CIMARRON MEDICAL, INC.

(F/K/A CIMARRON SOFTWARE, INC.)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Organization and Summary of Significant Accounting Policies

The Company and Nature of Business

Cimarron Medical,Sun BioPharma, Inc., formerly known as Cimarron Software,Medical, Inc., (the(“Cimarron”) and its wholly-owned subsidiaries, Sun BioPharma Research, Inc. (“SBR”) and Sun BioPharma Australia Pty Ltd. (collectively with Cimarron and SBR, “we,” “us,” “our,” and the “Company”) was incorporated under the laws of the State of Utah on February 9, 1995, and is primarily a developer and distributor of customized computer software for use in medical research. On April 23, 2015, the Company amended the Articles of Incorporation to change the name of the Company from “Cimarron Software, Inc.” to “Cimarron Medical, Inc.” so as to reposition the Company in the medical and life sciences industry.  

Basis of Presentation

The condensed interim financial information of the Company as of June 30, 2015 andexist for the three and six month periods ended June 30, 2015 and 2014 is unaudited, and the balance sheet asprimary purpose of December 31, 2014 is derived from audited financial statements. The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements. Accordingly, they omit or condense footnotes and certain other information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles. In the opinion of management, all adjustments that are necessary for a fair presentation of the financial information for the interim periods reported have been made. All such adjustments are of a normal recurring nature. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results that can be expected for the entire year ending December 31, 2015. The unaudited financial statements should be read in conjunction with the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. In particular, the Company’s significant accounting policies were presented as Note 2 to the consolidated financial statements in that Annual Report. 

Note 2 - Related Party Transactions

Notes Payable - Related Party consists of balances due to original founders David Fuhrman and Robert Sargent, for services performed on behalf of the Company. As of June 30, 2015 and December 31, 2014, the Company has related party notes payable totaling $555,272 and $567,472, respectively. 

Interest expenses on the related party notes payable accrues at a rate of six percent per annum and was $18,374, of which $16,820 was imputed and $1,554 was paid for in cash, for the six month period ended June 30, 2015 and $17,759, of which $16,985 was imputed and $744 was paid for in cash, for the six month period ended June 30, 2014. The interest on the related party notes was recorded as an increase to equity, since the interest amounts are not expected to be paid out, but are being contributed to the Company by primary shareholders. 

A customer of the Company, Data in Motion LLC, is also a related party. This entity is majority owned by the majority shareholder and Chairman of the Company and a relative of the Chairman, though no financial support is provided by the Company to this entity. The Company recorded revenues from this related party of $489,915 (approximately 85% of total revenue) for the six months ended June 30, 2015, and $476,078 (approximately 86% of total revenue) for the six months ended June 30, 2014. In addition, the Company had related party accounts receivable for consulting services provided to this entity amounting to $105,019 and $208,843 as of June 30, 2015 and December 31, 2014, respectively. 

Note 3 - Loss per Share

Basic loss per common share is based on the net loss divided by weighted average number of common shares outstanding. Diluted income or loss per share is computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period using the treasury stock method. As the Company has a net loss for all periods presented, any potentially dilutive shares are anti-dilutive and are thus not included into the earnings per share calculation. The Company had 466,766 common stock equivalents outstanding consisting of preferred stock and stock options as of June 30, 2015 and 2014. These shares were excluded from the computation of diluted earnings per share as they are anti-dilutive. 

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Note 4 - Going Concern

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. As of June 30, 2015 and December 31, 2014, the Company had an accumulated deficit of $14,167,001 and $13,989,036, respectively, and negative working capital of $(383,840) and $(224,585), respectively. In addition, the Company had a net loss for the six months ended June 30, 2015 of $177,965 and negative cash flows from operations of $77,439. These conditions raise substantial doubt about the Company's ability to continue as a going concern. 

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements on a continuing basis, to maintain or replace present financing, to acquire additional capital from investors, and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. 

The Company intends to continue to serve its customers as a developer and distributor of customized computer software used in computer research. The Company intends to focus on raising additional capital and finding additional avenues to distribute its software. To the extent that any such financing involves the sale of our equity, our current stockholders could be substantially diluted. In the event that the Company closes the Merger (defined below), the Company plans to focus on the business of Sun BioPharma (defined below) after closing. Sun BioPharma is a pre-clinical stage drug development company advancing the commercial development of a proprietary polyamine analogue for pancreatic cancer and for a second indication in chronic pancreatitis.There is no assurance that we will be successful in achieving any or all We have exclusively licensed the worldwide rights to this compound, which has been designated as SBP-101, from the University of these objectives. Florida Research Foundation, Inc. (“UFRF”).

Note 5 -SBR was incorporated in Delaware in 2011 and entered into an Agreement and Plan of Merger Agreement 

On June 12, 2015, the Company, Sun BioPharma, Inc. (“Sun BioPharma”),with Cimarron and SB Acquisition Corporation, a wholly owned subsidiary of Cimarron, on June 12, 2015. The resulting merger of SB Acquisition Corporation with and into SBR on September 4, 2015 (the “Merger”) resulted in all of the issued and outstanding common stock of SBR being converted into the right to receive an aggregate of 28,442,484 shares of Cimarron’s common stock, representing four shares of Cimarron common stock for every one share of SBR common stock cancelled in the Merger. As a result of this transaction, former SBR shareholders owned approximately 98.8% of the outstanding capital stock of Cimarron.Concurrent with the completion of the Merger, Cimarron’s name was changed to “Sun BioPharma, Inc.”

Under accounting principles generally accepted in the United States (“US GAAP”), SBR was deemed to be the acquirer for accounting purposes because its legacy shareholders owned a substantial majority of the issued and outstanding shares of Cimarron’s common stock after the Merger. Further, as Cimarron’s business operations and net assets, at the time of the Merger, were nominal relative to SBR’s business operations and net assets, we have accounted for the Merger as a capital transaction and the activity presented in these financial statements represents the current and historical operations of SBR. All share and per share amounts included in these Notes are presented on an as converted basis, which gives effect to the exchange of four shares of Cimarron common stock for every one share of SBR common stock.

See Note 8 for additional information regarding the Merger.

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 $13.0 million since Sun BioPharma Delaware’s inception in 2011. For the nine months ended September 30, 2015, we incurred a net loss and negative cash flows from operating activities of $4.2 million and $3.0 million, respectively. We expect to incur substantial losses for the foreseeable future, which will continue to generate negative net cash flows from operating activities, as we continue to pursue research and development activities and seek to commercialize our primary product candidate, SBP-101. As of September 30, 2015, we had cash and cash equivalents of $1.8 million, working capital of $1.0 million and shareholders’ deficit of $2.0 million. We believe our cash and cash equivalents as of September 30, 2015, will be sufficient to fund our planned operations through the first quarter of 2016. The Company’s principal sources of cash have included the issuance of convertible debt and equity securities.

The accompanying 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 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. SBR’s independent registered public accounting firm, which is also our current independent registered public accounting firm, included a paragraph emphasizing this going concern uncertainty in their audit report on SBR’s 2014 financial statements dated April 16, 2015 (the “2014 Audit Report”) and filed as Exhibit 99.1 to our current report on Form 8-K filed September 11, 2015. 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 entitled “Liquidity and Management’s Plans.”

These factors, among others, raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements included herein do not include any adjustments relating to the recoverability or classification of asset carry amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

We have prepared the accompanying interim consolidated financial statements in accordance with US 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 US GAAP for complete financial statements. These interim 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 consolidated balance sheet as of December 31, 2014 was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto included in our current report on Form 8-K filed with the SEC on September 11, 2015 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 Issued Accounting Pronouncement

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. Entities that have historically presented debt issuance costs as an asset, related to a recognized debt liability, will be required to present those costs as a direct deduction from the carrying amount of that debt liability. This presentation will result is debt issuance cost being presented the same way debt discounts have historically been handled. The ASU does not change the recognition, measurement, or subsequent measurement guidance for debt issuance costs. This guidance will be effective for interim and annual reporting periods beginning after December 15, 2015 (our fiscal 2016). We plan to adopt this guidance in our fiscal year beginning on January 1, 2016 and do not expect the adoption of ASU 2015-03 to have a material impact on our consolidated financial statements.

We will need to seek additional sources of funds to support 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 not positive or economic and market conditions deteriorate.

If we are unable to obtain additional financing when needed, we would need to scale back our operations taking actions that may include, among other things, reducing use of outside professional service providers, reducing staff or staff compensation, significantly modify or delay the development of our SBP-101 product candidate, license to third parties the rights to commercialize our SBP-101 product candidate for pancreatic cancer, acute pancreatitis or other applications that we would otherwise seek to pursue, or cease operations.

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, 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 shareholders.

Principles of consolidation

The accompanying consolidated financial statements include the assets, liabilities and expenses of Sun BioPharma, Inc. and our wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.

Use of estimates

The preparation of 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 consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Short-term investments

Short-term investments consisted of a mutual fund investment and are reported at fair value at each reporting period. Short-term investments are considered trading securities by the Company. As such, unrealized gains and losses are included in earnings and recorded as interest income in the accompanying consolidated statements of operations and comprehensive loss.

Debt issuance costs

Costs associated with the issuance of debt instruments are capitalized. These costs are amortized on a straight-line basis, which approximates the effective interest method, over the term of the debt agreements.

Research and development costs

Research and development costs consist of expenses incurred for third-party service providers monitoring and accumulating data related to our preclinical studies; sponsored research agreements; developing and scaling the manufacturing process necessary to produce sufficient amounts of SBP-101for use in our pre-clinical studies and expected future clinical trials; consulting resources with specialized expertise related to execution of our development plan forour SBP-101 product candidate; and costs to license and maintain our licensed intellectual property.

We charge research and development costs to operations when incurred. 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

Fair Value Determination of the Company’s Common Stock

Prior to becoming a public company, determining the fair value per share or our common stock for use in estimating the fair values of share based payments required making complex and subjective judgments. The Company used the implied valuations based upon the terms from our sales of convertible notes payable to estimate our enterprise value for the dates on which these transactions occurred. The estimated enterprise values considered certain discounts related to control and lack of marketability.

Our board of directors also considered the estimated fair value of our common stock in relation to a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector. Our board of directors also retained an independent financial valuation firm to provide independent estimates of our enterprise value. Until an active trading market develops for our common stock, estimating the fair value per share of our common stock will continue to be highly subjective. There is inherent uncertainty in these estimates.

Share-based compensation

Share-based incentive awards are accounted for under the provisions of FASB ASC 718, Compensation — Stock Compensation, which requires companies to 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. Compensation cost is recognized ratably using the straight-line attribution method over the expected vesting period, which is considered to be the requisite service period. We estimate pre-vesting award forfeitures when calculating the compensation costs and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.

The fair value of share-based awards is estimated at the date of grant using the Black-Scholes option pricing model. Risk free interest rates are based upon U.S. Treasury rates appropriate for the expected term of each award. Expected volatility and forfeiture 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 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 in the consolidated statements of changes of shareholders’ deficit. During the three and nine month periods ended September 30, 2015 and 2014, any reclassification adjustments from accumulated other comprehensive loss to operations was inconsequential.

Long-term debt

On October 26, 2012, SBR entered into an unsecured loan agreement with the Institute for Commercialization of Public Research, Inc. (the “Merger Subsidiary”"Institute"). Under the terms of the agreement, SBR borrowed $300,000 at a fixed interest rate of 4.125%. No principal or interest payments are due until the maturity date, October 26, 2017, unless a mandatory repayment event occurs. A mandatory repayment event includes, (i) a liquidity event defined as a sale of all or substantially all of the assets of SBR; a merger, consolidation, share exchange or similar transaction as a result of which the persons holding SBR equity constituting a majority of the outstanding equity by voting power or economic participation immediately prior to the transaction hold less than a majority of such voting power or economic participation immediately after such transaction; or a sale or transfer of outstanding equity of SBR in a transaction as a result of which the persons holding SBR equity constituting a majority of the outstanding equity by voting power or economic participation immediately prior to the transaction hold less than a majority of such voting power or economic participation immediately after such transaction, (ii) an event of default, (iii) a failure to maintain a Florida base of operations for more than 6 months, (iv) a sale or transfer of licensed technology, (v) any false representation to the Institute, (vi) a violation of law by SBR or one of its principal officers, or (vii) an achievement of aggregate revenues during any fiscal year of more than $4,000,000 from sales of products and/or services. The long-term debt was assumed by Cimarron in connection with the Merger.

Convertible notes payable

In December 2013, SBR issued a total of $3.0 million of convertible promissory notes (the “Convertible Notes”). The Convertible Notes sales were completed in January 2014 with the receipt of additional proceeds of $100,000. The Convertible Notes accrue interest at 5% per year, payable quarterly, and mature in December 2018. The Convertible Notes were assumed by Cimarron in connection with the Merger. See Note 8 for more information regarding treatment of the Convertible Notes in the Merger

Demand notes payable

As of September 30, 2015, in conjunction with the Merger, and after giving effect to the disposition of the nominal business operations of Cimarron on September 28, 2015, we assumed $250,000 of unsecured demand notes that were previously issued by Cimarron. These demand notes have no stated interest rate or maturity date and accordingly are reported as current liabilities in our consolidated balance sheet. See Note 8 below for additional information regarding the Merger.

We compute net loss per share by dividing our net loss (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Shares issued during the period are weighted for the portion of the period that they were outstanding. The computation of diluted earnings per share, or EPS, is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Diluted EPS is the same as basic EPS due to common equivalent shares being excluded from the calculation, as their effect is anti-dilutive.

The following table summarizes our calculation of net loss per common share for each of the periods presented (in thousands, except share and per share data):

The following outstanding potential common shares are not included in diluted net loss per share calculations as their effects would have been anti-dilutive:

Cimarron Medical, Inc. Merger Transaction

On June 12, 2015,SBR entered into an Agreement and Plan of Merger (the “Merger Agreement”“Merger”), which was subsequently amended by the parties on August 3, 2015.. Under the terms of the Merger Agreement, as amended, the Merger Subsidiary will merge with Cimarron and into Sun BioPharma (the “Merger”), and Sun BioPharma will be the surviving corporation to the Merger and becomeSB Acquisition Corporation, a wholly owned subsidiary of the Company.Cimarron. The Merger is expected to closeresulting merger of SB Acquisition Corporation with and into SBR on or about September 10,4, 2015, subject to the satisfaction or waiver of customary closing conditions. 

Asresulted in all of the effective time of the Merger (the “Merger Time”), each share of Sun BioPharma common stock issued and outstanding immediately prior to the Merger Time (other than dissenting shares) will be cancelled and extinguished and automaticallycommon stock of SBR being converted into the right to receive four (4) fully paid and non-assessablean aggregate of 28,442,484 shares of Cimarron’s common stock, representing four shares of the Company (the “Company Common Stock”). The Company will issue to each holder of Sun BioPharmaCimarron common stock (other than Dissenting Shares) certificates or book entries (as definedfor every one share of SBR common stock cancelled in the Merger Agreement) evidencing the number of sharesMerger.All of the Company’s Common Stock determined in accordance with the foregoing. As of June 12, 2015, Sun BioPharma had 6,963,746 shares of common stock issued pursuant to the Merger are “restricted securities” under Rule 144. As a result of this transaction, former SBR shareholders owned approximately 98.8% of the outstanding capital stock,giving SBR’s former shareholders substantial control of Cimarron.In connection with the Merger, Cimarron’s Board of Directors and management team were replaced by members of SBR’s Board of Directors and management team and Cimarron’s name was changed to “Sun BioPharma, Inc.”

In addition, outstanding options and warrants to purchase SBR common stock before the Merger were converted into options and warrants to purchase an aggregate of 5,043,600 shares and 2,550,000 shares, respectively, of Cimarron’s common stock. Approximately $2.8 million aggregate principal amount of SBR outstanding convertible promissory notes were converted into convertible promissory notes payable by Cimarron and convertible into shares of Cimarron common stock at a rate of $1.125 per share. Immediately prior to the Merger, Cimarron had 1,450,322 shares of common stock outstanding with no other capital stock or rights to acquire additional shares outstanding.

Under US GAAP, SBR was deemed to be the acquirer for accounting purposes because its former shareholders owned a substantial majority of the issued and outstanding noshares of Cimarron’s common stock after the Merger. Further, as Cimarron’s business operations and net assets, at the time of the Merger, were nominal relative to SBR’s business operations and net assets, we have accounted for the Merger as a capital transaction.

During the nine-months ended September 30, 2015, SBR incurred approximately $325,000 of costs associated with the Merger and as of September 30, 2015, assumed $250,000 of demand notes payable, net, after giving effect to the disposition of the legacy business operations of Cimarron, discussed below. The transaction costs for the Merger are included in general and administrative expenses in our Consolidated Statements of Comprehensive Loss.

Sale of Legacy Cimarron Medical Business Operations

On September 28, 2015, we sold all of our ownership interest in the business operations of Cimarron, which previously had been contributed to our wholly owned subsidiary, Cimarron Medical Software, Inc., to Sampleminded, Inc. In exchange, Sampleminded, Inc. agreed to assume our payment obligations under approximately $305,000 of aggregate principal amount of outstanding promissory notes.

Authorized Capital Stock

Our Amended and Restated Articles of Incorporation authorize our Company to issue up to 110,000,000 shares of capital stock, with 100,000,000 shares designated as common stock, $.001 par value per share, and the remaining 10,000,000 shares available for designation and issuance as shares of preferred stock, issued and outstanding, 616,667 shares of common stock issuable pursuant to outstanding convertible notes, 637,500 shares of common stock issuable pursuant to outstanding warrants, 2,059,304 shares of common stock issuable pursuant to outstanding options, and 257,162 options available for issuance.  $.001 par value per share.

The Company has made customary representations, warranties and covenants inPrivate Placement

Pursuant to the Merger Agreement, as amended, including: (i) to conduct its business in the ordinary course during the interim period between the execution of the MergerJune 12, 2015 Agreement and thePlan of Merger, Time, (ii) notSBR was obligated to engage in certain kinds of transactions or take certain actions during such interim period, and (iii) obtain all consents and approvals necessary to consummate the transactions contemplated by the Merger Agreement, as amended. 

Additionally, prior to the Merger, Sun BioPharma must undertake efforts to engage in a private placement of Sun BioPharmaits common stock. On September 4, 2015, immediately prior to the closing of the Merger, SBR sold shares of its common stock (any such transaction or seriesfor total proceeds of related transactions is the “Private Placement”). Sun BioPharma is also entitled to grant registration rights to investors$1,513,000, net of offering costs, which shares ultimately resulted in the Private Placement such that, following the Merger, the Company may be obligated to file a registration statement with respect to the resaleissuance of Sun BioPharma Common Stock receivedan incremental 762,500 shares of Cimarron common stock in the Merger by investorsMerger.

Warrant Exercise Price Adjustment

In April 2015, the Board of Directors of SBR agreed to reduce the exercise price of outstanding warrants issued in connection with certain notes payable from $0.25 per share to $0.1875 per share. This exercise price modification resulted in the Private Placement. recognition of a deemed dividend of $170,625, which was charged to accumulated deficit and credited to additional paid-in-capital. In April and May 2015, SBR received $375,000 from warrant holders who exercised warrants at the reduced price and which ultimately resulted in the issuance of an incremental 2,000,000 shares of Cimarron common stock in the Merger.

Conversion of Promissory Notes

In April and May 2015, three holders of Convertible Notes converted principal of $225,000 and unpaid interest of approximately $1,000 which ultimately resulted in the issuance of an incremental 200,776 shares of Cimarron common stock in the Merger.

The Merger Agreement,Sun BioPharma, Inc. 2011 Stock Option Plan (the “Plan”) was adopted by the SBR of Directors in September, 2011 and approved by SBR shareholders in January, 2012. We assumed the Plan as amended, contains certain terminationpart of the Merger. The 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 Plan at no less than the fair market value of the underlying common stock as of the date of grant. Options granted under the Plan have a maximum term of ten years and generally vest over zero to two years for employees. Under the Plan, a total of 14,000,000 shares of common stock were originally reserved for issuance. As of September 30, 2015, 4,222,264 shares remained available for the Company, Sun BioPharmaissuance of future grants under the Plan and options to purchase 5,043,600 shares of common stock were outstanding under the Merger Subsidiary. AmongPlan.

We recognize share-based compensation based on the value of the portion of awards that are ultimately expected to vest. Guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those rights,estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of a surrendered option. We will re-evaluate this estimate periodically and adjust the forfeiture rate on a prospective basis as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that actually vest.

We estimate the fair value of share-based awards at the date of grant using the Black-Scholes option pricing model. There were no options granted during the three month period ended September 30, 2015. The assumptions used in calculating the fair value under the Black-Scholes option valuation model are set forth in the following table for options issued by the Company or Sun BioPharma may, ifduring the Merger Time has not occurred on or before December 31, 2015, or such later date as the Company and Sun BioPharma may mutually agree, terminate the Merger Agreement, as amended.  

nine-month period ended September 30, 2015:

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A summary of option activity for the nine months ended September 30, 2015 is as follows: