets glucose-dependent insulinotropic polypeptide, as well as related intellectual property (the “Lobesity Acquisition”). The consideration for the Lobesity Acquisition at closing consisted of $2.3 million in defending againstcash and 2,417,211 shares of unregistered common stock plus the right to contingent payments including certain potential worldwide regulatory and clinical milestone payments totaling $45.5 million for a single indication (with the total amount payable, if multiple indicates are developed, not to exceed $58.0 million), global sales-related milestone payments totaling up to $50.0 million, and, subject to certain adjustments, a mid-single digit royalty on worldwide net sales.

To satisfy the Company’s post-closing rights to indemnification under the Lobesity Asset Purchase Agreement, 604,303 of the shares issued to Lobesity are subject to holdback restrictions for 18 months following closing of the transaction. The Company’s right to indemnification will be satisfied through the recovery of these allegationsshares or reachingpaid in cash by Lobesity.

Michael Rice, a member of our Board since March 2021, is satisfactorya Founding Partner of LifeSci Advisors, LLC and LifeSci Communications, LLC. Prior to us.his becoming a director, on April 1, 2020 the Company entered into a master services agreement with both LifeSci Advisors, LLC and LifeSci Communications, LLC, to provide investor relations and public relations services, respectively. The Company incurred expenses with LifeSci Advisors, LLC of approximately $64,000 and $127,000 during the three and six months ended June 30, 2022, respectively, and $66,000 and $176,000 during the three and six months ended June 30, 2021, respectively. The Company incurred expenses with LifeSci Communications, LLC of approximately $70,000 and $144,000 during the three and six months ended June 30, 2022, respectively, and $63,000 and $190,000 during the three and six months ended June 30, 2021, respectively.

Upon execution of the Alba License, the Company paid Alba a non-refundable license fee of $0.5 million. In addition, we have begun marketingthe Company is required to make milestone payments to Alba upon the achievement of certain clinical and sellingregulatory milestones totaling up to $1.5 million and payments upon regulatory approval and commercial sales of a licensed product totaling up to $150 million, which is based on sales ranging from $100 million to $1.5 billion.

Upon the cameraCompany paying Alba $2.5 million for the first commercial sale of a licensed product, the Alba License becomes perpetual and irrevocable. Upon the achievement of net sales in a year exceeding $1.5 billion, the Alba License also becomes free of milestone fees. The Alba License provides Alba with certain termination rights, including failure of the Company to use Commercially Reasonable Efforts (as defined in the Alba License) to develop the licensed products.

During 2013, the Company entered into an exclusive license agreement with Seachaid Pharmaceuticals, Inc. (the “Seachaid Agreement”) to further develop and commercialize the licensed product, the compound known as APAZA. The Company was required to make an initial, non-refundable payment under the name “Monster Vision”Seachaid Agreement in the amount of $0.2 million. The agreement also calls for milestone payments totaling up to $6.0 million to be paid when certain clinical and phasing out the “Villain” name. We have had no correspondenceregulatory milestones are met. There are also commercialization milestone payments ranging from GoPro since instituting the name change.

The supplier$1.0 million to $2.5 million depending on net sales of the Company’s Villain camera has contractually representedproducts in a single calendar year, followed by royalty payments in the single digits based on net product sales.

During 2014, the Company entered into an asset purchase agreement (the “Repligen Asset Purchase Agreement”) with Repligen Corporation (“Repligen”) to acquire Repligen’s RG-1068 program for the development of Secretin for the Pancreatic Imaging Market and warranted that it owns or has paid royaltiesMagnetic Resonance Cholangiopancreatography. As consideration for the Repligen Asset Purchase Agreement, the Company agreed to anymake a non-refundable cash payment on the date of the agreement and allfuture royalty payments consisting of a percentage between 5 and 15 of annual net sales, with the royalty payment percentage increasing as annual net sales increase.

In connection with the acquisition of Naia Rare Diseases, Inc. (the “Naia Acquisition”), the Company entered into 2 amended and restated license agreements with Amunix Pharmaceuticals, Inc. (“Amunix”), pursuant to which the Company received an exclusive, worldwide, royalty-bearing license, with rights of sublicense, to lead molecules GLP-1 and GLP-2 along with a related XTEN sequence and other intellectual property designs, software, hardware, packaging, components, manualsreferenced therein (the “Amunix Licenses”). Also in connection with the Naia Acquisition, the Company entered into an amended and any other portion, part or element that is or may be subjectrestated license agreement with Cedars-Sinai Medical Center (“Cedars”), pursuant to which the Villain name andCompany licensed the parts and accessories thereof sourced byrights to GLP-1 Agonist for the supplier. This supplier has contractuallytreatment of SBS (the “Cedars License”).

As consideration under the Amunix License for GLP-1, the Company agreed to pay any claims, damages, or costs thatAmunix certain royalty payments and (i) $70.4 million in milestone payments upon achievement of future development and sales milestones in the U.S. and major EU countries, (ii) $20.5 million in milestone payments upon achievement of future development and sales milestones in China and certain related territories, and (iii) $20.5 million in milestone payments upon achievement of future development and sales milestones in South Korea and certain other East Asian countries. As consideration under the Amunix License for GLP-2, the Company suffers as a resultagreed to pay Amunix certain royalty payments and $60.1 million in milestone payments upon achievement of future development and sales milestones in the U.S. and major EU countries.

One of the patent infringement or a violation of international, U.S. or state laws or regulations as detailedassets acquired in the Lobesity Acquisition was an amended and restated technology license agreement with MHS Care-Innovation LLC (“MHS”), pursuant to which the Company received an exclusive, worldwide license, with rights to sublicense, to certain patent and other intellectual property rights concerning a proprietary and highly specific humanized monoclonal antibody that targets glucose-dependent insulinotropic polypeptide (the “MHS License”). The MHS License does not require the payment of any future milestone payments or royalties to MHS, since it was originally entered into with Lobesity in exchange for the issuance of certain equity securities and a grant of certain related rights to Lobesity, all of which occurred prior sentence.

Class Complaint

to the closing of the Lobesity Acquisition. As consideration for the assets purchased in the Lobesity Acquisition (including but not limited to the MHS License), the Company is obligated to pay Lobesity (i) potential worldwide regulatory and clinical milestone payments totaling $45.5 million for a single indication (with the total amount payable, if multiple indications are developed, not to exceed $58.0 million), (ii) up to $50.0 million in global sales-related milestone payments, and (iii) subject to certain adjustments, a mid-single digit royalty on worldwide net sales.

On September 15, 2017,August 6, 2021, the Company announced a putative class action complaintcollaboration with the European Biomedical Research Institute of Salerno, Italy (“EBRIS”) to study larazotide for the treatment of MIS-C. In connection with this collaboration, the Company paid a milestone fee of $0.5 million upon IND approval for MIS-C. Following receipt of a Study May Proceed letter from the FDA under the Investigator IND, EBRIS initiated a Phase 2a study in MIS-C during the fourth quarter of 2021. The Phase 2a study is a randomized, double-blind, placebo-controlled study.

On April 11, 2022, the Company entered into an exclusive license agreement (the “Class Complaint”“EBRIS License Agreement”) was filedwith EBRIS pursuant to which the company granted to EBRIS an exclusive license to study the Company’s product incorporating larazotide as its sole active pharmaceutical ingredient (the “Product”) for the treatment of MIS-C and, potentially, multisystem inflammatory syndrome in adults (“MIS-A”). In turn, the Company will have an option to license from EBRIS any new intellectual property resulting from such development (the “Option”).

Pursuant to the EBRIS License Agreement, the Company issued to EBRIS shares of common stock valued at $500,000 (consisting of 871,962 shares of unregistered common stock priced at the Company’s 20-day volume weighted-price as of the date of closing), plus the Company will pay EBRIS $500,000 in cash in connection with final database lock of the ongoing Phase II clinical trial for the treatment of MIS-C. Upon the readout of the top-line data and an FDA agreed upon path forward to further develop the compound in MIS-C, the Company may exercise the Option for an upfront fee of $1 million. In addition, the EBRIS License Agreement contemplates certain contingent payments, including development milestone payments, sales-related milestone payments, and subject to certain adjustments, a low-single digit royalty on net sales of Products in the United States District Courtsold pursuant to prescriptions for use in treating MIS-C and, if applicable, MIS-A. Of note, each such payment is payable, at the option of the Company, in cash or a combination of cash and unregistered shares of the Company’s common stock.

The range of assumptions used in estimating the fair value of the options granted under the Omnibus Plan using the Black-Scholes option pricing model for the Central Districtperiods presented were as follows: