10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2018
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________.

Commission File No.: 000-55242

Sun BioPharma, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	87-0543922
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
712 Vista Blvd #305, Waconia, Minnesota
(Address of principal executive offices)

(952) 479-1196

(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 ☑   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑   No ☐ *

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if smaller reporting company)	Smaller reporting company ☑
Emerging growth company ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑

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

On May 11, 2018, there were 4,093,852 shares of the registrant’s common stock, par value $0.001, outstanding.

Sun BioPharma, Inc.
Index to Quarterly Report on Form 10-Q

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	19
Item 4.	Controls and Procedures	19
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 5.	Other Information	20
Item 6.	Exhibits	20

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PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements.

Sun BioPharma, Inc.
Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

	March 31, 2018			December 31, 2017
	(Unaudited)
ASSETS
Current assets:
Cash	$	1,169		$	152
Prepaid expenses and other current assets		152			195
Income tax receivable		448			420
Total current assets		1,769			767
Other noncurrent assets		56			—
Total Assets	$	1,825		$	767
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	1,222		$	1,196
Accrued expenses		94			1,254
Deposits		350			—
Convertible notes payable, net		1,955			1,525
Term debt, current portion		50			14
Accrued interest		224			181
Total current liabilities		3,895			4,170
Long-term liabilities:
Term debt, noncurrent portion		250			286
Total long-term liabilities		250			286
Stockholders’ deficit:
Preferred stock, $0.001 par value; 10,000,000 authorized; no shares issued or outstanding as of March 31, 2018 and December 31, 2017		—			—
Common stock, $0.001 par value; 100,000,000 authorized; 4,093,852 and 3,841,652 shares issued and outstanding, as of March 31, 2018 and December 31, 2017, respectively		4			4
Additional paid-in capital		28,678			25,625
Accumulated deficit		(30,906	)		(29,153	)
Accumulated comprehensive loss		(96	)		(165	)
Total stockholders’ deficit		(2,320	)		(3,689	)
Total liabilities and stockholders’ deficit	$	1,825		$	767

See accompanying notes to condensed consolidated financial statements.

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Sun BioPharma, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)

 (Unaudited)

	Three Months Ended March 31,
	2018			2017
Operating expenses
General and administrative	$	658		$	1,250
Research and development		580			744
Operating loss		(1,238	)		(1,994	)
Other income (expense):
Grant income		10			—
Interest expense		(473	)		(199	)
Loss on induced debt conversions		—			(3,696	)
Other income		(80	)		164
Total other expense		(543	)		(3,731	)
Loss before income tax benefit	$	(1,781	)	$	(5,725	)
Income tax benefit		28			152
Net loss		(1,753	)		(5,573	)
Foreign currency translation adjustment gain (loss)		69			(162	)
Comprehensive loss	$	(1,684	)	$	(5,735	)
Basic and diluted net loss per share	$	(0.45	)	$	(1.73	)
Weighted average shares outstanding – basic and diluted		3,927,296			3,221,229

See accompanying notes to condensed consolidated financial statements.

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Sun BioPharma, Inc.

Condensed Consolidated Statements of Stockholders’ Deficit

(In thousands)

(Unaudited)

	Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital		Deficit			Gain (Loss)			Equity (Deficit)
Balances at January 1, 2018		3,842	$	4	$	25,625	$	(29,153	)	$	(165	)	$	(3,689	)
Sale of common stock and warrants		252		—		1,261		—			—			1,261
Stock-based compensation		—		—		1,792		—			—			1,792
Net loss		—		—		—		(1,753	)		—			(1,753	)
Foreign currency translation adjustment, net of taxes of $0		—		—		—		—			69			69
Balances at March 31, 2018		4,094	$	4	$	28,678	$	(30,906	)	$	(96	)	$	(2,320	)

See accompanying notes to condensed consolidated financial statements.

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Sun BioPharma, Inc.

Condensed Consolidated Statements of Cash Flows
(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2018			2017
Cash flows from operating activities:
Net loss	$	(1,753	)	$	(5,573	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on induced debt conversions		—			3,696
Stock-based compensation		698			920
Amortization of debt discount		427			106
Amortization of debt issuance costs		2			44
Non-cash interest expense		43			10
Changes in operating assets and liabilities:
Income tax receivable		(36	)		(144	)
Prepaid expenses and other current assets		(15	)		38
Accounts payable		111			(367	)
Accrued liabilities		(65	)		198
Net cash used in operating activities		(588	)		(1,072	)
Cash flows from financing activities:
Net proceeds from the sale of convertible promissory notes		—			3,059
Deposits received for possible future stock sales		350			—
Proceeds from sale of common stock and warrants		1,261			—
Proceeds from the exercise of stock options		—			7
Net cash provided by financing activities		1,611			3,066
Effect of exchange rate changes on cash		(6	)		10
Net increase in cash		1,017			2,004
Cash at beginning of period		152			438
Cash at end of period	$	1,169		$	2,442
Supplemental disclosure of cash flow information:
Cash paid during period for interest	$	21		$	—
Supplemental disclosure of non-cash transactions:
Conversion of promissory notes and accrued interest into common stock	$	—		$	2,888
Intrinsic value of beneficial conversion feature in convertible notes		—			2,954
Conversion of demand notes into common stock		—			250
Options granted in exchange for release from contingent payment obligations		1,094			—

See accompanying notes to condensed consolidated financial statements.

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Sun BioPharma, Inc.
Notes to Condensed Consolidated Financial Statements

1.     Business

Sun BioPharma, Inc. and its wholly-owned subsidiary Sun BioPharma Australia Pty Ltd. (collectively “we,” “us,” “our,” and the “Company”) exist for the primary purpose of advancing the commercial development of a proprietary polyamine analogue for pancreatic cancer and for a second indication in chronic and recurrent acute pancreatitis. We have exclusively licensed the worldwide rights to this compound, which has been designated as SBP-101, from the University of Florida Research Foundation, Inc. (“UFRF”).

Effective November 7, 2017, we implemented a 1-for-10 reverse split of our common stock. All references to share and per share amounts included in these Condensed Consolidated Financial Statements have been retroactively restated to reflect the reverse split.

2.     Risks and Uncertainties

The Company operates in a highly regulated and competitive environment. The development, manufacturing and marketing of pharmaceutical products require approval from, and are subject to ongoing oversight by, the Food and Drug Administration (“FDA”) in the United States, the Therapeutic Goods Administration (“TGA”) in Australia, the European Medicines Agency (“EMA”) in the European Union, and comparable agencies in other countries. Obtaining approval for a new pharmaceutical product is never certain, may take many years, and is normally expected to involve substantial expenditures.

We have incurred losses of $30.9 million since our inception in 2011. For the three months ended March 31, 2018, we incurred a net loss of $1.8 million, which includes a non-cash credit of $1.1 million related to the waiver of contingent payment rights by certain employees offset by $1.8 million of stock-based compensation expense. We also incurred negative cash flows from operating activities of $0.6 million for this period. During this same period, we raised $1.6 from the sale of equity securities. We expect to incur substantial losses for the foreseeable future, which will typically generate negative net cash flows from operating activities, as we continue to pursue development activities and seek to commercialize our initial product candidate, SBP-101. As of March 31, 2018, we had cash of $1.2 million, working capital deficit of $2.1 million due primarily to the current portion of convertible debt, and stockholders’ deficit of $2.3 million. The Company’s principal sources of cash have historically included the issuance of convertible debt and equity securities.

The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of assets or the amounts of liabilities that might result from the outcome of these uncertainties. Our current independent registered public accounting firm, included a paragraph emphasizing this going concern uncertainty in their audit report regarding our 2017 financial statements dated March 21, 2018. Our ability to continue as a going concern, realize the carrying value of our assets and discharge our liabilities in the ordinary course of business is dependent upon a number of factors, including our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our SBP-101 product candidate in the United States, Australia, the European Union or other markets and ultimately our ability to market and sell our SBP-101 product candidate. These factors, among others, raise substantial doubt about our ability to continue operations as a going concern. See Note 4 titled “Liquidity and Management’s Plans.”

3.     Basis of Presentation

We have prepared the accompanying interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly our consolidated financial position, consolidated results of operations and consolidated cash flows for the periods and as of the dates presented. Our fiscal year ends on December 31. The condensed consolidated balance sheet as of December 31, 2017 was derived from audited consolidated financial statements but does not include all disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto included in our most recent filed Annual Report on Form 10-K and our other filings with the SEC. The nature of our business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

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Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements of Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition” and most industry-specific guidance on revenue recognition throughout the ASC. The new standard is principles-based and provides a five-step model to determine when and how revenue is recognized. The core principle of the new standard is that revenue should be recognized when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also requires disclosure of qualitative and quantitative information surrounding the amount, nature, timing and uncertainty of revenues and cash flows arising from contracts with customers. The Company has evaluated the impact of this revised guidance on its financial statements and determined it had no material impact.

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. These ASUs apply to all companies that enter into contracts with customers to transfer goods or services. This ASUs is effective for public entities for interim and annual reporting periods beginning after December 15, 2017. The Company has evaluated the impact of this revised guidance on its financial statements and determined it had no material impact.

4.     Liquidity and Management Plans

We will need to obtain additional funds to continue our operations and execute our current business plans. We may seek to raise additional funds through various sources, such as equity and debt financings, or through strategic collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.

Between March 1, 2016 and September 30, 2017, we accrued a portion of cash base salaries for all senior employees in an effort to conserve cash. In lieu of a portion of base salary, the affected employees were entitled to receive a cash payment in an amount equal to the foregone salary. The cash payment would have become due upon a change of control or the issuance of equity securities resulting in cash gross proceeds of $10 million or more. As of December 31, 2017, the contingent payments under these arrangements totaled $1.1 million. On February 27, 2018, each of the affected employees agreed to waive their rights to receive the contingent payments in exchange for common stock options. See Note 6, titled “Employment agreement amendments and waiver of contingent payment rights.”

On  February 20, 2018, we entered into a Securities Purchase Agreement (the “2018 Purchase Agreement”) with certain accredited investors and completed an initial closing on the same date. Pursuant to the initial closing, we sold a total of 168,000 shares of common stock and warrants to purchase an aggregate of up to the same number of additional shares of common stock. The warrants issued under the 2018 Purchase Agreement will be exercisable for a period of three years from the date of issuance at an exercise price of $5.00 per share. On March 16, 2018 we completed an additional closing under the 2018 Purchase Agreement, resulting in the sale of an additional 84,200 shares of common stock and warrants to purchase up to the same number of additional shares of common stock. We have received aggregate gross proceeds totaling $1.26 million pursuant to private placements under the 2018 Purchase Agreement, of which $95,000 was received from directors and officers of the Company or its subsidiary. The 2018 Purchase Agreement contemplates subsequent closings that could result in up to an additional 1,747,800 units (each consisting of one share of common stock and a warrant to purchase one additional share of common stock).

If we are unable to obtain additional financing when needed, we will need to reduce our operations by taking actions that may include, among other things, reducing use of outside professional service providers, reducing staff or further reducing staff compensation, significantly modifying or delaying the development of our SBP-101 product candidate, licensing rights to third parties, including the right to commercialize our SBP-101 product candidate for pancreatic cancer, acute pancreatitis or other applications that we would otherwise seek to pursue, or discontinuing operations entirely.

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Our future success is dependent upon our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our SBP-101 product candidate in the United States or other markets and ultimately our ability to market and sell our SBP-101 product candidate. If we are unable to obtain additional financing when needed, if our clinical trials are not successful or if we are unable to obtain marketing approval, we would not be able to continue as a going concern and would be forced to cease operations and liquidate our company.

There can be no assurances that we will be able to obtain additional financing on commercially reasonable terms, or at all. The sale of additional convertible debt or equity securities would likely result in dilution to our current stockholders.

5.     Summary of Significant Accounting Policies

Principles of consolidation

The accompanying condensed consolidated financial statements include the assets, liabilities and expenses of Sun BioPharma, Inc. and our wholly-owned subsidiary, Sun BioPharma Australia Pty Ltd. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of expenses during the reporting period. Actual results could differ from those estimates.

Beneficial Conversion Feature

For convertible debt where the rate of conversion is below fair market value for our common stock, the Company records a "beneficial conversion feature" ("BCF") and related debt discount that is presented as a direct deduction from the carrying amount of the related debt and as an increase to additional paid-in capital. The debt discount is amortized through interest expense over the life of the related debt.

Debt issuance costs

Costs associated with the issuance of debt instruments are capitalized and presented as a direct deduction from the carrying amount of the related debt liability. These costs are amortized through interest expense over the life of the related debt.

Research and development costs

Research and development costs include expenses incurred in the conduct of our Phase 1 human clinical trial, for third-party service providers performing various testing and accumulating data related to our preclinical studies; sponsored research agreements; developing and scaling the manufacturing process necessary to produce sufficient amounts of the SBP-101 compound for use in our pre-clinical studies and human clinical trials; consulting resources with specialized expertise related to execution of our development plan for our SBP-101 product candidate; personnel costs, including salaries, benefits and share-based compensation; and costs to license and maintain our licensed intellectual property.

We charge research and development costs, including clinical trial costs, to expense when incurred. Our human clinical trials are, and will be, performed at clinical trial sites and are administered jointly by us with assistance from contract research organizations (“CROs”). Costs of setting up clinical trial sites are accrued upon execution of the study agreement. Expenses related to the performance of clinical trials generally are accrued based on contracted amounts and the achievement of agreed upon milestones, such as patient enrollment, patient follow-up, etc. We monitor levels of performance under each significant contract, including the extent of patient enrollment and other activities through communications with the clinical trial sites and CROs, and adjust the estimates, if required, on a quarterly basis so that clinical expenses reflect the actual effort expended at each clinical trial site and by each CRO.

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All material CRO contracts are terminable by us upon written notice and we are generally only liable for actual effort expended by the CROs and certain non-cancelable expenses incurred at any point of termination.

We expense costs associated with obtaining licenses for patented technologies when it is determined there is no alternative future use of the intellectual property subject to the license.

Stock-based compensation

In accounting for stock-based incentive awards we measure and recognize the cost of employee and non-employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards. Calculating stock-based compensation expense requires the input of highly subjective assumptions, which represent our best estimates and involve inherent uncertainties and the application of management’s judgment. Compensation cost is recognized ratably using the straight-line attribution method over the vesting period, which is considered to be the requisite service period. The performance date for non-employee awards is generally not met until the individual award vests. Accordingly, we re-measure the current fair value each quarter until the award vests. Compensation expense for performance-based stock option awards is recognized when “performance” has occurred or is probable of occurring.

The fair value of stock-based awards is estimated at the date of grant using the Black-Scholes option pricing model. The determination of the fair value of stock-based awards is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. Risk free interest rates are based upon U.S. Treasury rates appropriate for the expected term of each award. Expected volatility rates are based primarily on the volatility rates of a set of guideline companies, which consist of public and recently public biotechnology companies. The assumed dividend yield is zero, as we do not expect to declare any dividends in the foreseeable future. The expected term of options granted is determined using the “simplified” method. Under this approach, the expected term is presumed to be the mid-point between the average vesting date and the end of the contractual term.

Foreign currency translation adjustments

The functional currency of Sun BioPharma Australia Pty Ltd is the Australian Dollar (“AUD”). Accordingly, assets and liabilities, and equity transactions of Sun BioPharma Australia Pty Ltd are translated into U.S. dollars at period-end exchange rates. Revenues and expenses are translated at the average exchange rate in effect for the period. The resulting translation gains and losses are recorded as a component of accumulated comprehensive loss presented within the stockholders’ equity (deficit). During the three-month periods ended March 31, 2018 and 2017, any reclassification adjustments from accumulated other comprehensive loss to operations were inconsequential.

Comprehensive loss

Comprehensive loss consists of our net loss and the effects of foreign currency translation.

Net loss per share

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be anti-dilutive or reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options and warrants, have not been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive.

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The following table sets forth the potential shares of common stock that were not included in the calculation of diluted net loss per share as their effects would have been anti-dilutive:

	Three Months Ended March 31,
	2018		2017
Employee and non-employee stock options		1,097,960		700,960
Common shares issuable upon conversion of notes payable		322,947		307,838
Common shares issuable under common stock purchase warrants		403,700		361,550
		1,824,607		1,370,298

6.     Employment agreement amendments and waiver of contingent payment rights

Effective February 27, 2018, we entered into waivers and third amendments (collectively, the “Amendments”) to the previously disclosed employment agreements, as amended (the “Agreements”), with our Executive Chairman, Michael T. Cullen, M.D., M.B.A., our President and Chief Executive Officer, David B. Kaysen, and our former Chief Financial Officer, Scott Kellen, each of whom was an executive officer of the Company (collectively, the “Executives”), and our Chief Medical Officer, Suzanne Gagnon, M.D. (together with the Executives, the “Employees”). Dr. Cullen, Mr. Kaysen and Dr. Gagnon are also current members of the Company’s Board of Directors.

For each of the Employees, the Amendments waived the contingent cash payment and/or equity payments that had been established by the amendments to the Agreements dated October 1, 2017, each of which could have become due upon a change of control or the Company’s completion of an underwritten public offering of its common stock before June 30, 2018. The potential payments waived by the Employees totaled $1.1 million at the time of the amendments and was recorded as a reduction in salary expense. The Amendments also entitled Dr. Cullen, Mr. Kaysen, Mr. Kellen and Dr. Gagnon to grants of new non-qualified stock options to purchase up to 100,000 shares, 50,000 shares, 25,000 shares and 95,000 shares of Company common stock, respectively, at an exercise price equal to fair market value as of the date of grant. These options vested upon grant and have option terms of 10 years. The options were granted under the Company’s 2016 Omnibus Incentive Plan effective as of February 27, 2018 and had a fair value of approximately $1.3 million which was recorded as stock-based compensation expense.

7.     Stockholders’ Equity (Deficit)

Private Placement

During the quarter ended March 31, 2018, we issued an aggregate of 252,200 shares of our common stock and warrants to purchase an aggregate of up to the same number of additional shares of common stock pursuant to closings under the 2018 Purchase Agreements. Total proceeds from the sale of common stock and warrants was $1.26 million. Pursuant to the 2018 Purchase Agreements, we may be required to file a registration statement with the SEC covering the resale of the shares issued and/or warrant shares issuable thereunder. See Note 4, titled “Liquidity and Management’s Plans.”

As of March 31, 2018, we held additional payments totaling $350,000 that were held pending an additional closing under the 2018 Purchase Agreements. These funds are unavailable for any use by the Company as of the end of the quarter and are presented as Deposits in the accompanying March 31, 2018 Condensed Consolidated Balance Sheet. Notwithstanding the Deposits, the timing of any additional closing under the 2018 Purchase Agreement is not certain and we cannot assure you that an additional closing will occur or that one or more of the subscriptions represented by the Deposits will not be withdrawn in advance of such a closing.

Shares reserved

Shares of common stock reserved for future issuance are as follows:

	March 31, 2018
Common stock issuable under outstanding common stock options		1,097,960
Shares available for grant under equity incentive plan		696,400
Estimated common shares issuable upon conversion of notes payable		322,947
Common shares issuable under outstanding common stock purchase warrants		403,700
Total		2,521,007

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8.     Stock-based Compensation

2016 Omnibus Incentive Plan

The Sun BioPharma, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”) was adopted by our Board of Directors in March 2016 and approved by our stockholders in May 2016. The 2016 Plan permits the granting of incentive and non-statutory stock options, restricted stock, stock appreciation rights, performance units, performance shares and other stock awards to eligible employees, directors and consultants. We grant options to purchase shares of common stock under the 2016 Plan at no less than the fair market value of the underlying common stock as of the date of grant. Options granted under the 2016 Plan have a maximum term of ten years. Under the 2016 Plan, a total of 1,500,000 shares of common stock were initially reserved for issuance. As of March 31, 2018, options to purchase 803,600 shares of common stock were outstanding under the 2016 Plan and 696,400 shares remained available for future awards.

2011 Stock Option Plan

Our Board of Directors ceased making awards under the Sun BioPharma, Inc. 2011 Stock Option Plan (the “2011 Plan”) upon the receipt of stockholder approval for the 2016 Plan. Awards outstanding under the 2011 Plan remain outstanding in accordance with and pursuant to the terms thereof. Options granted under the 2011 Plan have a maximum term of ten years and generally vest over zero to two years for employees. As of March 31, 2017, options to purchase 294,360 shares of common stock remained outstanding under the 2011 Plan.

Stock-based Compensation Expense

General and administrative and research and development expenses include non-cash stock-based compensation expense as a result of our issuance of stock options. The terms and vesting schedules for stock-based awards vary by type of grant and the employment status of the grantee. The awards granted through March 31, 2018 vest based upon time-based and performance conditions. We expect to record additional non-cash compensation expense in the future, which may be significant.

Stock-based compensation expense for each of the periods presented is as follows (in thousands):

	Three Months Ended
	March 31, 2018		March 31, 2017
Research and development	$	727	$	119
General and administrative		1,065		801
Total stock-based compensation	$	1,792	$	920

A summary of option activity is as follows:

	Shares Available for Grant			Shares Underlying Options		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balances at December 31, 2017		1,060,400			733,960	$	9.79	$	2,121,985
Granted		(364,000	)		364,000		7.59
Exercised		—			—		—
Cancelled		—			—		—
Balances at March 31, 2018		696,400			1,097,960	$	9.06	$	944,545

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Information about stock options outstanding, vested and expected to vest as of March 31, 2018, is as follows:

				Outstanding, Vested and Expected to Vest						Options Vested and Exercisable
Per Share Exercise Price				Shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Options Exercisable		Weighted Average Remaining Contractual Life (Years)
$	0.88	–	1.10		38,360		4.59	$	1.04		38,360		4.59
	2.28	–	2.50		42,000		5.87		2.47		42,000		5.87
		3.18			214,000		6.93		3.18		214,000		6.93
	6.10	–	8.10		364,000		8.59		7.59		270,000		9.91
	10.00	–	10.10		54,000		9.31		10.00		52,000		9.52
		15.10			385,600		8.26		15.10		302,713		8.44
					1,097,960		7.94	$	9.06		919,073		8.30

Nonemployee stock-based compensation

We account for stock options granted to nonemployees in accordance with FASB Accounting Standards Codification Topic 505. In connection with stock options granted to nonemployees, we recorded $0.2 million and $0.4 million for nonemployee share-based compensation during the three months ended March 31, 2018 and 2017, respectively. These amounts were based upon the fair values of the vested portion of the grants. Amounts expensed during the remaining vesting period will be determined based on the fair value at the time of vesting.

The estimated grant-date fair values of the stock options were calculated using the Black-Scholes valuation model, based on the following assumptions for the three months ended March, 31, 2018 and 2017:

	2018				2017
Common stock fair value			$6.00			$10.10	-	$29.80
Risk-free interest rate		2.27%	-	2.5%			1.52%
Expected dividend yield			0%				0%
Expected option life (years)		2.0	–	5.5			3.25
Expected stock price volatility			72%				75%

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion contains various forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although we believe that, in making any such statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in the following discussion, the words “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates” and similar expressions, as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause actual results to differ materially from those anticipated, certain of which are beyond our control, are set forth herein and in Part I, Item 1A under the caption “Risk Factors” in our most recent Annual Report on Form 10-K.

Our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements. Accordingly, we cannot be certain that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have on us. We caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of the document in which they appear. We do not undertake to update any forward-looking statement.

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Overview

Sun BioPharma, Inc., and its wholly-owned subsidiary, Sun BioPharma Australia Pty Ltd. (collectively “we,” “us,” “our,” and the “Company”) exist for the primary purpose of advancing the commercial development of a proprietary polyamine analogue for pancreatic cancer and for a second indication in chronic and recurrent acute pancreatitis. We have exclusively licensed the worldwide rights to this compound, which has been designated as SBP-101, from the University of Florida Research Foundation, Inc. (“UFRF”).

In August 2015, the U.S. FDA granted an Investigational New Drug (“IND”) approval for our SBP-101 product candidate from January 2016 through September 2017, we enrolled twenty-nine patients into six cohorts, or groups, in the dose-escalation phase of our current Phase 1 trial. We estimate that completion of our Phase 1 clinical trial in pancreatic cancer and the completion of necessary preclinical development work and initiation of a Phase 1 clinical trial in pancreatitis, will require additional funding of at least $10 million. Additional clinical trials will likely be required for FDA or other similar approvals if the results of the first clinical trial of our SBP-101 product candidate is positive. We estimate that the additional time and cost to obtain FDA and European Medicines Agency (“EMA”) approval and to bring our SBP-101 product candidate to market in these two indications will be 6 to 7 years with related costs up to $200 million.

Financial Overview 

We have incurred losses of $30.9 million since inception. For the three months ended March 31, 2018, we incurred a net loss of $1.8 million. We also incurred negative cash flows from operating activities of $0.6 million for this period. We expect to continue to incur substantial losses, which will generate negative net cash flows from operating activities, as we continue to pursue research and development activities and commercialize our SBP-101 product candidate.

Our cash was $1.2 million as of March 31, 2018, compared to $0.2 million as of December 31, 2017.

The increase in cash was primarily due to net proceeds from the sales of shares of equity securities in a private placement to accredited investors pursuant to closings under the Securities Purchase Agreement (the “2018 Purchase Agreement”) dated February 20, 2018.

Between March 1, 2016 and September 30, 2017, we accrued a portion of cash base salaries for all senior employees in an effort to conserve cash. As of December 31, 2017, the contingent payments under these arrangements totaled $1.1 million, which was reflected as accrued compensation expense. On February 27, 2018, each of the affected employees agreed to waive their rights to receive the contingent payments in exchange for common stock options.

We will need to obtain additional funds to continue our operations and execute our current business plans, including completing our current Phase 1 clinical trial, planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets. We historically have financed our operations principally from the sale of convertible debt and equity securities. While we have been successful in the past in obtaining the necessary capital to support our operations, and have similar future plans to obtain additional financing, there is no assurance that we will be able to obtain additional financing under commercially reasonable terms and conditions, or at all. This risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.

If we are unable to obtain additional financing when needed, we will need to reduce our operations by taking actions that may include, among other things, reducing use of outside professional service providers, reducing staff or further reducing staff compensation, significantly modifying or delaying the development of our SBP-101 product candidate, licensing rights to third parties, including the right to commercialize our SBP-101 product candidate for pancreatic cancer, acute pancreatitis or other applications that we would otherwise seek to pursue, or discontinue operations entirely.

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Results of Operations

Comparison of the results of operations (in thousands):

	Three Months Ended March 31,
	2018			2017			Percent Change
Operating expenses:
General and administrative	$	658		$	1,250			-47.4	%
Research and development		580			744			-22.0
Total operating expenses		1,238			1,994			-37.9
Other income (expense), net		(543	)		(3,731	)		-85.4
Income tax benefit		28			152			-81.6
Net loss	$	(1,753	)	$	(5,573	)		-68.5	%

Research and development and general and administrative expenses include non-cash share-based compensation expense as a result of our issuance of stock options. We expense the fair value of equity awards over their vesting periods. The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee. The awards granted through March 31, 2018 vest upon performance and time-based conditions. We expect to record additional non-cash share-based compensation expense in the future, which may be significant.

The following table summarizes the stock-based compensation expense in our statements of comprehensive loss for the three months ended March 31, 2018 and March 31, 2017 (in thousands):

	Three Months Ended March 31,
	2018		2017
Research and development	$	727	$	119
General and administrative		1,065		801
Total stock-based compensation	$	1,792	$	920

General and administrative expense

Our general and administrative (“G&A”) expenses decreased 47.4% to $0.7 million in the first quarter of 2018 down from $1.2 million in the first quarter of 2017. The increase in stock compensation expense associated with the waiver of contingent payment rights by certain employees was mostly offset by the corresponding decrease in salary expense in the quarter. The net decrease in G&A expenses is primarily the result of a decrease in stock-based compensation expense excluding the expense of options granted for the waiver.

Research and development expense

Our research and development (“R&D”) expenses decreased 22% to $0.6 million in the first quarter of 2018 down from $0.7 million in the first quarter of 2017. The decrease was due primarily to decreased salary expense associated with fewer employees and other expenses reduced due to the completion of the Company’s dose escalation phase clinical study in late 2017.

Other expense, net

Other income and expense, net, was a net expense of $0.5 million and $3.7 million for the three months ended March 31, 2018 and 2017, respectively. Other expenses in the quarter ended March 31, 2018 was primarily the interest expense on convertible notes. In the quarter ended March 31, 2017 other expense includes a non-cash charge of $3.7 million related to the induced conversions of $2.9 million of convertible promissory notes, including accrued but unpaid interest and $250,000 aggregate principal amount of demand notes.

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Income tax benefit

Income tax benefit decreased to $28,000 for the three-months ended March 31, 2018 down from $0.2 million during the three-months ended March 31, 2017. Our income tax benefit is derived primarily from refundable tax credits associated with our R&D activities conducted in Australia.

Liquidity and Capital Resources

The following table summarizes our liquidity and capital resources as of March 31, 2018 and December 31, 2017 and our cash flow data for the three months ended March 31, 2018 and 2017 and is intended to supplement the more detailed discussion that follows (in thousands):

Liquidity and Capital Resources	March 31, 2018			December 31, 2017
Cash	$	1,169		$	152
Working capital (deficit)	$	(2,126	)	$	(3,403	)

	Three Months Ended March 31,
Cash Flow Data	2018			2017
Cash provided by (used in):
Operating activities	$	(588	)	$	(1,072	)
Financing activities		1,611			3,066
Effect of exchange rate changes on cash		(6	)		10
Net increase (decrease) in cash	$	1,017		$	2,004

Working Capital

Our total cash was $1.2 million as of March 31, 2018, compared to $0.2 million as of December 31, 2017. We had $3.9 million in current liabilities, and working capital deficit of $2.1 million as of March 31, 2018, compared to $4.2 million in current liabilities and a working capital deficit of $3.4 million as of December 31, 2017.

Cash Flows

Net Cash Used in Operating Activities

Net cash used in operating activities was $0.6 million in the three-months ended March 31, 2018 compared to $1.1 million in the three-months ended March 31, 2017. The net cash used in each of these periods primarily reflects the net loss for these periods and is partially offset by the effects of changes in operating assets and liabilities. In the three months ended March 31, 2017, the net loss is also offset by a non-cash charge of $3.7 million related to the induced conversions of $2.9 million of convertible promissory notes, including accrued but unpaid interest, and $250,000 aggregate principal amount of demand notes.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $1.6 million and $3.1 million for the three-months ended March 31, 2018 and March 31, 2017, respectively. The cash provided in the quarter ended March 31, 2018 primarily represents $1.26 million net proceeds from sales of equity securities pursuant to the February and March closings under the 2018 Purchase Agreement. The remaining $350,000 of the funds received in the quarter ended March 31, 2018 are being held subject to an additional closing under the 2018 Purchase Agreement and are unavailable for use by the Company. The cash provided in the quarter ended March 31, 2017 primarily represents net proceeds from the sale of 2017 Notes. Notwithstanding the Deposits, the timing of any additional closing under the 2018 Purchase Agreement is not certain and we cannot assure you that an additional closing will occur or that one or more of the subscriptions represented by the Deposits will not be withdrawn in advance of such a closing.

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Capital Requirements

As we continue to pursue our operations and execute our business plan, including the completion of our current Phase 1 clinical trial for our initial product candidate, SBP-101, in pancreatic cancer, planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets, we expect to continue to incur substantial and increasing losses, which will continue to generate negative net cash flows from operating activities.

Our future capital uses and requirements depend on numerous current and future factors. These factors include, but are not limited to, the following:

● the progress of clinical trials required to support our applications for regulatory approvals, including our Phase 1 clinical trial, a human clinical trial in Australia and the United States;

● our ability to demonstrate the safety and effectiveness of our SBP-101 product candidate;

● our ability to obtain regulatory approval of our SBP-101 product candidate in the United States, the European Union or other international markets;

● the market acceptance and level of future sales of our SBP-101 product candidate;

● the rate of progress in establishing reimbursement arrangements with third-party payors;

● the effect of competing technological and market developments;

● the cost and delays in product development that may result from changes in regulatory oversight applicable to our SBP-101 product candidate; and

● the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims.

To date, we have used primarily convertible debt and equity financings to fund our ongoing business operations and short-term liquidity needs, and we expect to continue this practice for the foreseeable future.

Our cash was $1.2 million as of March 31, 2018, compared to $0.2 million as of December 31, 2017. We expect that we will increase our projected expenditures once we have additional capital on hand in order to continue our efforts to grow our business and complete our Phase 1 clinical trial for our SBP-101 product candidate. Accordingly, we expect to make additional expenditures in performing our Phase 1 clinical trial and related support activities. With sufficient capital, we also expect to invest in research and development efforts of follow-on products. However, we do not have any definitive plans as to the exact amounts or particular uses at this time, and the exact amounts and timing of any expenditure may vary significantly from our current intentions.

We will need to obtain additional funds to continue our operations and execute our business plans, including completing our current Phase 1 clinical trial, planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets. We historically have financed our operations principally from the sale of convertible debt and equity securities. While we have been successful in the past in obtaining the necessary capital to support our operations, and have similar future plans to obtain additional financing, there is no assurance that we will be able to obtain additional financing under commercially reasonable terms and conditions, or at all. This risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.

As of March 31, 2018, we did not have any existing credit facilities under which we could borrow funds. We historically have financed our operations principally from the sale of convertible debt and equity securities.

Pursuant to closings under the 2018 Purchase Agreement on February 20 and March 16, 2018, we have sold a total of 252,200 shares of common stock and warrants to purchase an aggregate of up to the same number of additional shares of common stock for aggregate gross proceeds totaling $1.26 million. The warrants are exercisable for a period of three years from the date of issuance at an exercise price of $5.00 per share. The 2018 Purchase Agreement contemplates subsequent closings that could result in up to an additional 1,747,800 units (each consisting of one share of common stock and a warrant to purchase one additional share of common stock).

If we are unable to obtain additional financing when needed, we will need to reduce our operations by taking actions which may include, among other things, reducing use of outside professional service providers, reducing staff or further reduce staff compensation, significantly modifying or delaying the development of our SBP-101 product candidate, licensing rights to third parties, including the right to commercialize our SBP-101 product candidate for pancreatic cancer, acute pancreatitis or other applications that we would otherwise seek to pursue, or discontinuing operations entirely.

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To the extent that we raise additional capital through the sale of equity or convertible debt securities, the interests of our current shareholders would be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our current shareholders. If we issue preferred stock, it could affect the rights of our shareholders or reduce the value of our common stock. Specific rights granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any of these events could adversely affect our ability to achieve our regulatory approvals and commercialization goals and harm our business.

Our future success is dependent upon our ability to obtain additional financing, the success of our current Phase 1 clinical trial and required future trials, our ability to obtain marketing approval for our SBP-101 product candidate in the United States, the European Union and other international markets. If we are unable to obtain additional financing when needed, if our Phase 1 clinical trial is not successful, if we do not receive regulatory approval required future trials or if once these studies are concluded, we do not receive marketing approval for our SBP-101 product candidate, we would not be able to continue as a going concern and would be forced to cease operations. The interim financial statements included in this report have been prepared assuming that we will continue as a going concern and do not include any adjustments relating to the recoverability or classification of assets or the amounts of liabilities that might result from the outcome of these uncertainties.

Indebtedness

As of both March 31,2018, and March 31, 2017 we had $3.1 million aggregate principal amount of convertible promissory notes outstanding. Of this amount, $3,076,000 aggregate principal amount was outstanding under the 2017 Notes, which accrued interest at 5.0% per year and were convertible into common stock or other securities upon the completion of a qualified financing of at least $2.0 million on or before the maturity of the 2017 Notes, or upon the request of a holder at a fixed conversion rate of $10.10 per share. The 2017 Notes are scheduled to mature in December 2018 at which time all principal and interest will become payable.

One 2013 Note remains outstanding in a principal amount of $25,000, which accrues interest of 5% per year, payable quarterly, and is convertible into common stock at $11.25 per share. The 2013 Note is scheduled to mature on December 31, 2018. We also had $300,000 outstanding in an unsecured loan that accrues annual interest of 4.125% and is scheduled to mature on May 1, 2019 with monthly payments of $10,000 commencing on May 1, 2018.

Critical Accounting Policies and Estimates

Our significant accounting policies are set forth in notes accompanying the condensed consolidated financial statements included in this document. The accounting policies used in preparing our interim fiscal 2018 condensed consolidated financial statements are the same as those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4), that have or are reasonably likely to have a material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

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Item 3. Quantitative and Qualitative Disclosure About Market Risk.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. As of the date of this filing, management has not identified any material weaknesses but believes that it does have a significant deficiency in that it has insufficient personnel resources within the accounting function to fully segregate the duties over financial transaction processing and reporting. Management has mitigated this deficiency primarily through greater involvement in the review and monitoring of financial transaction processing and reporting by executive and senior management.

We believe that our internal control system provides reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal controls over financial reporting, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Therefore, even effective internal controls over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal controls over financial reporting may vary over time.

As of the end of the period covered by this quarterly report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2018, our disclosure controls and procedures were effective in ensuring that information relating to the Company required to be disclosed in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes to Internal Control Over Financial Reporting

We have not identified any change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

There have been no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On March 16, 2018, we issued 84,200 shares of common stock and warrants to purchase up to the same number of additional shares of common stock pursuant to a closing under the 2018 Purchase Agreement for gross proceeds of $0.4 million. The purchase price for each unit, consisting of one share of common stock and a warrant to purchase one additional share of common stock, was $5.00 and the warrants are exercisable for a period of three years from the date of issuance at an exercise price of $5.00.

The foregoing securities were issued to a limited number of persons who were “accredited investors” or “sophisticated investors,” as those terms are defined in Rule 501 of Regulation D of the U.S. Securities and Exchange Commission (“SEC”), without the use of any general solicitations or advertising to market or otherwise offer the securities for sale. None of the Units, Shares or Warrants are currently registered under the Securities Act or applicable state securities laws and none may be offered or sold in the United States absent registration under the Securities Act of 1933, as amended, or an exemption from such registration requirements. This report shall not constitute an offer to sell or the solicitation of an offer to buy any securities from the Company.

Item 3.     Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Unless otherwise indicated, all documents incorporated into this quarterly report on Form 10-Q by reference to a document filed with the SEC pursuant to the Exchange Act are located under SEC file number 000-55242.

Exhibit No.	Description	Manner of Filing
3.1	Certificate of Incorporation, as amended through May 12, 2016 (incorporated by reference to Exhibit 3.1 to quarterly report on Form 10-Q for the quarter ended June 30, 2016)	Incorporated by Reference
3.2	Bylaws, as amended through May 12, 2016 (incorporated by reference to Exhibit 3.2 to quarterly report on Form 10-Q for the quarter ended June 30, 2016)	Incorporated by Reference

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Exhibit No.	Description	Manner of Filing
10.1	Form of Securities Purchase Agreement, dated February 20, 2018 (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed February 26, 2018)	Incorporated by Reference
10.2	Form of Warrant (incorporated by reference to Exhibit 10.2 to current report on Form 8-K filed February 26, 2018)	Incorporated by Reference
10.3	2016 Omnibus Incentive Plan, as amended and restated through March 14, 2018 (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed March 20, 2018)	Incorporated by Reference
10.4	Employment Agreement with Susan Horvath, effective as of April 17, 2018	Filed Electronically
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) Under the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed Electronically
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) Under the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed Electronically
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Electronically
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Electronically
101	Financial statements from the quarterly report on Form 10-Q of Sun BioPharma, Inc. for the quarter ended March 31, 2018, formatted in XBRL: (i) the Balance Sheets, (ii) the Statements of Operations and Comprehensive Loss, (iii) the Statements of Cash Flows, and (iv) the Notes to Financial Statements.	Filed Electronically

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SUN BIOPHARMA, INC.
Date: May 14, 2018	/s/ David B. Kaysen
	David B. Kaysen Chief Executive Officer
	(Principal Executive Officer)
Date: May 14, 2018	/s/ Susan Horvath
	Susan Horvath Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

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EX-10.4

Exhibit 10.4

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this “Agreement”) effective as of April 17, 2018 (“Effective Date”) is by and between Sun BioPharma, Inc., a Delaware corporation (“Sun BioPharma” or the “Company”) and Susan Horvath (“Employee”), collectively referred to herein as the (“Parties”).

WITNESSETH

WHEREAS, the Company and Employee desire to formalize the employment relationship between the Parties by entering into this Agreement;

WHEREAS, the Company’s Compensation Committee (the “Committee”) has approved this Agreement; and

WHEREAS, Employee has determined that it is in the best interests of Employee to enter into this Agreement.

NOW, THEREFORE, in consideration of the premises, the promises hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Parties, it is hereby agreed as follows:

1. EMPLOYMENT.

(a)     Position. The Company hereby employs Employee in the position of Vice President of Finance and Chief Financial Officer effective April 17, 2018, and Employee hereby accepts such employment and continued employment.

(b)     Employment Period. Employee’s employment hereunder shall commence on April 17, 2018 and shall continue until terminated in accordance with Section 4 hereof (the “Employment Period”). The Company agrees to continue Employee in its employ as Vice President of Finance and Chief Financial Officer during the Employment Period, subject to termination of such employment pursuant to the terms of this Agreement.

2. EMPLOYMENT DUTIES.

(a)     Duties. Employee shall have such duties as are customarily performed and exercised by the Vice President of Finance and Chief Financial Officer of a company with subsidiary operations, subject to the supervision by the President and Chief Executive Officer, together with such additional duties as are reasonably assigned by the President and Chief Executive Officer.. During the Employment Period, (i) Employee’s services shall be performed in metropolitan Minneapolis and/or St. Paul, subject to reasonable business travel and based upon the needs of the Company, (ii) Employee shall make his primary personal residence within metropolitan Minneapolis and/or St. Paul.

(b)     Time and Attention. Beginning April 17, 2018, excluding any periods of vacation and sick leave to which Employee is entitled, Employee agrees to devote Employee’s entire working time, energy, and skill to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to Employee hereunder, to use Employee’s reasonable best efforts to perform faithfully and efficiently such responsibilities; provided, however, that these obligations shall not prohibit Employee from (i) as approved by the President and Chief Executive Officer, serving on civic or charitable board or committees and one (1) corporate board or committees or (ii) managing personal investments, so long as such activities do not materially interfere with the performance of Employee’s responsibilities to the Company, its subsidiaries and affiliates, or violate the Company’s conflict of interest policies. During the Employment Period, Employee shall (i) disclose to the Company any business opportunity that comes to Employee’s attention and that relates to the business of the Company or otherwise arises as a result of Employee’s employment and (ii) not take advantage of or otherwise divert such opportunity for Employee’s own benefit or that of any other person or entity without prior written consent of the Company.

(c)     Avoidance of Conflicting Obligations. Employee hereby acknowledges, agrees and represents that Employee’s execution of this Agreement and performance of employment-related obligations and duties for the Company will not cause any breach, default, or violation of any other employment, non-disclosure, confidentiality, non-competition, or other agreement to which Employee may be a party or otherwise be bound. Moreover, Employee hereby agrees that Employee will not use in the performance of his or her employment-related obligations and duties for the Company or otherwise disclose to the Company any trade secrets or confidential information of any person or entity (including any former employer) if and to the extent such use or disclosure may cause a breach or violation of any obligation or duty owed by Employee to such employer, person, or entity under any agreement or applicable law.

(d)     Other Activities. During the Employment Period, other than as set forth in paragraph (b) of this Section 2, Employee will not, without the prior written consent of the Company, directly or indirectly other than in the performance of his duties hereunder, render services of a business, professional or commercial nature to any other person or firm, whether for compensation or otherwise.

3. COMPENSATION.

(a)     Compensation. For all services which Employee renders to the Company or any of its subsidiaries or affiliates during the Employment Period, the Company agrees to pay Employee the salary, cash incentive and equity compensation as set by the Board or its Compensation Committee, subject to the following:

(i)     Primary Cash Compensation. Effective as of April 17, 2018, Employee’s monthly salary is $18,750 per month, representing an annual rate of $225,000 (the “Base Salary”). Employee’s Base Salary shall be reviewed annually by the Board or its Compensation Committee and the Base Salary for each fiscal year during the Employment Period shall be determined by the Board or its Compensation Committee, which may authorize an increase in Employee’s Base Salary for such year. In no event may Employee’s Base Salary be reduced below its then-current level at any time during the Employment Period other than with Employee’s consent or pursuant to a general wage reduction in respect of substantially all of the Company’s executive officers, in which event Employee’s Base Salary may only be reduced to the same extent and up to the same percentage amount as the base salaries of other executive officers are reduced. Employee’s Base Salary shall be paid in accordance with the Company’s normal periodic payroll practices.

(ii)     Cash Bonus. Commencing with a bonus program approved by the Board or its Compensation Committee, Employee will be eligible for an annual cash bonus with a target bonus amount equal to no less than 40% of Base Salary to be paid in a single lump sum with the first payroll following the approval of the Audited Financial statement by the Audit Committee of the Board of Directors (the “Cash Bonus”). The target Cash Bonus is subject to achievement of annual bonus metrics set by the Board or its Compensation Committee from year to year and represents a bonus target percentage which may be earned subject to Employee’s continued employment with the Company through the end of the applicable Cash Bonus period and achievement of corporate/Board objectives set by the Board or its Compensation Committtee Employee’s target Cash Bonus percentage shall be reviewed annually by the Board or its Compensation Committee, beginning with the year after a Bonus Program is approved by the Board or its Compensation Committee, and the target Cash Bonus percentage for each such year shall be determined by the Board or its Compensation Committee, which may authorize an increase in Employee’s target Cash Bonus percentage for such year. In no event may Employee’s target Cash Bonus percentage be reduced below its then-current level at any time during the Employment Period other than with Employee’s consent or pursuant to a general target bonus percentage reduction in respect of substantially all of the Company’s executive officers, in which event Employee’s target Cash Bonus percentage may only be reduced to the same extent and up to the same percentage amount as the target bonus percentage of other executive officers are reduced.

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(iii)     Equity. On or promptly after the Effective Date, Company will grant to Employee an option to purchase an aggregate 40,000 shares of the Company’s common stock at a per share price not less than the Fair Market Value of the Company’s common stock as of the date of grant (the “Equity Award”). The Equity Award will be subject to the terms of any equity incentive plan under which it is issued and will vest and become exercisable in the following amounts on the corresponding dates: (a) 10,000 shares as of the date of grant, (b) 10,000 shares as of the date that is twelve (12) months after the date of grant, (c) 10,000 shares as of the date that is twenty four (24) months after the date of grant and (d) the remaining 10,000 shares as of the date that is thirty six (36) months after the date of grant. “Fair Market Value” will have the meaning ascribed to it in the equity incentive plan governing the Equity Award or, if no such plan exists, Section 409A of the Internal Revenue Code of 1986, as amended and in effect from time to time and including the regulations and guidance thereunder (the “Code”).

(iv)     Other Compensation. Commencing with the calendar year beginning January 1, 2019, Employee shall be entitled to participate in annual long-term incentive opportunities as determined by the Board consistent with those provided to other Company executive officers and in accordance with the Company’s plans and applicable award agreements.

(b)     Expenses. The Company shall pay all reasonable expenses incurred by Employee that are directly related to performance of her responsibilities and duties for the Company hereunder. Employee shall submit to the Company statements that justify in reasonable detail all reasonable expenses so incurred. Subject to such audits as the Company may deem necessary, the Company shall reimburse Employee the full amount of any such expenses advanced by Employee. Reimbursable expenses shall also include a standard car mileage allowance. All expenses eligible for reimbursements in connection with Employee’s employment must be incurred by Employee while employed by the Company and must be in accordance with the Company’s expense reimbursement policies. The amount of reimbursable expenses incurred in one taxable year shall not affect the expenses eligible for reimbursement in any other taxable year. Each category of reimbursement shall be paid as according to the Company’s standard expense reimbursement policy, typically at the end of the month of submission, but in no event shall any such reimbursement be paid after the last day of Employee’s taxable year following the taxable year in which the expense was incurred. No right to reimbursement is subject to liquidation or exchange for other benefits.

(c)     Benefits. Employee will be entitled to participate in each employee benefit plan and program of the Company to the extent that Employee meets the eligibility requirements for such employee benefit plan or program. Employee shall pay any contributions which are generally required of employees to receive any such benefits. The Company provides no assurance as to the adoption or continuance of any particular employee benefit plan or program, and Employee’s participation in any such plan or program shall be subject to the provisions, rules and regulations applicable thereto. If there is any waiting period for participation by Employee or her covered dependents in any of the health, dental or vision benefit plans, the Company will pay the excess of Employee’s health, dental and/or vision premiums incurred during such waiting period over the amount she otherwise would pay under Company plans. To the extent the Company makes directors’ and officers’ liability insurance available to the directors, it will also make it available to Employee on the same terms as other directors. Employee shall receive four (4) weeks paid vacation annually; provided, however, that vacations not taken during any calendar year shall not be carried over to a subsequent year. Upon the Date of Termination, Employee shall be paid at a rate per day equal to Employee’s Base Salary then in effect divided by 260 for all current and previously accumulated vacation days not taken during the calendar year in which the Date of Termination occurs, with such payment to be made within thirty (30) days following the Date of Termination. Such amount shall be deemed a payment obligation accruing through the Date of Termination for purposes of Section 5.

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4. TERMINATION.

(a)     Cause.     The Company may terminate Employee’s employment during the Employment Period for Cause. For purposes of this Agreement, “Cause” shall mean:

(i)       An intentional act of fraud, embezzlement, theft or any material violation of law that occurs during or in the course of the Employment Period;

(ii)      Intentional damage by Employee to the Company’s assets;

(iii)     Intentional disclosure by Employee of the Company’s confidential information contrary to Company policies;

(iv)      Material breach of Employee’s obligations under this Agreement;

(v)       Intentional engagement by Employee in any activity which would constitute a breach of Employee’s duty of loyalty or Employee’s assigned duties;

(vi)      Intentional breach by Employee of any of the Company’s policies and procedures;

(vii)     The willful and continued failure by Employee to perform Employee’s assigned duties (other than as a result of incapacity due to physical or mental illness); or

(viii)    Employee is or has been prevented from performing any duties contemplated by this Agreement by reason of any agreement with any third party to which Employee is a party or is bound, or

(ix)      Willful conduct by Employee that is demonstrably and materially injurious to the Company, monetarily or otherwise.

For purposes of this provision, no act, or failure to act, on the part of Employee shall be considered “willful” unless it is done, or omitted to be done, by Employee in bad faith or without reasonable belief that Employee’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Employee in good faith and in the best interests of the Company.

(b)     Good Reason.     Employee may terminate Employee’s employment during the Employment Period for Good Reason.

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(i)     For purposes of this Agreement, “Good Reason” shall mean the assignment to Employee, without Employee’s consent, of any duties materially inconsistent with Employee’s position (including changes in status, offices, or titles and any change in Employee’s reporting requirements), authority, duties or responsibilities as contemplated by Section 2(a), the Company requiring Employee to relocate employee’s primary work location by more than fifty (50) miles, any other action by the Company which results in a material diminution in such position, authority, duties, responsibilities or aggregate Base Salary and Cash Bonus or the Company’s material breach of its obligations to Employee under this Agreement (each an “Event” for purposes of this paragraph).

(ii)     Employee must notify the Company in writing of any Event that constitutes Good Reason within ninety (90) days following Employee’s initial knowledge of the existence of such Event (or, if earlier, within ninety (90) days following the date upon which Employee should reasonably have been expected to have knowledge of such Event) or such Event shall not constitute Good Reason under this Agreement. Employee must provide at least thirty (30) days prior written notification of her intention to terminate his employment for Good Reason and the Company shall have thirty (30) days from the date of receipt of such notice to effect a cure of the condition constituting Good Reason, and, upon cure thereof by the Company, such Event shall no longer constitute Good Reason.

(c)     Notice of Termination. Any termination by either party for any reason, including any termination by the Company for Cause, or by Employee for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(c). For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee’s employment under the provision so indicated and (iii) specifies the Date of Termination (which date shall not be more than thirty (30) days after the giving of such notice; provided, however, that if Employee is terminating for Good Reason such date shall be not less than thirty (30) days nor more than forty-five

(45) days after giving such notice. The inadvertent failure by Employee or the Company to set forth in the Notice of Termination a particular fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Employee or the Company, respectively, hereunder or preclude Employee or the Company, respectively, from asserting such fact or circumstance in enforcing Employee’s or the Company’s rights hereunder.

(d)     Date of Termination. “Date of Termination” means the date of receipt of the Notice of Termination, or any later date specified therein, as the case may be. The Company and Employee shall take all steps necessary (including with regard to any post-termination services by Employee) to ensure that any termination of employment described in this Section 4 constitutes a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and in effect from time to time and including the regulations and guidance thereunder (the “Code”), and notwithstanding anything contained herein to the contrary, the date on which the separation from service takes place shall be the “Date of Termination.” Notwithstanding the foregoing, the Date of Termination may be accelerated by the party who receives Notice of Termination by providing to the other party written notice of acceleration, including the accelerated Date of Termination, within thirty (30) days of receipt of the Notice of Termination.

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5. OBLIGATIONS OF COMPANY UPON TERMINATION.

(a)     Cause; Without Good Reason. If Employee’s employment is terminated by the Company for Cause or by Employee without Good Reason, the Employment Period shall terminate without further obligation to Employee other than Base Salary and accrued unused vacation through the Date of Termination paid on the Company’s normal payroll payment date.

(b)     Disability or Death. If the Employment Period is terminated due to the death or Permanent Disability of Employee, Employee (or his estate or legal representative) shall be entitled solely to the following: (i) Base Salary and accrued unused vacation through the Date of Termination (paid on the Company’s normal payroll payment date), (ii) payment of the annual cash bonus (as described in Section 3(a)(ii)) of this Agreement that Employee otherwise would have earned but for such termination of employment for the performance period in which Employee’s Date of Termination occurs, based on actual performance for the entire performance period, and payable no later than the end of the year in which the Permanent Disability or death occurs, provided that it shall be subject to a pro-rata reduction for the portion of the performance period following the Date of Termination, and (iii) in the case of a termination due to Permanent Disability, and subject to Employee being eligible for and taking all steps necessary to continue Employee’s group health insurance coverage with the Company following the Date of Termination, continued participation, at the Company’s expense, in the Company’s group health plans for Employee and his covered dependents through the earliest of: (x) the eighteen (18) month anniversary of the Date of Termination, (y) the date Employee becomes eligible for group health insurance coverage from any other employer, or (z) the date Employee is no longer eligible to continue Employee’s group health insurance coverage with the Company under applicable law. As used herein “Permanent Disability” shall mean and include Employee’s incapacity due to physical or mental illness or disability to timely perform his duties under this Agreement, as reasonably determined by the Board, for a period of six (6) or more months. Permanent Disability also includes Employee becoming permanently disabled within the meaning of any long-term disability plan of the Company applicable to Employee, and Employee commences to receive benefits under such plan. Termination of the Employment Period under this Section 5(b) shall not constitute a termination by the Company other than for Cause or by Employee for Good Reason.

(c)     Other Than for Cause; Good Reason. Except as otherwise provided in Section 6(a), if (i) the Company terminates Employee’s employment other than for Cause or (ii) Employee terminates employment for Good Reason, then the Employment Period shall terminate without further obligation to Employee other than the Company’s obligation to pay to Employee (or, in the case of his death, to his estate or legal representatives) any sums due to Employee through the Date of Termination and, subject to Employee satisfying the waiver and release condition identified in Section 13(d) and not violating the Protective Covenants, the Severance Payment and Benefits Continuation Payments. Such payments shall be subject to the Company’s normal payroll and withholding requirements.

(d)     Severance Payment and Benefits Continuation Payments. Subject to Employee satisfying the waiver and release condition identified in Section 13(d), the “Severance Payment” shall be equal to the aggregate of Employee’s annual Base Salary plus an amount equal to a prorated portion of Employee’s Cash Bonus target for the year in which the Date of Termination occurs, with such prorated amount determined by multiplying Employee’s Cash Bonus target for the year in which the Date of Termination occurs by a fraction, the numerator of which is the number of full months during such year in which Employee was employed and the denominator of which is twelve (12). In addition, subject to Employee satisfying the waiver and release condition identified in Section 13(d) not violating the Protective Covenants, and Employee being eligible for and taking all steps necessary to continue Employee’s group health insurance coverage with the Company following the Date of Termination, Employee will receive continued participation, at the Company’s expense, in the Company’s group health plans for Employee and his covered dependents through the earliest of: (x) the eighteen (18) month anniversary of the Date of Termination, (y) the date Employee becomes eligible for group health insurance coverage from any other employer, or (z) the date Employee is no longer eligible to continue Employee’s group health insurance coverage with the Company under applicable law (the “Benefits Continuation Payments”).

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(e) Timing of Severance Payment.

(i)     Timing of Severance Payment. The Severance Payment shall be payable to Employee (or, in the event of death, to his estate or legal representative) in cash by the Company over a period of twelve (12) consecutive months, in equal monthly installments subject to the Company’s normal payroll policies commencing on the first regular payroll date that occurs after Employee’s Date of Termination; provided, however, that any installments that otherwise would be payable on the Company’s regular payroll dates between the Date of Termination and the fortieth (40^th) calendar day after the Date of Termination will be delayed until the Company’s first regular payroll date that is more than forty (40) days after the Date of Termination and included with the installment payable on such payroll date.

(ii)     Distribution Rules.     The following rules shall apply with respect to the distribution of payments and benefits, if any, to be provided to Employee under this Section 5 and Section 6, as applicable:

(A)     Notwithstanding anything to the contrary contained herein, no payments shall be made to Employee upon Employee’s termination of employment from the Company under this Agreement unless such termination of employment is a “separation from service” under Code Section 409A. The determination of whether and when a “separation from service” has occurred shall be made in a manner consistent with and based on the presumptions set forth in Treasury Regulations Section 1.409A-1(h).     If, as of the date of the “separation from service” of Employee from the Company, Employee is not a Specified Employee (as defined in Section 5(e)(iii)), then the payments shall be made on the dates and terms set forth in Section 5(e)(i).

(B)     If, as of the date of the “separation from service” of Employee from the Company, Employee is a Specified Employee, then any portion of the payments that is a payment of deferred compensation as determined under Code Section 409A (after taking into account the exemption rules for short-term deferrals under Treasury Regulations Section 1.409A-1(b)(4) and separation payments under Treasury Regulations Section 1.409A-1(b)(9)(iii)) and that would, absent this subsection, be paid within the six-month period following the separation from service of Employee from the Company shall not be paid until the date that is six (6) months and one (1) day after such separation from service (or, if earlier, Employee’s death).

(iii)     Specified Employee. As used herein, the term “Specified Employee” means a “specified employee” (as defined in Code Section 409A(a)(2)(B)(i)). By way of clarification, “specified employee” means a “key employee” (as defined in Section 416(i) of the Code, disregarding Section 416(i)(5) of the Code) of the Company. Employee shall be treated as a “key employee” if Employee meets the requirement of Section 416(i)(1)(A)(i), (ii) or (iii) of the Code at any time during the twelve (12) month period ending on an “identification date.” If Employee is a “key employee” as of an identification date, she shall be treated as a Specified Employee for the twelve (12) month period beginning on the first day of the fourth month following such identification date. For purposes of any Specified Employee determination hereunder, the “identification date” shall mean the last day of the calendar year.

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6. CHANGE OF CONTROL TERMINATION PAYMENT.

(a)     Triggering Event. In consideration and recognition of Employee’s employment and his contribution to protecting and enhancing shareholder value in any future sale of the Company that may occur, the Company agrees to pay to Employee a change of control termination payment as specified below (the “Change of Control Termination Payment”). The Change of Control Termination Payment shall be in addition to amounts otherwise payable pursuant to Section 3 through the Date of Termination but in lieu of any Severance Payments or Benefits Continuation Payments otherwise due under Section 5, shall be subject to Employee satisfying the waiver and release condition identified in Section 13(d) and Employee not violating the Protective Covenants, and shall be earned upon the earlier of (i) the termination of Employee’s employment with the Company at any time within two (2) years following a Change of Control (as defined below) (A) by the Company for any reason other than Cause or (B) by Employee for Good Reason or (ii) upon the occurrence of a Change of Control, if Employee’s employment with the Company was terminated within six (6) months prior to the Change of Control, either by (A) the Company for any reason other than Cause or (B) by Employee for Good Reason (the earlier of (i) or (ii) above being referred to as the “Triggering Event”).

(b)     Amount. The amount of the Change of Control Termination Payment shall be equal to one (1.0) times the sum of Employee’s annual Base Salary as of the Date of Termination plus Employee’s Cash Bonus target for the year in which the Date of Termination occurs.

(c)     Payment; Medical Coverage; Vesting. Subject to Employee satisfying the waiver and release condition identified in Section 13(d) and not violating the Protective Covenants, the Change of Control Termination Payment shall be paid in a single cash lump sum payment to Employee (or, in the event of death, to his estate or legal representative) not later than forty (40) days after the Triggering Event. Such payment shall be in addition to sums due to Employee through the Date of Termination, shall be subject to normal withholding requirements of the Company and shall be in lieu of Severance Payments or Benefits Continuation Payments that may otherwise be due under Section 5. In addition, all unvested Equity Compensation and any additional unvested equity, including, but not necessarily limited to stock options and/or restricted stock units awarded to Employee shall immediately vest as of the Triggering Event. In addition, subject to Employee satisfying the waiver and release condition identified in Section 13(d) and not violating the Protective Covenants and Employee being eligible for and taking all steps necessary to continue Employee’s group health insurance coverage with the Company following the Date of Termination, Employee will receive the Benefits Continuation Payments.

(d)     Change of Control Defined. For the purposes of this Agreement, the term “Change of Control” means a change in the ownership or effective control of, or in the ownership of a substantial portion of the assets of, the Company, to the extent consistent with Code Section 409A and any regulatory or other interpretive authority promulgated thereunder, as described in paragraphs (i) through (iv) below.

(i)     Change in Ownership of Company.     A change in the ownership of the Company will be deemed to have occurred on the date that any one person, or more than one person acting as a group (within the meaning of paragraph (iv) below) other than a group of which Employee is a member, acquires ownership of the Company stock that, together with the Company stock held by such person or group, constitutes more than 50% of the voting power of the stock of the Company: provided, however that for purposes of this Section 6(d)(i), no Change of Control may be deemed to have occurred (A)     as a result of any transaction(s) completed on or before October 1, 2015 or (B) pursuant to the acquisition of ownership of the Company’s stock by a person owning more than 5% of Company stock as of September 5, 2015.

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(A)     If any one person or more than one person acting as a group (within the meaning of paragraph (iv) below), other than a group of which Employee is a member, is considered to own more than 50% of the total voting power of the stock of the Company, the acquisition of additional Company stock by such person or persons shall not be considered to cause a change in the ownership of the Company or to cause a change in the effective control of the Company (within the meaning of paragraph (ii) below).

(B)     An increase in the percentage of Company stock owned by any one person, or persons acting as a group (within the meaning of paragraph (iv) below), as a result of a transaction in which the Company acquires its stock in exchange for property, shall be treated as an acquisition of stock for purposes of this paragraph (i).

(C)     Except as provided in (B) above, the provisions of this paragraph

(i)     shall apply only to the transfer or issuance of Company stock if such stock remains outstanding after such transfer or issuance.

(ii) Change in Effective Control of Company.

(A)     A change in the effective control of the Company shall occur on the date that either of (1) or (2) below occurs:

(1)     Any one person, or more than one person acting as a group (within the meaning of paragraph (iv) below), acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company: provided, however, that for purposes of this Section 6(d)(ii), no Change of Control may be deemed to have occurred (A) as a result of any transaction(s) completed on or before October 1, 2015 or (B) pursuant to the acquisition of ownership of Company stock by a person owning more than 5% of the Company’s stock as of September 5, 2015, or

(2)     A majority of members of the Board are replaced during any twelve (12) month period by members of the Board whose appointment or election is not endorsed by a majority of the Board prior to the date of such appointment or election.

(B)A change in effective control of the Company also may occur with respect to any transaction in which either the Company or the other entity involved in a transaction experiences a Change of Control event described in paragraphs (i) or (iii).

(C)     If any one person, or more than one person acting as a group (within the meaning of paragraph (iv) below), is considered to effectively control the Company (within the meaning of this paragraph (ii)), the acquisition of additional control of the Company by the same person or persons shall not be considered to cause a change in the effective control of the Company (or to cause a change in the ownership of the Company within the meaning of paragraph (i)).

(iii)     Change in Ownership of a Substantial Portion of Company’s Assets. A change in the ownership of a substantial portion of the Company’s assets shall occur on the date that any one person, or more than one person acting as a group (within the meaning of paragraph (iv) below), other than a group of which Employee is a member, acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value (within the meaning of paragraph (iii)(B)) equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions.

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(A)     A transfer of the Company’s assets shall not be treated as a change in the ownership of such assets if the assets are transferred to one or more of the following:

(1)     A shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to Company stock;

(2)     An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company;

(3)     A person, or more than one person acting as a group (within the meaning of paragraph (iv) below), that owns, directly or indirectly, 50% or more of the total value or voting power of all of the outstanding stock of the Company; or

(4)     An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in paragraph (iii)(A)(3).

For purposes of this paragraph (iii)(A), and except as otherwise provided, a person’s status is determined immediately after the transfer of assets.

(B)     For purposes of this paragraph (iii), gross fair market value means the value of all the Company’s assets, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

(iv)     Group Definition. For the purposes of this Section 6, persons shall be considered to be acting as a group if they are owners of an entity that enters into a merger, consolidation, purchase, or acquisition of assets, or similar business transaction with the Company. If a person, including an entity shareholder, owns stock in the Company and another entity with which the Company enters into a merger, consolidation, purchase, or acquisition of stock, or similar business transaction, such person shall be considered to be acting as a group with the other owners of equity interests in an entity only to the extent of the ownership in that entity prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation. Persons shall not be considered to be acting as a group solely because they purchase or own stock of the Company at the same time, or as a result of the same public offering of Company stock.

7. PARACHUTE PAYMENT CUT-BACK.

(a)     Safe Harbor. Notwithstanding anything to the contrary contained herein, the Company will not pay to Employee any excise tax gross up pursuant to this Agreement or any other agreement between Employee and the Company. Further notwithstanding anything to the contrary contained herein, the Company shall reduce any payment contingent on a Change of Control pursuant to any plan, agreement, or arrangement of the Company that would be considered in determining whether a “parachute payment” (as defined in Section 280G (“Section 280G”) of the Code), has occurred (“Change of Control Severance Payment”) to 2.99 times Employee’s average compensation, as indicated on such Employee’s Form W-2, for the five (5) years ending immediately prior to the year containing the date of the Change of Control (the “Safe Harbor Amount”) if, and only if, reducing the Change of Control Severance Payment would provide Employee with a greater net after-tax Change of Control Severance Payment than would be the case if no such reduction took place. The Safe Harbor Amount, as defined herein, is an amount expressed in present value which maximizes the aggregate present value of the Change of Control Severance Payment without causing the Change of Control Severance Payment to be subject to the excise tax under Section 4999 (and related Section 280G) of the Code (the “Excise Tax”), determined in accordance with Section 280G(d)(4). Any reduction in the Change of Control Severance Payment shall be implemented in accordance with Section 7(b).

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(b)     Implementation Rules.

(i)     Reduction. Any reduction in payments pursuant to Section 7(a) shall apply to cash payments and/or vesting of equity awards so as to minimize the amount of compensation that is reduced (i.e., it applies to payments or vesting that to the greatest extent represent parachute payments), with the amount of compensation based on vesting to be based on all facts and circumstances as of the date of such vesting; provided, however, the reduction shall first be applied to cash payments and only applied to equity awards thereafter, such that equity awards are only reduced to the extent absolutely necessary; further, provided, however, no reduction shall be applied to an amount that constitutes a deferral of compensation under Code Section 409A except for amounts that have become payable at the time of the reduction and as to which the reduction will not result in a non-reduction in a corresponding amount that is a deferral of compensation under Code Section 409A that is not currently payable. In no event shall any reduction or cancellation of payments that constitute deferred compensation under Code Section 409A result in an impermissible change in the form or timing of such payments, or an impermissible acceleration or deferral of such payments, in violation of Code Section 409A.

(ii)     Excise Tax. For purposes of determining whether the Change of Control Severance Payment will be subject to the Excise Tax and the amount of such Excise Tax:

(A)     The Change of Control Severance Payment shall be treated as a “parachute payment” within the meaning of Section 280G(b)(2), and if it is an “excess parachute payment” within the meaning of Section 280G(b)(1), it shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the written opinion of independent compensation consultants, counsel or auditors of nationally recognized standing (“Independent Advisors”) selected by the Company and reasonably acceptable to Employee, the Change of Control Severance Payment (in whole or in part) does not constitute a parachute payment, or such excess parachute payment (in whole or in part) represents reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) in excess of the base amount within the meaning of Section 280G(b)(3) or are otherwise not subject to the Excise Tax.

(B)     The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4).

(iii)     Tax Rates. For purposes of determining reductions in compensation pursuant to this Section 7(b), if any, Employee will be deemed (A) to pay federal income taxes at the applicable rates of federal income taxation for the calendar year in which the compensation would be payable; and (B) to pay any applicable state and local income taxes at the applicable rates of taxation for the calendar year in which the compensation would be payable, taking into account any effect on federal income taxes from payment of state and local income taxes.

8. NON-EXCLUSIVITY OF RIGHTS.

Nothing in this Agreement shall prevent or limit Employee’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Employee may qualify, nor, except as specifically set forth herein, shall anything herein limit or otherwise affect such rights as Employee may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which Employee is otherwise entitled to receive under any plan, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

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9. FULL SETTLEMENT.

In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not Employee obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which Employee may reasonably incur as a result of any contest or dispute by the Company or Employee with respect to liability under, or the interpretation of the validity or enforceability of, any provision of this Agreement, but only in the event and to the extent that (i) Employee receives a final, non-appealable judgment in his favor in any such action or receives a final judgment in his favor that has not been appealed by the Company within thirty (30) days of the date of the judgment; or (ii) the Parties agree to dismiss any such action upon the Company’s payment of the sums allegedly due Employee or performance of the covenants by the Company allegedly breached by it.

10. PROTECTIVE COVENANTS

(a)     Confidential Information. Employee and the Company are Parties to one or more separate agreements respecting confidential information, trade secrets, and inventions (collectively, the “IP Agreements”). The Parties agree that the IP Agreements shall not be superseded or terminated by this Agreement and shall survive any termination of this Agreement.

(b)     Non-Compete Commitment. During the term of this Agreement and for a period of one (1) year following the Date of Termination, regardless of the reason for the termination of Employee’s employment and whether such termination occurs at the initiative of Employee or the Company, Employee agrees that she will not accept any position as vice president of finance and chief financial officer with, or provide comparable level executive consultation to any Competitive Business of the Company. As used herein, a “Competitive Business” is a business (including but not limited to a business started by Employee) that is in the business of providing activities, products or services that are competitive with those provided by the Company and that are of the type conducted, authorized, offered, or provided within one year prior to Employee’s Date of Termination.

(c)     Agreement Not to Solicit Employees. During the Employment Period and for a period of one (1) year following the Date of Termination, regardless of the reason for the termination of Employee’s employment and whether such termination occurs at the initiative of Employee or the Company, Employee covenants and agrees that Employee shall not (a) solicit, recruit, or hire (or attempt to solicit, recruit, or hire) or otherwise assist anyone in soliciting, recruiting, or hiring, any employee or independent contractor of the Company who performed work for the Company within the last year of Employee’s employment with the Company until that employee’s employment or that independent contractor’s engagement with the Company has been voluntarily or involuntarily terminated for at least six (6) months, or (b) otherwise encourage, solicit, or support any employee(s) or independent contractor(s) to leave their employment with the Company.

12

(d)     Non-Solicitation of Customers or Clients. During the Employment Period and for a period of one (1) year following the Date of Termination, regardless of the reason for the termination of Employee’s employment and whether such termination occurs at the initiative of Employee or the Company, Employee agrees not to solicit, directly or by assisting others, any business from any of the Company’s customers or clients, including actively sought prospective customers or clients, with whom Employee has had material contact during the one-year period prior to the termination of the Employment Period with the Company, for the purpose of providing products or services that are competitive with those provided by the Company. As used in this paragraph, “material contact” means the contact between Employee and each customer, client or vendor, or potential customer, client or vendor (i) with whom or which Employee dealt on behalf of the employer, (ii) whose dealings with the Company were coordinated or supervised by Employee, (iii) about whom Employee obtained confidential information in the ordinary course of business as a result of Employee’s association with the Company, or

(i)     who receives products or services authorized by the Company, the sale or provision of which results or resulted in compensation, commissions, or earnings for Employee within one year prior to Employee’s Date of Termination.

(e)     Non-Disparagement. Employee agrees not to make disparaging remarks, or remarks that could reasonably be construed as disparaging, regarding the Company, its subsidiaries, their directors, officers, or employees, businesses or practices during the Employment Period and thereafter.

(f)     Certain Payment Obligations/Consideration. Employee agrees that the payment of any Severance Payment, Benefits Continuation Payments or Change of Control Termination Payment shall be subject to and expressly conditioned upon Employee’s compliance with the covenants set forth in paragraphs (a) through (e) of this Section 10 (collectively, the “Protective Covenants”). Payments of amounts owing under any Change of Control Termination Payment, Severance Payment or Benefits Continuation Payments obligation shall be conditioned upon Employee’s continued compliance with the Protective Covenants. Should Employee fail to comply with any of the Protective Covenants, the Company shall not be required to make the Change of Control Termination Payment, Severance Payment (or any portion thereof remaining unpaid) or Benefits Continuation Payments and Employee shall be required to repay any portion of the Change of Control Termination Payment, Severance Payment or Benefits Continuation Payments that Employee has already received from the Company. Employee acknowledges that the consideration for the Protective Covenants includes the employment granted and the salary and other compensation provided hereunder including, but not limited to, the covenants respecting a Severance Payment, Change of Control Termination Payment or Benefits Continuation Payments.

(g)     Specific Performance. Employee acknowledges that it would be difficult to calculate the Company’s damages from Employee’s breach of any of the Protective Covenants and that money damages (even including any repayments made pursuant to paragraph (f)) would therefore be an inadequate remedy. Accordingly, upon such breach, Employee acknowledges that the Company may seek and shall be entitled to temporary, preliminary, and/or permanent injunctive relief against Employee, and/or other appropriate orders to restrain such breach. Nothing in this provision shall limit or prevent the Company from seeking any other damages or relief provided by applicable law for breach of this Agreement or any section or provision hereof. Employee agrees that the Company may obtain specific performance, and that the Company shall not be required to post bond in the event it is necessary for the Company to obtain temporary or preliminary injunctive relief, any bond requirement hereby being expressly waived by Employee.

(h)     Protective Covenant Enforceability. The Parties covenant and agree that the provisions contained in paragraphs (a) through (g) are reasonable and are not known or believed to be in violation of any federal, state, or local law, rule, or regulation. It is the reasonable intent and expectation of the Parties that these protective covenants shall be enforced in accordance with their terms. However, in the event a court of competent jurisdiction finds any provision herein (or subpart thereof) to be void or unenforceable, the Parties agree that the court shall modify the provision(s) (or subpart(s) thereof) to make the provision(s) (or subpart(s) thereof) and this Agreement valid and enforceable to the fullest extent permitted by applicable law. Any illegal or unenforceable provision (or subpart thereof), or any modification by any court, shall not affect the remainder of this Agreement, which shall continue at all times to be valid and enforceable in accordance with its terms.

13

11. SUCCESSORS.

(a)     Successors in Interest. This Agreement is personal to Employee and, without the prior written consent of the Company, shall not be assignable by Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Employee’s legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(b)     Assumption of Agreement. The Company will require any successor who acquires all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the “Company” shall mean Sun BioPharma, Inc., as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

12. COMPLIANCE WITH CODE SECTION 409A.

(a)     Compliance. All payments that may be made and benefits that may be provided pursuant to this Agreement are intended to comply with, or otherwise be exempt from, Code Section 409A and any regulations and Treasury guidance promulgated hereunder, and any ambiguities shall be interpreted in a manner consistent with the requirements of Code Section 409A. Further, notwithstanding anything to the contrary, all Severance and Change of Control Termination payments payable under the provisions of Section 5 or Section 6 shall be paid to Employee no later than the last day of the second calendar year following the calendar year in which the Date of Termination occurs. None of the payments under this Agreement are intended to result in the inclusion in Employee’s federal gross income of an amount on account of a failure under Section 409A(a)(1) of the Code. The Parties intend to administer and interpret this Agreement to carry out such intentions. Notwithstanding any other provision of this Agreement, to the extent that the right to any payment (including the provision of benefits) hereunder provides for the “deferral of compensation” within the meaning of Section 409A(d)(1) of the Code, the payment shall be paid (or provided) in accordance with the following:

(i)     Each payment hereunder is intended to constitute a separate payment from each other payment for purposes of Treasury Regulations Section 1.409A-2(b)(2).

(ii)     Payments with respect to reimbursements of expenses or benefits or provision of fringe or other in-kind benefits shall be made on or before the last day of the calendar year following the calendar year in which the relevant expense or benefit is incurred. The amount of expenses or benefits eligible for reimbursement, payment or provision during a calendar year shall not affect the expenses or benefits eligible for reimbursement, payment or provision in any other calendar year.

(b)     Amendments. The Company and Employee agree that they will execute any and all amendments to this Agreement as they mutually agree in good faith may be necessary to ensure compliance with Code Section 409A.

14

(c)     Tax Matters. The Company makes no representation or warranty as to the tax effect of any of the preceding provisions, and the provisions of this Agreement shall not be construed as a guarantee by the Company of any particular tax effect to Employee under this Agreement. Without limiting the foregoing, the Company shall not be liable to Employee or any other person for any payment made under this Agreement which is determined to result in the imposition of an excise tax, penalty or interest under Code Section 409A, nor for reporting in good faith any payment made under this Agreement as an amount includible in gross income under Code Section 409A.

13. MISCELLANEOUS.

(a)     Governing Law; Interpretation; Severability. This Agreement shall be governed by the laws of the State of Minnesota without regard to the conflicts of laws provisions of that State or any other State. The Company hereby consents to, and waives any objection to, personal jurisdiction in any state or federal court sitting in Hennepin County, Minnesota, for the purpose of any action to enforce this Agreement or recover damages for the breach thereof. The Parties agree that any dispute arising from this Agreement, including but not limited to issues of breach, enforceability, or modification, shall be decided only in a state or federal court sitting in Hennepin County, Minnesota, which the Parties expressly agree shall be the exclusive venue for any such action.

(b)     Amendment; Validity. This Agreement may not be amended or modified otherwise than by a written agreement executed by the Parties hereto or their respective successors and legal representatives. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. The captions of this Agreement are not part of the provisions hereof and shall have no force and effect.

(c)     Notices. All notices and other communications hereunder shall be in writing

and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, in either case, accompanied by a facsimile copy, addressed as follows:

If to Employee:

Susan Horvath

4601 Tower St.

Edina, MN     55424

If to the Company:

Sun BioPharma, Inc.

712 Vista Blvd.     #305

Waconia, MN     55387

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(d)     Waiver and Release. Employee acknowledges and agrees that the Company requires, as a condition to receipt of any Severance Payment or Benefits Continuation Payments under Section 5 or any Change of Control Termination Payment or Benefits Continuation Payments under Section 6, that Employee (or a representative of his estate) execute a waiver and release discharging the Company, its subsidiaries, and their respective affiliates, and its and their officers, directors, managers, employees, agents and representatives and the heirs, predecessors, successors and assigns of all of the foregoing, from any and all claims, actions, causes of action or other liability, whether known or unknown, contingent or fixed, arising out of or in any way related to the benefits thereunder, including, without limitation, any claims under the this Agreement or other related instruments, other than the Company’s obligation to pay the consideration as provided in this Agreement. The waiver and release shall be in a form determined by the Company and acceptable to Employee and shall be executed prior to the expiration of the time periods provided for any first payment of such benefits.

15

(e)     Non-Waiver. The failure of the Company to insist upon or enforce strict performance of any provision of this Agreement or to exercise any rights or remedies thereunder will not be construed as a waiver by the Company to assert or rely upon any such provision, right, or remedy in that or any other instance.

(f)     Entire Agreement. This Agreement embodies the entire agreement between the Parties with respect to the subject matter addressed herein and supersedes any prior understandings, agreements or representations by or among the Parties, written or oral, that may relate to the subject matter hereof; provided, however, that nothing in this Agreement is intended to and does not modify, supersede or replace the IP Agreements, and documents adopted by the Board with respect to the Cash Bonus, any agreements or plans concerning any equity awards to Employee, or any agreements or other documents related to any employee benefit plans, each of which are to be in effect in accordance with their terms.

(g)     Survival. The covenants set forth in Sections 4, 5, 6, 7, 8, 9, 10, 11, 12 and 13 shall survive any termination of Employee’s employment or termination of the Employment Period.

(h)     Counterparts; Facsimile; Electronic Submission. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement or the terms hereof to produce or account for more than one

(1) of such counterparts. Executed signature pages to this Agreement may be delivered by facsimile or electronically, and such facsimiles or electronically submitted documents will be deemed as sufficient as if actual signature pages had been delivered.

[Signatures on following page]

16

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David B. Kaysen, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Sun BioPharma, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: May 14, 2018			/s/ David B. Kaysen
			David B. Kaysen
			President and Chief Executive Officer
			(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Susan Horvath, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Sun BioPharma, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: May 14, 2018			/s/ Susan Horvath
			Susan Horvath
			Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, David B. Kaysen, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Quarterly Report on Form 10-Q of Sun BioPharma, Inc. for the quarter ended March 31, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Sun BioPharma, Inc.

Dated: May 14, 2018

/s/ David B. Kaysen

David B. Kaysen

President and Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Kellen, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Quarterly Report on Form 10-Q of Sun BioPharma, Inc. for the quarter ended March 31, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Sun BioPharma, Inc.

Dated: May 14, 2018

/s/ Susan Horvath

Susan Horvath

Chief Financial Officer

(Principal Financial Officer and Principal

Accounting Officer)

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 11, 2018
Document Information [Line Items]
Entity Registrant Name	Sun BioPharma, Inc.
Entity Central Index Key	0001029125
Trading Symbol	snbp
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		4,093,852
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Current assets:
Cash	$ 1,169	$ 152
Prepaid expenses and other current assets	152	195
Income tax receivable	448	420
Total current assets	1,769	767
Other noncurrent assets	56
Total Assets	1,825	767
Current liabilities:
Accounts payable	1,222	1,196
Accrued expenses	94	1,254
Deposits	350
Convertible notes payable, net	1,955	1,525
Term debt, current portion	50	14
Accrued interest	224	181
Total current liabilities	3,895	4,170
Long-term liabilities:
Term debt, noncurrent portion	250	286
Total long-term liabilities	250	286
Stockholders’ deficit:
Preferred stock, $0.001 par value; 10,000,000 authorized; no shares issued or outstanding as of March 31, 2018 and December 31, 2017	0	0
Common stock, $0.001 par value; 100,000,000 authorized; 4,093,852 and 3,841,652 shares issued and outstanding, as of March 31, 2018 and December 31, 2017, respectively	4	4
Additional paid-in capital	28,678	25,625
Accumulated deficit	(30,906)	(29,153)
Accumulated comprehensive loss	(96)	(165)
Total stockholders’ deficit	(2,320)	(3,689)
Total liabilities and stockholders’ deficit	$ 1,825	$ 767

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Mar. 31, 2018	Dec. 31, 2017
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	4,093,852	3,841,652
Common stock, shares outstanding (in shares)	4,093,852	3,841,652

XML

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Operating expenses
General and administrative	$ 658	$ 1,250
Research and development	580	744
Operating loss	(1,238)	(1,994)
Other income (expense):
Grant income	10
Interest expense	(473)	(199)
Loss on induced debt conversions		(3,696)
Other income	(80)	164
Total other expense	(543)	(3,731)
Loss before income tax benefit	(1,781)	(5,725)
Income tax benefit	28	152
Net loss	(1,753)	(5,573)
Foreign currency translation adjustment gain (loss)	69	(162)
Comprehensive loss	$ (1,684)	$ (5,735)
Basic and diluted net loss per share (in dollars per share)	$ (0.45)	$ (1.73)
Weighted average shares outstanding – basic and diluted (in shares)	3,927,296	3,221,229

XML

Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) - 3 months ended Mar. 31, 2018 - USD ($) shares in Thousands, $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balances (in shares) at Dec. 31, 2017	3,842
Balances at Dec. 31, 2017	$ 4	$ 25,625	$ (29,153)	$ (165)	$ (3,689)
Sale of common stock and warrants (in shares)	252
Sale of common stock and warrants		1,261			1,261
Stock-based compensation		1,792			1,792
Net loss			(1,753)		(1,753)
Foreign currency translation adjustment gain (loss)				69	69
Balances (in shares) at Mar. 31, 2018	4,094
Balances at Mar. 31, 2018	$ 4	$ 28,678	$ (30,906)	$ (96)	$ (2,320)

XML

Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) (Parentheticals) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
AOCI Attributable to Parent [Member]
Foreign currency translation, tax	$ 0

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net loss	$ (1,753)	$ (5,573)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on induced debt conversions		3,696
Stock-based compensation	698	920
Amortization of debt discount	427	106
Amortization of debt issuance costs	2	44
Non-cash interest expense	43	10
Changes in operating assets and liabilities:
Income tax receivable	(36)	(144)
Prepaid expenses and other current assets	(15)	38
Accounts payable	111	(367)
Accrued liabilities	(65)	198
Net cash used in operating activities	(588)	(1,072)
Cash flows from financing activities:
Net proceeds from the sale of convertible promissory notes		3,059
Deposits received for possible future stock sales	350
Proceeds from sale of common stock and warrants	1,261
Proceeds from the exercise of stock options		7
Net cash provided by financing activities	1,611	3,066
Effect of exchange rate changes on cash	(6)	10
Net increase in cash	1,017	2,004
Cash at beginning of period	152	438
Cash at end of period	1,169	2,442
Supplemental disclosure of cash flow information:
Cash paid during period for interest	21
Supplemental disclosure of non-cash transactions:
Conversion of promissory notes and accrued interest into common stock		2,888
Intrinsic value of beneficial conversion feature in convertible notes		2,954
Conversion of demand notes into common stock		250
Options granted in exchange for release from contingent payment obligations	$ 1,094

XML

Note 1 - Business

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.

     Business

Sun BioPharma, Inc. and its wholly-owned subsidiary Sun BioPharma Australia Pty Ltd. (collectively “we,” “us,” “our,” and the “Company”) exist for the primary purpose of advancing the commercial development of a proprietary polyamine analogue for pancreatic cancer and for a

second

indication in chronic and recurrent acute pancreatitis. We have exclusively licensed the worldwide rights to this compound, which has been designated as SBP-

101,

from the University of Florida Research Foundation, Inc. (“UFRF”).

Effective

November 7, 2017,

we implemented a

1

-for-

10

reverse split of our common stock. All references to share and per share amounts included in these Condensed Consolidated Financial Statements have been retroactively restated to reflect the reverse split.

XML

Note 2 - Risks and Uncertainties

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Nature of Operations [Text Block]

2.

     Risks and Uncertainties

The Company operates in a highly regulated and competitive environment. The development, manufacturing and marketing of pharmaceutical products require approval from, and are subject to ongoing oversight by, the Food and Drug Administration (“FDA”) in the United States, the Therapeutic Goods Administration (“TGA”) in Australia, the European Medicines Agency (“EMA”) in the European Union, and comparable agencies in other countries. Obtaining approval for a new pharmaceutical product is never certain,

may

take many years, and is normally expected to involve substantial expenditures.

We have incurred losses of

$30.9

million since our inception in

2011.

For the

three

months ended

March 31, 2018,

we incurred a net loss of

$1.8

million, which includes a non-cash credit of

$1.1

million related to the waiver of contingent payment rights by certain employees offset by

$1.8

million of stock-based compensation expense. We also incurred negative cash flows from operating activities of

$0.6

million for this period. During this same period, we raised

$1.6

from the sale of equity securities. We expect to incur substantial losses for the foreseeable future, which will typically generate negative net cash flows from operating activities, as we continue to pursue development activities and seek to commercialize our initial product candidate, SBP-

101.

As of

March 31, 2018,

we had cash of

$1.2

million, working capital deficit of

$2.1

million due primarily to the current portion of convertible debt, and stockholders’ deficit of

$2.3

million. The Company’s principal sources of cash have historically included the issuance of convertible debt and equity securities.

The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The condensedconsolidated financial statements do

not

include any adjustments relating to the recoverability or classification of assets or the amounts of liabilities that might result from the outcome of these uncertainties. Our current independent registered public accounting firm, included a paragraph emphasizing this going concern uncertainty in their audit report regarding our

2017

financial statements dated

March 21, 2018.

Our ability to continue as a going concern, realize the carrying value of our assets and discharge our liabilities in the ordinary course of business is dependent upon a number of factors, including our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our SBP-

101

product candidate in the United States, Australia, the European Union or other markets and ultimately our ability to market and sell our SBP-

101

product candidate. These factors, among others, raise substantial doubt about our ability to continue operations as a going concern. See Note

4

titled “Liquidity and Management’s Plans.”

XML

Note 3 - Basis of Presentation

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

3.

     

Basis of Presentation

We have prepared the accompanying interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 

10

-Q and Regulation S-

X

of the Securities and Exchange Commission (“SEC”). Accordingly, they do

not

include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly our consolidated financial position, consolidated results of operations and consolidated cash flows for the periods and as of the dates presented. Our fiscal year ends on

December 31.

The condensed consolidated balance sheet as of

December 31, 2017

was derived from audited consolidated financial statements but does

not

include all disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto included in our most recent filed Annual Report on Form

10

-K and our other filings with the SEC. The nature of our business is such that the results of any interim period

may

not

be indicative of the results to be expected for the entire year.

Recently

Adopted

Accounting Pronouncement

s

In

May 2014,

the Financial Accounting Standards Board issued Accounting Standards Update

2014

-

09,

“Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements of Accounting Standards Codification (“ASC”) Topic

605,

“Revenue Recognition” and most industry-specific guidance on revenue recognition throughout the ASC. The new standard is principles-based and provides a

five

-step model to determine when and how revenue is recognized. The core principle of the new standard is that revenue should be recognized when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also requires disclosure of qualitative and quantitative information surrounding the amount, nature, timing and uncertainty of revenues and cash flows arising from contracts with customers. The Company has evaluated the impact of this revised guidance on its financial statements and determined it had

no

material impact.

In

April 2016,

the FASB issued ASU

2016

-

10,

“Revenue from Contracts with Customers (Topic 

606

): Identifying Performance Obligations and Licensing.” ASU

2016

-

10

clarifies the implementation guidance on identifying performance obligations. These ASUs apply to all companies that enter into contracts with customers to transfer goods or services. This ASUs is effective for public entities for interim and annual reporting periods beginning after

December 

15,

2017.

The Company has evaluated the impact of this revised guidance on its financial statements and determined it had

no

material impact.

XML

Note 4 - Liquidity and Management Plans

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Substantial Doubt about Going Concern [Text Block]

4.

     

Liquidity and Management Plans

We will need to obtain additional funds to continue our operations and execute our current business plans. We

may

seek to raise additional funds through various sources, such as equity and debt financings, or through strategic collaborations and license agreements. We can give

no

assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This risk would increase if our clinical data is inconclusive or

not

positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.

Between

March 1, 2016

and

September 30, 2017,

we accrued a portion of cash base salaries for all senior employees in an effort to conserve cash. In lieu of a portion of base salary, the affected employees were entitled to receive a cash payment in an amount equal to the foregone salary. The cash payment would have become due upon a change of control or the issuance of equity securities resulting in cash gross proceeds of

$10

million or more. As of

December 

31,

2017,

the contingent payments under these arrangements totaled

$1.1

million. On

February 

27,

2018,

each of the affected employees agreed to waive their rights to receive the contingent payments in exchange for common stock options. See Note

6,

titled “Employment agreement amendments and waiver of contingent payment rights.”

On 

February 20, 2018,

we entered into a Securities Purchase Agreement (the

“2018

Purchase Agreement”) with certain accredited investors and completed an initial closing on the same date. Pursuant to the initial closing, we sold a total of

168,000

shares of common stock and warrants to purchase an aggregate of up to the same number of additional shares of common stock. The warrants issued under the

2018

Purchase Agreement will be exercisable for a period of

three

years from the date of issuance at an exercise price of

$5.00

per share. On

March 16, 2018

we completed an additional closing under the

2018

Purchase Agreement, resulting in the sale of an additional

84,200

shares of common stock and warrants to purchase up to the same number of additional shares of common stock. We have received aggregate gross proceeds totaling

$1.26

million pursuant to private placements under the

2018

Purchase Agreement, of which

$95,000

was received from directors and officers of the Company or its subsidiary. The

2018

Purchase Agreement contemplates subsequent closings that could result in up to an additional

1,747,800

units (each consisting of

one

share of common stock and a warrant to purchase

one

additional share of common stock).

If we are unable to obtain additional financing when needed, we will need to reduce our operations by taking actions that

may

include, among other things, reducing use of outside professional service providers, reducing staff or further reducing staff compensation, significantly modifying or delaying the development of our SBP-

101

product candidate, licensing rights to

third

parties, including the right to commercialize our SBP-

101

product candidate for pancreatic cancer, acute pancreatitis or other applications that we would otherwise seek to pursue, or discontinuing operations entirely.

Our future success is dependent upon our ability to obtain additional financing, the success of our development efforts, our ability to obtain marketing approval for our SBP-

101

product candidate in the United States or other markets and ultimately our ability to market and sell our SBP-

101

product candidate. If we are unable to obtain additional financing when needed, if our clinical trials are

not

successful or if we are unable to obtain marketing approval, we would

not

be able to continue as a going concern and would be forced to cease operations and liquidate our company.

There can be

no

assurances that we will be able to obtain additional financing on commercially reasonable terms, or at all. The sale of additional convertible debt or equity securities would likely result in dilution to our current stockholders.

XML

Note 5 - Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

5.

     Summary of Significant Accounting Policies

Principles of consolidation

The accompanying condensed consolidated financial statements include the assets, liabilities and expenses of Sun BioPharma, Inc. and our wholly-owned subsidiary, Sun BioPharma Australia Pty Ltd. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of expenses during the reporting period. Actual results could differ from those estimates.

Beneficial Conversion Feature

For convertible debt where the rate of conversion is below fair market value for our common stock, the Company records a "beneficial conversion feature" ("BCF") and related debt discount that is presented as a direct deduction from the carrying amount of the related debt and as an increase to additional paid-in capital. The debt discount is amortized through interest expense over the life of the related debt.

Debt issuance costs

Costs associated with the issuance of debt instruments are capitalized and presented as a direct deduction from the carrying amount of the related debt liability. These costs are amortized through interest expense over the life of the related debt.

Research and development costs

Research and development costs include expenses incurred in the conduct of our Phase

1

human clinical trial, for

third

-party service providers performing various testing and accumulating data related to our preclinical studies; sponsored research agreements; developing and scaling the manufacturing process necessary to produce sufficient amounts of the SBP-

101

compound for use in our pre-clinical studies and human clinical trials; consulting resources with specialized expertise related to execution of our development plan for our SBP-

101

product candidate; personnel costs, including salaries, benefits and share-based compensation; and costs to license and maintain our licensed intellectual property.

We charge research and development costs, including clinical trial costs, to expense when incurred. Our human clinical trials are, and will be, performed at clinical trial sites and are administered jointly by us with assistance from contract research organizations (“CROs”). Costs of setting up clinical trial sites are accrued upon execution of the study agreement. Expenses related to the performance of clinical trials generally are accrued based on contracted amounts and the achievement of agreed upon milestones, such as patient enrollment, patient follow-up, etc. We monitor levels of performance under each significant contract, including the extent of patient enrollment and other activities through communications with the clinical trial sites and CROs, and adjust the estimates, if required, on a quarterly basis so that clinical expenses reflect the actual effort expended at each clinical trial site and by each CRO.

All material CRO contracts are terminable by us upon written notice and we are generally only liable for actual effort expended by the CROs and certain non-cancelable expenses incurred at any point of termination.

We expense costs associated with obtaining licenses for patented technologies when it is determined there is

no

alternative future use of the intellectual property subject to the license.

Stock

-based compensation

In accounting for stock-based incentive awards we measure and recognize the cost of employee and non-employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards. Calculating stock-based compensation expense requires the input of highly subjective assumptions, which represent our best estimates and involve inherent uncertainties and the application of management’s judgment. Compensation cost is recognized ratably using the straight-line attribution method over the vesting period, which is considered to be the requisite service period. The performance date for non-employee awards is generally

not

met until the individual award vests. Accordingly, we re-measure the current fair value each quarter until the award vests. Compensation expense for performance-based stock option awards is recognized when “performance” has occurred or is probable of occurring.

The fair value of stock-based awards is estimated at the date of grant using the Black-Scholes option pricing model. The determination of the fair value of stock-based awards is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. Risk free interest rates are based upon U.S. Treasury rates appropriate for the expected term of each award. Expected volatility rates are based primarily on the volatility rates of a set of guideline companies, which consist of public and recently public biotechnology companies. The assumed dividend yield is zero, as we do

not

expect to declare any dividends in the foreseeable future. The expected term of options granted is determined using the “simplified” method. Under this approach, the expected term is presumed to be the mid-point between the average vesting date and the end of the contractual term.

Foreign currency translation adjustments

The functional currency of Sun BioPharma Australia Pty Ltd is the Australian Dollar (“AUD”). Accordingly, assets and liabilities, and equity transactions of Sun BioPharma Australia Pty Ltd are translated into U.S. dollars at period-end exchange rates. Revenues and expenses are translated at the average exchange rate in effect for the period. The resulting translation gains and losses are recorded as a component of accumulated comprehensive loss presented within the stockholders’ equity (deficit). During the

three

-month periods ended

March 31, 2018

and

2017,

any reclassification adjustments from accumulated other comprehensive loss to operations were inconsequential.

Comprehensive loss

Comprehensive loss consists of our net loss and the effects of foreign currency translation.

Net loss per share

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be anti-dilutive or reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options and warrants, have

not

been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive.

The following table sets forth the potential shares of common stock that were

not

included in the calculation of diluted net loss per share as their effects would have been anti-dilutive:

	Three Months Ended March 31,
	201 8		201 7
Employee and non-employee stock options		1,097,960		700,960
Common shares issuable upon conversion of notes payable		322,947		307,838
Common shares issuable under common stock purchase warrants		403,700		361,550
		1,824,607		1,370,298

XML

Note 6 - Employment Agreement Amendments and Waiver of Contingent Payment Rights

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Employment Agreement Amendments and Waiver of Contingent Payment Rights [Text Block]

6.

     

Employment agreement amendments and waiver

of contingent payment rights

Effective

February 27, 2018,

we entered into waivers and

third

amendments (collectively, the “Amendments”) to the previously disclosed employment agreements, as amended (the “Agreements”), with our Executive Chairman, Michael T. Cullen, M.D., M.B.A., our President and Chief Executive Officer, David B. Kaysen, and our former Chief Financial Officer, Scott Kellen, each of whom was an executive officer of the Company (collectively, the “Executives”), and our Chief Medical Officer, Suzanne Gagnon, M.D. (together with the Executives, the “Employees”). Dr. Cullen, Mr. Kaysen and Dr. Gagnon are also current members of the Company’s Board of Directors.

For each of the Employees, the Amendments waived the contingent cash payment and/or equity payments that had been established by the amendments to the Agreements dated

October 1, 2017,

each of which could have become due upon a change of control or the Company’s completion of an underwritten public offering of its common stock before

June 30, 2018.

The potential payments waived by the Employees totaled

$1.1

million at the time of the amendments and was recorded as a reduction in salary expense. The Amendments also entitled Dr. Cullen, Mr. Kaysen, Mr. Kellen and Dr. Gagnon to grants of new non-qualified stock options to purchase up to

100,000

shares,

50,000

shares,

25,000

shares and

95,000

shares of Company common stock, respectively, at an exercise price equal to fair market value as of the date of grant. These options vested upon grant and have option terms of

10

years. The options were granted under the Company’s

2016

Omnibus Incentive Plan effective as of

February 

27,

2018

and had a fair value of approximately

$1.3

million which was recorded as stock-based compensation expense.

XML

Note 7 - Stockholders' Equity (Deficit)

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

7

.     

S

tock

holders’

Equity (

Deficit

)

Private Placement

During the quarter ended

March 31, 2018,

we issued an aggregate of

252,200

shares of our common stock and warrants to purchase an aggregate of up to the same number of additional shares of common stock pursuant to closings under the

2018

Purchase Agreements. Total proceeds from the sale of common stock and warrants was

$1.26

million. Pursuant to the

2018

Purchase Agreements, we

may

be required to file a registration statement with the SEC covering the resale of the shares issued and/or warrant shares issuable thereunder. See Note

4,

titled “Liquidity and Management’s Plans.”

As of

March 31, 2018,

we held additional payments totaling

$350,000

that were held pending an additional closing under the

2018

Purchase Agreements. These funds are unavailable for any use by the Company as of the end of the quarter and are presented as Deposits in the accompanying

March 31, 2018

Condensed Consolidated Balance Sheet. Notwithstanding the Deposits, the timing of any additional closing under the

2018

Purchase Agreement is

not

certain and we cannot assure you that an additional closing will occur or that

one

or more of the subscriptions represented by the Deposits will

not

be withdrawn in advance of such a closing.

Shares reserved

Shares of common stock reserved for future issuance are as follows:

	March 31, 201 8
Common stock issuable under outstanding common stock options		1,097,960
Shares available for grant under equity incentive plan		696,400
Estimated common shares issuable upon conversion of notes payable		322,947
Common shares issuable under outstanding common stock purchase warrants		403,700
Total		2,521,007

XML

Note 8 - Stock-based Compensation

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

8

.

S

tock

-based

Compensation

2016

Omnibus Incentive Plan

The Sun BioPharma, Inc.

2016

Omnibus Incentive Plan (the

“2016

Plan”) was adopted by our Board of Directors in

March 2016

and approved by our stockholders in

May 2016.

The

2016

Plan permits the granting of incentive and non-statutory stock options, restricted stock, stock appreciation rights, performance units, performance shares and other stock awards to eligible employees, directors and consultants. We grant options to purchase shares of common stock under the

2016

Plan at

no

less than the fair market value of the underlying common stock as of the date of grant. Options granted under the

2016

Plan have a maximum term of

ten

years. Under the

2016

Plan, a total of

1,500,000

 shares of common stock were initially reserved for issuance. As of

March 31, 2018,

options to purchase

803,600

shares of common stock were outstanding under the

2016

Plan and

696,400

shares remained available for future awards.

2011

Stock Option Plan

Our Board of Directors ceased making awards under the Sun BioPharma, Inc.

2011

Stock Option Plan (the

“2011

Plan”) upon the receipt of stockholder approval for the

2016

Plan. Awards outstanding under the

2011

Plan remain outstanding in accordance with and pursuant to the terms thereof. Options granted under the

2011

Plan have a maximum term of

ten

years and generally vest over

zero

to

two

years for employees. As of

March 31, 2017,

options to purchase

294,360

shares of common stock remained outstanding under the

2011

Plan.

Stock

-based Compensation

Expense

General and administrative and research and development expenses include non-cash stock-based compensation expense as a result of our issuance of stock options. The terms and vesting schedules for stock-based awards vary by type of grant and the employment status of the grantee. The awards granted through

March 31, 2018

vest based upon time-based and performance conditions. We expect to record additional non-cash compensation expense in the future, which

may

be significant.

Stock-based compensation expense for each of the periods presented is as follows (in thousands):

	Three Months Ended
	March 31, 201 8		March 31, 201 7
Research and development	$	727	$	119
General and administrative		1,065		801
Total stock-based compensation	$	1,792	$	920

A summary of option activity is as follows:

	Shares Available for Grant			Shares Underlying Options		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balances at December 31, 2017		1,060,400			733,960	$	9.79	$	2,121,985
Granted		(364,000	)		364,000		7.59
Exercised		—			—		—
Cancelled		—			—		—
Balances at March 31, 2018		696,400			1,097,960	$	9.06	$	944,545

Information about stock options outstanding, vested and expected to vest as of

March 

31,

2018,

is as follows:

				Outstanding, Vested and Expected to Vest						Options Vested and Exercisable
Per Share Exercise Price				Shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Options Exercisable		Weighted Average Remaining Contractual Life (Years)
$	0.88	–	1.10		38,360		4.59	$	1.04		38,360		4.59
	2.28	–	2.50		42,000		5.87		2.47		42,000		5.87
		3.18			214,000		6.93		3.18		214,000		6.93
	6.10	–	8.10		364,000		8.59		7.59		270,000		9.91
	10.00	–	10.10		54,000		9.31		10.00		52,000		9.52
		15.10			385,600		8.26		15.10		302,713		8.44
					1,097,960		7.94	$	9.06		919,073		8.30

Nonemployee

s

tock

-based

compensation

We account for stock options granted to nonemployees in accordance with FASB Accounting Standards Codification Topic

505.

In connection with stock options granted to nonemployees, we recorded

$0.2

million and

$0.4

million for nonemployee share-based compensation during the

three

months ended

March 

31,

2018

and

2017,

respectively. These amounts were based upon the fair values of the vested portion of the grants. Amounts expensed during the remaining vesting period will be determined based on the fair value at the time of vesting.

The estimated grant-date fair values of the stock options were calculated using the Black-Scholes valuation model, based on the following assumptions for the

three

months ended

March, 31, 2018

and

2017:

	2018				2017
Common stock fair value			$6.00			$10.10	-	$29.80
Risk-free interest rate		2.27%	-	2.5%			1.52%
Expected dividend yield			0%				0%
Expected option life (years)		2.0	–	5.5			3.25
Expected stock price volatility			72%				75%

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of consolidation

The accompanying condensed consolidated financial statements include the assets, liabilities and expenses of Sun BioPharma, Inc. and our wholly-owned subsidiary, Sun BioPharma Australia Pty Ltd. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates, Policy [Policy Text Block]

Use of estimates

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of expenses during the reporting period. Actual results could differ from those estimates.

Beneficial Conversion Feature, Policy [Policy Text Block]

Beneficial Conversion Feature

For convertible debt where the rate of conversion is below fair market value for our common stock, the Company records a "beneficial conversion feature" ("BCF") and related debt discount that is presented as a direct deduction from the carrying amount of the related debt and as an increase to additional paid-in capital. The debt discount is amortized through interest expense over the life of the related debt.

Debt Issuance Costs [Policy Text Block]

Debt issuance costs

Costs associated with the issuance of debt instruments are capitalized and presented as a direct deduction from the carrying amount of the related debt liability. These costs are amortized through interest expense over the life of the related debt.

Research and Development Expense, Policy [Policy Text Block]

Research and development costs

Research and development costs include expenses incurred in the conduct of our Phase

1

human clinical trial, for

third

-party service providers performing various testing and accumulating data related to our preclinical studies; sponsored research agreements; developing and scaling the manufacturing process necessary to produce sufficient amounts of the SBP-

101

compound for use in our pre-clinical studies and human clinical trials; consulting resources with specialized expertise related to execution of our development plan for our SBP-

101

product candidate; personnel costs, including salaries, benefits and share-based compensation; and costs to license and maintain our licensed intellectual property.

We charge research and development costs, including clinical trial costs, to expense when incurred. Our human clinical trials are, and will be, performed at clinical trial sites and are administered jointly by us with assistance from contract research organizations (“CROs”). Costs of setting up clinical trial sites are accrued upon execution of the study agreement. Expenses related to the performance of clinical trials generally are accrued based on contracted amounts and the achievement of agreed upon milestones, such as patient enrollment, patient follow-up, etc. We monitor levels of performance under each significant contract, including the extent of patient enrollment and other activities through communications with the clinical trial sites and CROs, and adjust the estimates, if required, on a quarterly basis so that clinical expenses reflect the actual effort expended at each clinical trial site and by each CRO.

All material CRO contracts are terminable by us upon written notice and we are generally only liable for actual effort expended by the CROs and certain non-cancelable expenses incurred at any point of termination.

We expense costs associated with obtaining licenses for patented technologies when it is determined there is

no

alternative future use of the intellectual property subject to the license.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock

-based compensation

In accounting for stock-based incentive awards we measure and recognize the cost of employee and non-employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards. Calculating stock-based compensation expense requires the input of highly subjective assumptions, which represent our best estimates and involve inherent uncertainties and the application of management’s judgment. Compensation cost is recognized ratably using the straight-line attribution method over the vesting period, which is considered to be the requisite service period. The performance date for non-employee awards is generally

not

met until the individual award vests. Accordingly, we re-measure the current fair value each quarter until the award vests. Compensation expense for performance-based stock option awards is recognized when “performance” has occurred or is probable of occurring.

The fair value of stock-based awards is estimated at the date of grant using the Black-Scholes option pricing model. The determination of the fair value of stock-based awards is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. Risk free interest rates are based upon U.S. Treasury rates appropriate for the expected term of each award. Expected volatility rates are based primarily on the volatility rates of a set of guideline companies, which consist of public and recently public biotechnology companies. The assumed dividend yield is zero, as we do

not

expect to declare any dividends in the foreseeable future. The expected term of options granted is determined using the “simplified” method. Under this approach, the expected term is presumed to be the mid-point between the average vesting date and the end of the contractual term.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign currency translation adjustments

The functional currency of Sun BioPharma Australia Pty Ltd is the Australian Dollar (“AUD”). Accordingly, assets and liabilities, and equity transactions of Sun BioPharma Australia Pty Ltd are translated into U.S. dollars at period-end exchange rates. Revenues and expenses are translated at the average exchange rate in effect for the period. The resulting translation gains and losses are recorded as a component of accumulated comprehensive loss presented within the stockholders’ equity (deficit). During the

three

-month periods ended

March 31, 2018

and

2017,

any reclassification adjustments from accumulated other comprehensive loss to operations were inconsequential.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive loss

Comprehensive loss consists of our net loss and the effects of foreign currency translation.

Earnings Per Share, Policy [Policy Text Block]

Net loss per share

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be anti-dilutive or reduce a net loss per share. The Company’s potential dilutive shares, which include outstanding common stock options and warrants, have

not

been included in the computation of diluted net loss per share for all periods as the result would be anti-dilutive.

The following table sets forth the potential shares of common stock that were

not

included in the calculation of diluted net loss per share as their effects would have been anti-dilutive:

	Three Months Ended March 31,
	201 8		201 7
Employee and non-employee stock options		1,097,960		700,960
Common shares issuable upon conversion of notes payable		322,947		307,838
Common shares issuable under common stock purchase warrants		403,700		361,550
		1,824,607		1,370,298

XML

Note 5 - Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months Ended March 31,
	201 8		201 7
Employee and non-employee stock options		1,097,960		700,960
Common shares issuable upon conversion of notes payable		322,947		307,838
Common shares issuable under common stock purchase warrants		403,700		361,550
		1,824,607		1,370,298

XML

Note 7 - Stockholders' Equity (Deficit) (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Common Stock Reserved for Future Issuance [Table Text Block]

	March 31, 201 8
Common stock issuable under outstanding common stock options		1,097,960
Shares available for grant under equity incentive plan		696,400
Estimated common shares issuable upon conversion of notes payable		322,947
Common shares issuable under outstanding common stock purchase warrants		403,700
Total		2,521,007

XML

Note 8 - Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended
	March 31, 201 8		March 31, 201 7
Research and development	$	727	$	119
General and administrative		1,065		801
Total stock-based compensation	$	1,792	$	920

Share-based Compensation, Stock Options, Activity [Table Text Block]

	Shares Available for Grant			Shares Underlying Options		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balances at December 31, 2017		1,060,400			733,960	$	9.79	$	2,121,985
Granted		(364,000	)		364,000		7.59
Exercised		—			—		—
Cancelled		—			—		—
Balances at March 31, 2018		696,400			1,097,960	$	9.06	$	944,545

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

				Outstanding, Vested and Expected to Vest						Options Vested and Exercisable
Per Share Exercise Price				Shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Options Exercisable		Weighted Average Remaining Contractual Life (Years)
$	0.88	–	1.10		38,360		4.59	$	1.04		38,360		4.59
	2.28	–	2.50		42,000		5.87		2.47		42,000		5.87
		3.18			214,000		6.93		3.18		214,000		6.93
	6.10	–	8.10		364,000		8.59		7.59		270,000		9.91
	10.00	–	10.10		54,000		9.31		10.00		52,000		9.52
		15.10			385,600		8.26		15.10		302,713		8.44
					1,097,960		7.94	$	9.06		919,073		8.30

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	2018				2017
Common stock fair value			$6.00			$10.10	-	$29.80
Risk-free interest rate		2.27%	-	2.5%			1.52%
Expected dividend yield			0%				0%
Expected option life (years)		2.0	–	5.5			3.25
Expected stock price volatility			72%				75%

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Note 1 - Business (Details Textual)	Nov. 07, 2017
Reverse Stock Split [Member]
Stockholders' Equity Note, Stock Split, Conversion Ratio	10

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Note 2 - Risks and Uncertainties (Details Textual) - USD ($) $ in Thousands	3 Months Ended		87 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Net Income (Loss) Attributable to Parent, Total	$ (1,753)	$ (5,573)	$ (30,900)
Stock Options Granted in Exchange for Release from Contingent Payment Obligations	1,094
Allocated Share-based Compensation Expense, Total	1,792	920
Net Cash Provided by (Used in) Operating Activities, Total	(588)	(1,072)
Proceeds from Issuance or Sale of Equity, Total	1,600
Cash and Cash Equivalents, at Carrying Value, Ending Balance	1,169	$ 2,442	1,169	$ 152	$ 438
Working Capital	(2,100)		(2,100)
Stockholders' Equity Attributable to Parent, Ending Balance	$ (2,320)		$ (2,320)	$ (3,689)

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Note 4 - Liquidity and Management Plans (Details Textual) - USD ($)			1 Months Ended	3 Months Ended
	Mar. 16, 2018	Feb. 20, 2018	May 14, 2018	Mar. 31, 2018	Mar. 31, 2017	Feb. 27, 2018	Dec. 31, 2017
Proceeds from Issuance of Private Placement				$ 1,261,000
Subsequent Event [Member] | Warrants Related to a Purchase Agreement [Member]
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right			1
Private Placement [Member]
Stock Issued During Period, Shares, New Issues	84,200	168,000		252,200
Class of Warrant or Right, Expiration Term		3 years
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 5
Proceeds from Issuance of Private Placement	$ 1,260,000
Private Placement [Member] | Subsequent Event [Member]
Purchase Agreement, Additional Units			1,747,800
Purchase Agreement, Common Share Per Unit			1
Purchase Agreement, Class of Warrant or Rights Issued Per Unit			1
Private Placement [Member] | Directors and Officers [Member]
Proceeds from Issuance of Private Placement	$ 95,000
Employment Agreements [Member]
Accrued Salaries						$ 1,100,000	$ 1,100,000

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Note 5 - Summary of Significant Accounting Policies (Details Textual)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%

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Note 5 - Summary of Significant Accounting Policies - Anti-dilutive Securities (Details) - shares	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Anti-dilutive securities (in shares)	1,824,607	1,370,298
Stock Compensation Plan [Member]
Anti-dilutive securities (in shares)	1,097,960	700,960
Convertible Debt Securities [Member]
Anti-dilutive securities (in shares)	322,947	307,838
Warrant [Member]
Anti-dilutive securities (in shares)	403,700	361,550

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Note 6 - Employment Agreement Amendments and Waiver of Contingent Payment Rights (Details Textual) - USD ($)		3 Months Ended
	Feb. 27, 2018	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		364,000
Allocated Share-based Compensation Expense, Total		$ 1,792,000	$ 920,000
Sun BioPharma, Inc. 2016 Omnibus Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		10 years
Allocated Share-based Compensation Expense, Total	$ 1,300,000
Employment Agreements [Member]
Accrued Salaries	$ 1,100,000			$ 1,100,000
Employment Agreements [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Employment Agreements [Member] | Board of Directors Chairman [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	100,000
Employment Agreements [Member] | Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	50,000
Employment Agreements [Member] | Chief Financial Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	25,000
Employment Agreements [Member] | Chief Medical Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	95,000

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Note 7 - Stockholders' Equity (Deficit) (Details Textual) - USD ($)			3 Months Ended
	Mar. 16, 2018	Feb. 20, 2018	Mar. 31, 2018	Mar. 31, 2017
Proceeds from Issuance of Private Placement			$ 1,261,000
Private Placement [Member]
Stock Issued During Period, Shares, New Issues	84,200	168,000	252,200
Proceeds from Issuance of Private Placement	$ 1,260,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			252,200
Private Placement [Member] | Deposits [Member]
Proceeds from Issuance of Private Placement			$ 350,000

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Note 7 - Stockholders' Equity (Deficit) - Common Stock Reserved for Future Issuance (Details) - shares	Mar. 31, 2018	Dec. 31, 2017
Common stock issuable under outstanding common stock options (in shares)	1,097,960
Shares available for grant under equity incentive plan (in shares)	696,400	1,060,400
Estimated common shares issuable upon conversion of notes payable (in shares)	322,947
Common shares issuable under outstanding common stock purchase warrants (in shares)	403,700
Total (in shares)	2,521,007

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Note 8 - Stock-based Compensation (Details Textual) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Common Stock, Capital Shares Reserved for Future Issuance	2,521,007
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	1,097,960		733,960
Share-based Goods and Nonemployee Services Transaction, Compensation Expense	$ 0.2	$ 0.4
Sun BioPharma, Inc. 2016 Omnibus Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Common Stock, Capital Shares Reserved for Future Issuance	696,400
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	803,600
Sun BioPharma, Inc. 2016 Omnibus Incentive Plan [Member] | Employee Stock Option [Member]
Common Stock, Capital Shares Reserved for Future Issuance	1,500,000
Sun BioPharma, Inc. 2011 Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	294,360
Sun BioPharma, Inc. 2011 Stock Option Plan [Member] | Employee Stock Option [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	0 years
Sun BioPharma, Inc. 2011 Stock Option Plan [Member] | Employee Stock Option [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	2 years

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Note 8 - Share-based Compensation - Share-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Share-based compensation expense	$ 1,792	$ 920
Research and Development Expense [Member]
Share-based compensation expense	727	119
General and Administrative Expense [Member]
Share-based compensation expense	$ 1,065	$ 801

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Note 8 - Stock-based Compensation - Summary of Option Activity (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Balance, shares available for grant (in shares)	1,060,400
Balance, shares underlying options (in shares)	733,960
Balance, weighted average exercise price per share (in dollars per share)	$ 9.79
Aggregate intrinsic value	$ 944,545	$ 2,121,985
Granted, shares available for grant (in shares)	(364,000)
Granted, shares underlying options (in shares)	364,000
Granted, weighted average exercise price per share (in dollars per share)	$ 7.59
Exercised, shares available for grant (in shares)
Exercised, shares underlying options (in shares)
Exercised, weighted average exercise price per share (in dollars per share)
Cancelled, shares available for grant (in shares)
Cancelled, shares underlying options (in shares)
Cancelled, weighted average exercise price per share (in dollars per share)
Balance, shares available for grant (in shares)	696,400
Balance, shares underlying options (in shares)	1,097,960
Balance, weighted average exercise price per share (in dollars per share)	$ 9.06

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Note 8 - Stock-based Compensation - Options Outstanding (Details)	3 Months Ended
	Mar. 31, 2018 $ / shares shares
Options outstanding (in shares) | shares	1,097,960
Options outstanding, weighted average remaining contractual life (Year)	7 years 343 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 9.06
Options exercisable (in shares) | shares	919,073
Options exercisable, weighted average remaining contractual life (Year)	8 years 109 days
Exercise Price Range 1 [Member]
Per share exercise price, lower limit (in dollars per share)	$ 0.88
Per share exercise price, upper limit (in dollars per share)	$ 1.10
Options outstanding (in shares) | shares	38,360
Options outstanding, weighted average remaining contractual life (Year)	4 years 215 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 1.04
Options exercisable (in shares) | shares	38,360
Options exercisable, weighted average remaining contractual life (Year)	4 years 215 days
Exercise Price Range 2 [Member]
Per share exercise price, lower limit (in dollars per share)	$ 2.28
Per share exercise price, upper limit (in dollars per share)	$ 2.50
Options outstanding (in shares) | shares	42,000
Options outstanding, weighted average remaining contractual life (Year)	5 years 317 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 2.47
Options exercisable (in shares) | shares	42,000
Options exercisable, weighted average remaining contractual life (Year)	5 years 317 days
Exercise Price Range 3 [Member]
Options outstanding (in shares) | shares	214,000
Options outstanding, weighted average remaining contractual life (Year)	6 years 339 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 3.18
Options exercisable (in shares) | shares	214,000
Options exercisable, weighted average remaining contractual life (Year)	6 years 339 days
Exercise Price Range 4 [Member]
Per share exercise price, lower limit (in dollars per share)	$ 6.10
Per share exercise price, upper limit (in dollars per share)	$ 8.10
Options outstanding (in shares) | shares	364,000
Options outstanding, weighted average remaining contractual life (Year)	8 years 215 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 7.59
Options exercisable (in shares) | shares	270,000
Options exercisable, weighted average remaining contractual life (Year)	9 years 332 days
Exercise Price Range 5 [Member]
Per share exercise price, lower limit (in dollars per share)	$ 10
Per share exercise price, upper limit (in dollars per share)	$ 10.10
Options outstanding (in shares) | shares	54,000
Options outstanding, weighted average remaining contractual life (Year)	9 years 113 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 10
Options exercisable (in shares) | shares	52,000
Options exercisable, weighted average remaining contractual life (Year)	9 years 189 days
Exercise Price Rang 6 [Member]
Options outstanding (in shares) | shares	385,600
Options outstanding, weighted average remaining contractual life (Year)	8 years 94 days
Options outstanding, weighted average exercise price (in dollars per share)	$ 15.10
Options exercisable (in shares) | shares	302,713
Options exercisable, weighted average remaining contractual life (Year)	8 years 160 days

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Note 8 - Stock-based Compensation - Assumptions Used in Calculating Fair Value of Options (Details) - $ / shares	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Common stock fair value (in dollars per share)	$ 6
Risk-free interest rate		1.52%
Expected dividend yield	0.00%	0.00%
Expected option life (Year)		3 years 91 days
Expected stock price volatility	72.00%	75.00%
Minimum [Member]
Common stock fair value (in dollars per share)		$ 10.10
Risk-free interest rate	2.27%
Expected option life (Year)	2 years
Maximum [Member]
Common stock fair value (in dollars per share)		$ 29.80
Risk-free interest rate	2.50%
Expected option life (Year)	5 years 182 days