UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM
10-Q

(Mark One)

| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2016



| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



For the transition period from ______ to _______



Commission File Number: 001-37426



CYNAPSUS THERAPEUTICS
INC.

(Exact name of registrant as specified in
its charter)



|Canada(State or other jurisdictionof incorporation or organization)                       | 98-1226819(I.R.S. EmployerIdentification No.)
|----------------------------------------------------------------------------------------- | ---------------------------------------------
|                                                                                          |                                              
|828 Richmond Street West,Toronto, Ontario, Canada(Address of principal executive offices) | M6J 1C9
        (Zip Code)                   
|416-703-2449(Registrant’s telephone number, including area code)                         



Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No  ̈



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



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



|Large accelerated filer  ̈                                            | Accelerated filer  ̈        
|-------------------------------------------------------------------- | ---------------------------
|Non-accelerated filer x(Do not check if a smaller reporting company) | Smaller reporting company  ̈



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



As of May 10, 2016, there were
12,316,441 common shares, no par value per share, of Cynapsus Therapeutics Inc. outstanding.











CYNAPSUS THERAPEUTICS
INC.



FORM 10-Q

TABLE OF CONTENTS



|                                                  |                                                                                                                       | Page
|------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ----
|                                                  |                                                                                                                       |     
|general matters                                   | ii                                                                                                                   
|                                                  |                                                                                                                      
|Special Note Regarding Forward-Looking statements | iii                                                                                                                  
|                                                  |                                                                                                                      
|PART IFINANCIAL INFORMATION                      
|                                                  |                                                                                                                       |     
|ITEM 1.                                           | FINANCIAL STATEMENTS.                                                                                                 |     
|                                                  |                                                                                                                       |     
|                                                  | Interim Consolidated Statements of Financial Position as of March 31, 2016, December 31, 2015 and January 1, 2015     | 1   
|                                                  |                                                                                                                       |     
|                                                  | Interim Consolidated Statements of Loss and Comprehensive Loss for the three months ended March 31, 2016 and 2015     | 2   
|                                                  |                                                                                                                       |     
|                                                  | Interim Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2016 and 2015 | 3   
|                                                  |                                                                                                                       |     
|                                                  | Interim Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015                      | 4   
|                                                  |                                                                                                                       |     
|                                                  | Notes to the Unaudited Condensed Interim Consolidated Financial Statements                                            | 5   
|                                                  |                                                                                                                       |     
|ITEM 2.                                           | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                 | 28  
|                                                  |                                                                                                                       |     
|ITEM 3.                                           | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                            | 40  
|                                                  |                                                                                                                       |     
|ITEM 4.                                           | CONTROLS AND PROCEDURES                                                                                               | 43  
|                                                  |                                                                                                                       |     
|PART IIOTHER INFORMATION                         
|                                                  |                                                                                                                       |     
|ITEM 1.                                           | LEGAL PROCEEDINGS                                                                                                     | 44  
|                                                  |                                                                                                                       |     
|ITEM 1A.                                          | RISK FACTORS                                                                                                          | 44  
|                                                  |                                                                                                                       |     
|ITEM 2.                                           | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                           | 69  
|                                                  |                                                                                                                       |     
|ITEM 6.                                           | EXHIBITS                                                                                                              | 70  
|                                                  |                                                                                                                       |     
|SIGNATURES                                        | 71                                                                                                                   
|                                                  |                                                                                                                      
|EXHIBIT INDEX                                     | 72                                                                                                                   



- i -







GENERAL
MATTERS



In this Quarterly Report on Form 10-Q, unless
the context otherwise requires, the terms “Cynapsus,” “we,” “us” and “our” refer
to Cynapsus Therapeutics Inc. and our wholly-owned subsidiary, Cynapsus Therapeutics (USA) Inc., a Delaware corporation, or Cynapsus
U.S. Adagio Pharmaceuticals Ltd., or Adagio, our previously wholly-owned subsidiary incorporated under the Canada Business Corporations
Act, amalgamated with Cynapsus effective as of January 1, 2016.



Cynapsus, a corporation organized under
the federal laws of Canada, qualifies as a “foreign private issuer,” as such term is defined in Rule 12b-2 under the
United States Securities Exchange Act of 1934, as amended, or the Exchange Act, in the U.S. for purposes of the Exchange Act. Although
as a foreign private issuer, we are not required to do so, we currently file quarterly reports on Form 10-Q, annual reports on
Form 10-K and current reports on Form 8-K with the United States Securities and Exchange Commission, or the SEC, instead of filing
the reporting forms available to foreign private issuers.



We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and as such, we have elected to comply with certain
reduced U.S. public company reporting requirements.



On May 15, 2015, we effected a 16-to-one
share consolidation and commenced trading on a post-consolidated basis on May 21, 2015. The consolidation was approved by our shareholders
on May 7, 2015 at our annual and special meeting of shareholders. Except where otherwise noted, all information in this Quarterly
Report on Form 10-Q gives effect to such share consolidation.



Unless otherwise indicated, financial information
in this Quarterly Report on Form 10-Q has been prepared in accordance with International Financial Reporting Standards, or IFRS,
as issued by the International Accounting Standards Board, or IASB.



As further discussed in Note 2 to
our unaudited condensed interim consolidated financial statements for the quarter ended March 31, 2016 included in this
Quarterly Report on Form 10-Q, the Canadian dollar had previously been the functional and reporting currency of our business
and our consolidated financial statements for periods through December 31, 2015 were expressed in Canadian dollars. We
determined that our expenditures and cash flows are now primarily denominated in United States dollars, and are expected to
remain principally denominated in United  States dollars in the future. Effective January 1, 2016, the functional currency of
Cynapsus and our subsidiary changed to the United States dollar and we decided also to change our reporting currency to the
United States dollar in order to better reflect our underlying performance. Accordingly, our unaudited condensed interim
consolidated financial statements included in this Quarterly Report on Form 10-Q are expressed in United States dollars.



Unless otherwise noted herein, all references
to “$,” “US$,” “United States dollars,” “U.S. dollars” or “dollars”
are to the currency of the United States and references to “Cdn$” or “Canadian dollars” are to the currency
of Canada.



As of May 10,
2016, the noon rate of exchange published by the Bank of Canada was US$1.00 = Cdn$1.2959.



- ii -







Special
Note Regarding Forward-Looking Statements



Some of the statements contained in this
Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of applicable securities laws.
These forward-looking statements include information about possible or assumed future results of our business, financial condition,
results of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking statements by terminology
such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,”
“should,” “plan,” “expect,” “predict,” “potential,” or the negative
of these terms or other similar expressions. The statements we make regarding the following matters are forward-looking by their
nature and are based on certain of the assumptions noted below:



| | • | our beliefs regarding the advantages of APL-130277 and assumptions that others will share such beliefs;
| | - | -------------------------------------------------------------------------------------------------------



| | • | our expectations regarding the commercialization of APL-130277;
| | - | ---------------------------------------------------------------



| | • | our belief that the opportunity for APL-130277 outside the United States for Parkinson’s disease, or PD, patients is
substantial;
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | • | our beliefs regarding the main competitors for APL-130277;
| | - | ----------------------------------------------------------



| | • | our belief that there is an unmet medical need and market opportunity for APL-130277;
| | - | -------------------------------------------------------------------------------------



| | • | our expectations regarding regulatory approval in the United States, Europe and other jurisdictions;
| | - | ----------------------------------------------------------------------------------------------------



| | • | our expectation that APL-130277 will be able to follow the regulatory pathway set forth in Section 505(b)(2) of the United
States Federal Food, Drug, and Cosmetic Act, or FDCA, and the timing of our new drug application, or NDA, submission;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our plan to timely commence and/or complete remaining trials and studies as required by the U.S. Food and Drug Administration,
or FDA, and other regulators, including our Phase 3 clinical trials and studies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our belief that the current manufacturing capabilities of our partners are sufficient to support the remaining clinical trial
needs and commercial launch of our product candidate;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our beliefs regarding frequency, types and severity of OFF episodes;
| | - | --------------------------------------------------------------------



| | • | our assumption that two-thirds of PD patients that suffer OFF episodes suffer at least one OFF episode per day;
| | - | ---------------------------------------------------------------------------------------------------------------



| | • | our expectations that our U.S. and foreign patents will not expire early or prematurely;
| | - | ----------------------------------------------------------------------------------------



| | • | our ability to successfully protect and use our intellectual property, including intellectual property that we own and/or license;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | • | our expectations regarding future capital needs, funding requirements and use of proceeds and our assumption relating to
                                                                      current                                                                       and
                                                                      future costs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our ability to otherwise successfully develop APL-130277 and any other product candidates we may develop in the future;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | • | our beliefs regarding the sufficiency of our existing cash for funding certain activities;
| | - | ------------------------------------------------------------------------------------------



| | • | our intention to develop and commercialize APL-130277 in international markets;
| | - | -------------------------------------------------------------------------------



| | • | our expectation for building a focused sales and marketing infrastructure to market APL-130277 and any other product candidates
in the United States;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the potential benefits and effects of using wearable device technology in our clinical trials and our intention of securely
using data in our Phase 3 data analytics sub-study;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our expectations regarding any prescribing label for APL-130277;
| | - | ----------------------------------------------------------------



- iii -







| | • | our expectations regarding pricing of APL-130277 in the United States and the European Union;
| | - | ---------------------------------------------------------------------------------------------



| | • | our expectations regarding coverage, and restrictions imposed, by third-party payors for APL-130277 in the United States and
the European Union; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our expectations regarding legislation and regulations potentially affecting APL-130277.
| | - | ----------------------------------------------------------------------------------------



The preceding list is not intended to be
an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions
and expectations of future performance, taking into account the information currently available to us. These statements are only
predictions based upon our current expectations and projections about future events. There are important factors that could cause
our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity,
performance or achievements expressed or implied by the forward-looking statements including, but not limited to, those factors
identified under the caption “Risk Factors” in Item 1A of this Quarterly Report on Form 10-Q and in our filings and
reports in the United States with the SEC available on the SEC’s web site at www.sec.gov, and in Canada with the various
Canadian securities regulators, which are available online at www.sedar.com. Furthermore, unless otherwise stated, the forward-looking
statements contained in this Quarterly Report on Form 10-Q are made as of the date hereof, and we have no intention and undertake
no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changes
or otherwise, except as required by law.



- iv -







PART I – FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS.



CYNAPSUS THERAPEUTICS INC.

Interim
Consolidated Statements of Financial Position



UNAUDITED

(in U.S. dollars)



|                                           |  | NOTES |  | March 31, 2016 |             |   | December 31, 2015 (Restated – Note 2) |  |             | January 1, 2015 (Restated – Note 2) | 
|------------------------------------------ |  | ----- |  | -------------- | ----------- | - | ------------------------------------- |  | ----------- | ----------------------------------- | 
|                                           |  |       |  | $              |             |   | $                                     |  |             | $                                   | 
|ASSETS                                     |  |       |  |                |             |   |                                       |  |             |                                     | 
|Current assets                             |  |       |  |                |             |   |                                       |  |             |                                     | 
|Cash                                       |  | 5     |  |                | 68,621,813  |   |                                       |  | 75,802,951  |                                     | 
|Prepaid expenses and other current assets  |  |       |  |                | 499,965     |   |                                       |  | 628,588     |                                     | 
|Total current assets                       |  |       |  |                | 69,121,778  |   |                                       |  | 76,431,539  |                                     | 
|Non-current assets                         |  |       |  |                |             |   |                                       |  |             |                                     | 
|Property, plant and equipment              |  | 6     |  |                | 470,477     |   |                                       |  | 409,393     |                                     | 
|Intangible assets                          |  | 7     |  |                | 371,853     |   |                                       |  | 380,501     |                                     | 
|                                           |  |       |  |                |             |   |                                       |  |             |                                     | 
|Total assets                               |  |       |  |                | 69,964,108  |   |                                       |  | 77,221,433  |                                     | 
|LIABILITIES                                |  |       |  |                |             |   |                                       |  |             |                                     | 
|Current liabilities                        |  |       |  |                |             |   |                                       |  |             |                                     | 
|Accounts payable and accrued liabilities   |  | 8, 14 |  |                | 3,659,178   |   |                                       |  | 3,799,220   |                                     | 
|Total current liabilities                  |  |       |  |                | 3,659,178   |   |                                       |  | 3,799,220   |                                     | 
|                                           |  |       |  |                |             |   |                                       |  |             |                                     | 
|SHAREHOLDERS’ EQUITY                       |  |       |  |                |             |   |                                       |  |             |                                     | 
|Share capital                              |  | 9     |  |                | 119,890,712 |   |                                       |  | 119,564,786 |                                     | 
|Warrants                                   |  | 9     |  |                | 10,523,219  |   |                                       |  | 10,622,950  |                                     | 
|Share-based payments                       |  | 9     |  |                | 7,345,920   |   |                                       |  | 6,333,372   |                                     | 
|Deficit                                    |  |       |  |                | (60,788,638 | ) |                                       |  | (52,432,612 | )                                   | 
|Accumulated other comprehensive loss       |  | 2     |  |                | (10,666,283 | ) |                                       |  | (10,666,283 | )                                   | 
|Total shareholders’ equity                 |  |       |  |                | 66,304,930  |   |                                       |  | 73,422,213  |                                     | 
|                                           |  |       |  |                |             |   |                                       |  |             |                                     | 
|Total liabilities and shareholders’ equity |  |       |  |                | 69,964,108  |   |                                       |  | 77,221,433  |                                     | 



COMMITMENTS AND CONTINGENT LIABILITIES (Note 15)

SUBSEQUENT EVENTS (Note 16)



APPROVED ON BEHALF OF THE BOARD:



|“Ronald Hosking” | , Director | “Rochelle Stenzler” | , Director
|---------------- | ---------- | ------------------- | ----------



The accompanying notes are an integral part of these unaudited
condensed interim consolidated financial statements.



- 1 -







CYNAPSUS THERAPEUTICS INC.

Interim Consolidated Statements
of Loss and Comprehensive Loss



UNAUDITED

(in U.S. dollars, except share figures)



|                                                                      |  |       |  | For the Three Months Ended |           
|--------------------------------------------------------------------- |  | ----- |  | -------------------------- | ----------
|                                                                      |  |       |  | March 31,                  |           
|                                                                      |  | NOTES |  | 2016                       |           
|                                                                      |  |       |  | $                          |           
|EXPENSES                                                              |  |       |  |                            |           
|                                                                      |  |       |  |                            |           
|Research and development                                              |  | 10    |  |                            | 5,219,133 
|Operating, general and administrative                                 |  | 11    |  |                            | 3,141,030 
|Acquisition milestone share-based payment                             |  | 13    |  |                            | -         
|Unrealized foreign exchange gain                                      |  |       |  |                            | (4,137    
|Other interest income and related charges                             |  |       |  |                            | -         
|Loss for the period                                                   |  |       |  |                            | 8,356,026 
|                                                                      |  |       |  |                            |           
|Other comprehensive loss                                              |  |       |  |                            |           
|Foreign currency translation adjustment                               |  | 2     |  |                            | -         
|                                                                      |  |       |  |                            |           
|Loss and other comprehensive loss for the period                      |  |       |  |                            | 8,356,026 
|                                                                      |  |       |  |                            |           
|Loss per share –
    basic and diluted                                |  |       |  |                            | 0.68      
|                                                                      |  |       |  |                            |           
|Weighted average number of shares outstanding –
    basic and diluted |  |       |  |                            | 12,291,040



The accompanying notes are an integral part of these unaudited
condensed interim consolidated financial statements.



- 2 -







CYNAPSUS THERAPEUTICS INC.

Interim Consolidated Statements
of Changes in Shareholders’ Equity



UNAUDITED

(in U.S. dollars)



|                                                        |  | NOTES |  | Share
    capital |             |  | Warrants |  |            | Share-
    based payments |  |  | Deficit   |   |  | Accumulated
    other comprehensive loss |             |   | Total
    shareholders’ equity | 
|------------------------------------------------------- |  | ----- |  | ----------------- | ----------- |  | -------- |  | ---------- | ------------------------- |  |  | --------- | - |  | ---------------------------------------- | ----------- | - | ------------------------------ | 
|                                                        |  |       |  | $                 |             |  | $        |  |            | $                         |  |  | $         |   |  | $                                        |             |   | $                              | 
|                                                        |  |       |  |                   |             |  |          |  |            |                           |  |  |           |   |  |                                          |             |   |                                | 
|Balance as at December 31, 2015                         |  |       |  |                   | 119,564,786 |  |          |  | 10,622,950 |                           |  |  | 6,333,372 |   |  |                                          | (52,432,612 | ) |                                | 
|                                                        |  |       |  |                   |             |  |          |  |            |                           |  |  |           |   |  |                                          |             |   |                                | 
|Exercise of warrants                                    |  | 9     |  |                   | 325,926     |  |          |  | (99,731    | )                         |  |  | -         |   |  |                                          | -           |   |                                | 
|Share-based payments                                    |  | 9     |  |                   | -           |  |          |  | -          |                           |  |  | 1,012,548 |   |  |                                          | -           |   |                                | 
|Loss
    for the period                                 |  |       |  |                   | -           |  |          |  | -          |                           |  |  | -         |   |  |                                          | (8,356,026  | ) |                                | 
|Activity
    for the period                             |  |       |  |                   | 325,926     |  |          |  | (99,731    | )                         |  |  | 1,012,548 |   |  |                                          | (8,356,026  | ) |                                | 
|                                                        |  |       |  |                   |             |  |          |  |            |                           |  |  |           |   |  |                                          |             |   |                                | 
|Balance as at March 31, 2016                            |  |       |  |                   | 119,890,712 |  |          |  | 10,523,219 |                           |  |  | 7,345,920 |   |  |                                          | (60,788,638 | ) |                                | 
|                                                        |  |       |  |                   |             |  |          |  |            |                           |  |  |           |   |  |                                          |             |   |                                | 
|Balance as at December 31, 2014
    (Restated – Note 2) |  |       |  |                   | 29,803,102  |  |          |  | 12,486,868 |                           |  |  | 2,641,709 |   |  |                                          | (30,815,264 | ) |                                | 
|                                                        |  |       |  |                   |             |  |          |  |            |                           |  |  |           |   |  |                                          |             |   |                                | 
|Private
    placement, net of transaction costs         |  |       |  |                   | 15,578,045  |  |          |  | -          |                           |  |  | -         |   |  |                                          | -           |   |                                | 
|Exercise of warrants                                    |  |       |  |                   | 4,618,544   |  |          |  | (1,198,443 | )                         |  |  | -         |   |  |                                          | -           |   |                                | 
|Exercise of share-based payments                        |  |       |  |                   | 117,242     |  |          |  | -          |                           |  |  | (49,233   | ) |  |                                          | -           |   |                                | 
|Share-based payments                                    |  |       |  |                   | -           |  |          |  | -          |                           |  |  | 220,926   |   |  |                                          | -           |   |                                | 
|Acquisition milestone
    share-based payment           |  | 13    |  |                   | 1,175,250   |  |          |  | -          |                           |  |  | -         |   |  |                                          | -           |   |                                | 
|Loss for the period                                     |  |       |  |                   | -           |  |          |  | -          |                           |  |  | -         |   |  |                                          | (4,106,622  | ) |                                | 
|Foreign
    currency translation adjustment             |  | 2     |  |                   | -           |  |          |  | -          |                           |  |  | -         |   |  |                                          | -           |   |                                | 
|Activity
    for the period                             |  |       |  |                   | 21,489,081  |  |          |  | (1,198,443 | )                         |  |  | 171,693   |   |  |                                          | (4,106,622  | ) |                                | 
|                                                        |  |       |  |                   |             |  |          |  |            |                           |  |  |           |   |  |                                          |             |   |                                | 
|Balance as at March 31, 2015                            |  |       |  |                   | 51,292,183  |  |          |  | 11,288,425 |                           |  |  | 2,813,402 |   |  |                                          | (34,921,886 | ) |                                | 



The accompanying notes are an integral part of these unaudited
condensed interim consolidated financial statements.



- 3 -







|CYNAPSUS THERAPEUTICS INC.                   
|---------------------------------------------
|Interim Consolidated Statements of Cash Flows



|UNAUDITED        
|-----------------
|(in U.S. dollars)



|                                                     |  |         |  | For the Three Months Ended |           
|---------------------------------------------------- |  | ------- |  | -------------------------- | ----------
|                                                     |  |         |  | March 31,                  |           
|                                                     |  | NOTES   |  | 2016                       |           
|                                                     |  |         |  | $                          |           
|Operating activities                                 |  |         |  |                            |           
|Loss for the period                                  |  |         |  |                            | (8,356,026
|Items not affecting cash:                            |  |         |  |                            |           
|Share-based payments                                 |  | 9,10,11 |  |                            | 1,012,548 
|Amortization of intangible assets                    |  | 7,10    |  |                            | 8,648     
|Depreciation of property, plant and equipment        |  | 6,10,11 |  |                            | 32,969    
|Acquisition milestone share-based payment            |  | 13,14   |  |                            | -         
|Unrealized foreign exchange gain                     |  |         |  |                            | (4,137    
|                                                     |  |         |  |                            | (7,305,998
|Changes in non-cash working capital:                 |  |         |  |                            |           
|Change in prepaid expenses and other current assets  |  |         |  |                            | 128,623   
|Change in accounts payables and accrued liabilities  |  |         |  |                            | (140,042  
|Net cash used in operating activities                |  |         |  |                            | (7,317,417
|                                                     |  |         |  |                            |           
|Investing activities                                 |  |         |  |                            |           
|Purchase of property, plant and equipment            |  | 6       |  |                            | (94,053   
|Net cash used in investing activities                |  |         |  |                            | (94,053   
|                                                     |  |         |  |                            |           
|Financing activities                                 |  |         |  |                            |           
|Gross proceeds from issuance of shares and warrants  |  | 9       |  |                            | -         
|Commissions and share issuance costs                 |  | 9       |  |                            | -         
|Gross proceeds from exercise of warrants             |  | 9       |  |                            | 226,195   
|Gross proceeds from exercise of share-based payments |  | 9       |  |                            | -         
|Net cash provided by financing activities            |  |         |  |                            | 226,195   
|Effect of exchange rate changes on cash              |  |         |  |                            | 4,137     
|Increase (decrease) in cash                          |  |         |  |                            | (7,181,138
|                                                     |  |         |  |                            |           
|Cash, beginning of period                            |  |         |  |                            | 75,802,951
|Cash, end of period                                  |  |         |  |                            | 68,621,813



The accompanying notes are an integral part of these unaudited
condensed interim consolidated financial statements.



- 4 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 1. | NATURE OF OPERATIONS
| | -- | --------------------



Cynapsus Therapeutics Inc. (“Cynapsus”
or the “Company”) is a specialty central nervous system pharmaceutical company currently developing and preparing to
commercialize a fast-acting, easy-to-use, sublingual thin film for the on-demand management of debilitating OFF episodes associated
with Parkinson’s disease (“PD”). The Company’s common shares are listed on the Toronto Stock Exchange (“TSX”)
(TSX:CTH) in Canada and listed on the NASDAQ Global Market (NASDAQ: CYNA) in the United States. Cynapsus is organized under the
federal laws of Canada. The head office, principal address, registered address and records office of the Company are located at
828 Richmond Street West, Toronto, Ontario, Canada, M6J 1C9.



| | 2. | BASIS OF PREPARATION
| | -- | --------------------



The unaudited condensed interim consolidated financial
statements consolidate the financial statements of Cynapsus and its wholly-owned subsidiary, Cynapsus Therapeutics (USA) Inc. (“Cynapsus
U.S.”), and its previously wholly-owned subsidiary, Adagio Pharmaceuticals Ltd. (“Adagio”). All significant intercompany
transactions and balances have been eliminated. Adagio was amalgamated with Cynapsus on January 1, 2016.



These unaudited condensed interim consolidated financial
statements have been prepared in compliance with International Accounting Standard (“IAS”) 34, Interim Financial
Reporting. The notes presented in these unaudited condensed interim consolidated financial statements include only significant
events and transactions occurring since the Company’s last fiscal year-end and are not fully inclusive of all matters required
to be disclosed in its annual audited consolidated financial statements. The accounting policies adopted in the preparation of
the unaudited condensed interim consolidated financial statements are consistent with those followed in the preparation of the
Company’s annual consolidated financial statements for the year ended December 31, 2015. Any subsequent changes to International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”)
or their interpretation that are given effect in the Company’s annual consolidated financial statements for the year ending
December 31, 2016 could result in a restatement of these unaudited condensed interim consolidated financial statements.



On May 10, 2016, the Board of Directors approved
and authorized these unaudited condensed interim consolidated financial statements for the three months ended March 31, 2016.



Certain comparative figures have been reclassified
to conform to the financial statement presentation adopted for the current period and all amounts prior to January 1, 2016 have
been restated for the change in reporting currency described below.



In the opinion of management, all adjustments considered
necessary for fair presentation of the Company’s financial position, results of operations and cash flows have been included.
Operating results for the three-month period ended March 31, 2016 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2016.



Change in presentation and functional currency

The Company has determined that its expenditures
and cash flows are now primarily denominated in United States dollars (“US$”), and are expected to remain principally
denominated in US$ in the future. Effective January 1, 2016, the Company changed its functional currency from Canadian dollars
(“Cdn$”) to US$. In order to better reflect the underlying performance of the Company, it also changed the presentation
currency of its consolidated financial statements from Cdn$ to US$. In making the change to a US$ presentation currency, the Company
followed the guidance in IAS 21, The Effects of Changes in Foreign Exchange Rates(“IAS 21”)and has
applied the change retrospectively as if the new presentation currency had always been the Company's presentation currency. In
accordance with IAS 21, the financial statements for all the periods presented have been translated to the new US$ presentation
currency. For comparative balances, assets and liabilities have been translated into the presentation currency at the rate of exchange
prevailing at the reporting date, or at the exchange rate prevailing at the date of the transactions. Exchange rate differences
arising on translation are taken to accumulated other comprehensive loss in shareholders' equity. Accumulated other comprehensive
loss was set to nil at January 1, 2010, the date of transition to IFRS. The Company has presented the effects of the change in
the presentation currency below.



- 5 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 2. | BASIS OF PREPARATION (continued)
| | -- | --------------------------------



The functional currency of an
entity is the currency of the primary economic environment in which the entity operates. Following the change in functional currency
outlined above, the functional currency of the Company and its subsidiary is the US$. The functional currency determinations were
conducted through an analysis of the consideration factors identified in IAS 21.



|                                           |  | December 31, 2015 |             |   | January 1, 2015 | 
|------------------------------------------ |  | ----------------- | ----------- | - | --------------- | 
|                                           |  | US$               |             |   | Cdn$            | 
|                                           |  |                   |             |   |                 | 
|ASSETS                                     |  |                   |             |   |                 | 
|Current assets                             |  |                   |             |   |                 | 
|Cash                                       |  |                   | 75,802,951  |   |                 | 
|Prepaid expenses and other current assets  |  |                   | 628,588     |   |                 | 
|Total current assets                       |  |                   | 76,431,539  |   |                 | 
|Non-current assets                         |  |                   |             |   |                 | 
|Property, plant and equipment              |  |                   | 409,393     |   |                 | 
|Intangible assets                          |  |                   | 380,501     |   |                 | 
|                                           |  |                   |             |   |                 | 
|Total assets                               |  |                   | 77,221,433  |   |                 | 
|                                           |  |                   |             |   |                 | 
|LIABILITIES                                |  |                   |             |   |                 | 
|Current liabilities                        |  |                   |             |   |                 | 
|Accounts payable and accrued liabilities   |  |                   | 3,799,220   |   |                 | 
|Total current liabilities                  |  |                   | 3,799,220   |   |                 | 
|                                           |  |                   |             |   |                 | 
|SHAREHOLDERS’ EQUITY                       |  |                   |             |   |                 | 
|Share capital                              |  |                   | 119,564,786 |   |                 | 
|Warrants                                   |  |                   | 10,622,950  |   |                 | 
|Share-based payments                       |  |                   | 6,333,372   |   |                 | 
|Deficit                                    |  |                   | (52,432,612 | ) |                 | 
|Accumulated other comprehensive loss       |  |                   | (10,666,283 | ) |                 | 
|Total shareholders’ equity                 |  |                   | 73,422,213  |   |                 | 
|                                           |  |                   |             |   |                 | 
|Total liabilities and shareholders’ equity |  |                   | 77,221,433  |   |                 | 



- 6 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 2. | BASIS OF PREPARATION (continued)
| | -- | --------------------------------



|                                                 |  | For the Three Months Ended |          
|------------------------------------------------ |  | -------------------------- | ---------
|                                                 |  | March 31, 2015             |          
|                                                 |  | US$                        |          
|                                                 |  | $                          |          
|EXPENSES                                         |  |                            |          
|                                                 |  |                            |          
|Research and development                         |  |                            | 2,353,082
|Operating, general and administrative            |  |                            | 1,504,804
|Acquisition milestone share-based payment        |  |                            | 1,209,150
|Unrealized foreign exchange gain                 |  |                            | (953,158 
|Other interest income and related charges        |  |                            | (7,256   
|Loss for the period                              |  |                            | 4,106,622
|                                                 |  |                            |          
|Other comprehensive loss                         |  |                            |          
|Foreign currency translation adjustment          |  |                            | 1,302,667
|                                                 |  |                            |          
|Loss and other comprehensive loss for the period |  |                            | 5,409,289
|                                                 |  |                            |          
|Loss per share –
    basic and diluted           |  |                            | 0.78     



- 7 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 3. | FUTURE ACCOUNTING CHANGES
| | -- | -------------------------



Certain pronouncements that were issued by the IASB
or the International Financial Reporting Interpretations Committee are mandatory for accounting periods having begun on or after
January 1, 2016. Many are not applicable or do not have a significant impact to the Company and have been excluded. The following
pronouncements have not yet been adopted and are being evaluated to determine their impact on the Company.



IFRS 9, Financial Instruments



IFRS 9, Financial Instruments (“IFRS
9”) was issued by the IASB in July 2014 and will replace IAS 39, Financial Instruments: Recognition and Measurement
(“IAS 39”) and all previous versions of IFRS 9. IFRS 9 uses a single approach to determine whether a financial asset
is measured at amortized cost, fair value through profit or loss, or fair value through other comprehensive income. The approach
in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual
cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial
liabilities were carried forward unchanged to IFRS 9, except that an entity choosing to measure a financial liability at fair value
will present the portion of any change in fair value due to changes in the entity’s own credit risk in other comprehensive
income, rather than within profit or loss. The new standard also requires a single impairment method to be used, replacing the
multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. Earlier adoption
is permitted. The Company has not yet begun the process of evaluating the impact of this standard on its consolidated financial
statements.



IFRS 15, Revenue from Contracts with Customers



In May 2014, the IASB issued IFRS 15, Revenue
from Contracts with Customers (“IFRS 15”), which covers principles for reporting about the nature, amount, timing
and uncertainty of revenue and cash flows arising from contracts with customers. IFRS 15 is effective for annual periods beginning
on or after January 1, 2018. Entities will transition following either a full or modified retrospective approach. The Company has
not yet begun the process of evaluating the impact of this standard on its consolidated financial statements.



IFRS 16, Leases



In January 2016, the IASB has issued IFRS 16, Leases
(“IFRS 16”), its new leases standard that requires lessees to recognize assets and liabilities for most leases on their
balance sheets. Lessees applying IFRS 16 will have a single accounting model for all leases, with certain exemptions. Lessor accounting
is substantially unchanged. The new standard will be effective from January 1, 2019 with limited early application permitted. The
Company has not yet begun the process of evaluating the impact of this standard on its consolidated financial statements.



Other accounting standards or amendments to existing
accounting standards that have been issued, but have future effective dates, are either not applicable or are not expected to have
a significant impact on the Company’s consolidated financial statements.



- 8 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 4. | SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
| | -- | -----------------------------------------------------------



The preparation of these unaudited condensed interim
consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that
affect the application of accounting policies and reported amounts of assets and liabilities at the date of the consolidated financial
statements and reported amounts of revenue and expenses during the reporting period. Actual outcomes could differ from these estimates.
The unaudited condensed interim consolidated financial statements include estimates, which, by their nature, are uncertain. The
impacts of such estimates are pervasive throughout the unaudited condensed interim consolidated financial statements, and may require
accounting adjustments based on future occurrences.



The estimates and underlying assumptions are reviewed
on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any
future periods affected. The areas which require management to make significant judgments, estimates and assumptions in determining
carrying values include, but are not limited to:



Intangible assets

The Company estimates the useful lives of intangible
assets from the date they are available for use in the manner intended by management and periodically reviews the useful lives
to reflect management’s intent about developing and commercializing the assets. Management also estimates their recoverability
to assess if there has been an impairment. The amounts and timing of recorded expenses for amortization and impairment of intangible
assets for any period are affected by these estimates. The estimates are reviewed at least annually and are updated if expectations
change as a result of technical or commercial obsolescence, generic threats and legal or other limits to use. It is possible that
changes in these factors may cause significant changes in the estimated useful lives of the Company’s intangible assets in
the future.



Share-based payments

Management determines costs for share-based payments
using market-based valuation techniques. The fair value of the market-based and performance-based share awards are determined at
the date of grant using generally accepted valuation techniques. Assumptions are made and judgments are used in applying valuation
techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield,
future employee turnover rates and future employee stock option exercise behaviors and corporate performance. Such judgments and
assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.



Contingencies

See Note 15, Commitments and Contingent Liabilities.



- 9 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 5. | RISK MANAGEMENT
| | -- | ---------------



Financial risk management



In the normal course of business, the Company is
exposed to a number of financial risks that can affect its operating performance, which include credit risk, liquidity risk and
market risk. The Company’s overall risk management program and prudent business practices seek to minimize any potential
adverse effects on the Company’s financial performance. There were no changes in the Company’s approach to risk management
during the period ended March 31, 2016.



| | (i) | Credit risk
| | --- | -----------

The Company’s cash balance is on deposit with
a Canadian chartered bank. The Company has no significant concentration of credit risk arising from operations. Management believes
that the credit risk concentration with respect to these financial instruments is remote.



| | (ii) | Liquidity risk
| | ---- | --------------

The Company’s approach to managing liquidity
risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at March 31, 2016, the Company had cash
of $68,621,813 and prepaid expenses and other current assets of $499,965 (December 31, 2015 - $75,802,951 and $628,588, respectively)
to settle current liabilities of $3,659,178 (December 31, 2015 - $3,799,220). Most of the Company’s accounts payable and
accrued liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.



Market risk



| | (i) | Interest rate risk
| | --- | ------------------

The Company had a cash balance of $68,621,813 as at
March 31, 2016 (December 31, 2015 - $75,802,951).



The Company’s current policy is to invest excess
cash in a business savings account. The Company considers interest rate risk to be minimal.



| | (ii) | Foreign currency risk
| | ---- | ---------------------

Foreign currency risk is the risk that the fair value
or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s
functional and presentation currency is the U.S. dollar and all amounts in the consolidated financial statements are expressed
in U.S. dollars, unless otherwise noted. The Company funds the majority of research and development expenses denominated in the
U.S. dollar from its U.S. dollar bank account held in Canada and certain expenses denominated in the Euro on a cash call basis
using the Euro converted from its U.S. dollar bank account held in Canada. The Company believes that while currency conversions
could affect results of operations, there is not a significant risk to its ability to meet its obligations. Management believes
the foreign exchange risk derived from currency conversions is not significant and, therefore, does not hedge its foreign exchange
risk.



- 10 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 5. | RISK MANAGEMENT (continued)
| | -- | ---------------------------



| | (ii) | Foreign currency risk (continued)
| | ---- | ---------------------------------



The following table summarizes accounts denominated
in Canadian dollars, reported in U.S. dollar equivalents, and the effective Cdn$/US$ exchange rate applied as at:



|                       |  | March 31, 2016 |          |   | December 31, 2015 | 
|---------------------- |  | -------------- | -------- | - | ----------------- | 
|                       |  | $              |          |   | $                 | 
|Cash                   |  |                | 131,968  |   |                   | 
|Accounts payable       |  |                | 234,245  |   |                   | 
|Net exposure           |  |                | (102,277 | ) |                   | 
|                       |  |                |          |   |                   | 
|Cdn$/US$ exchange rate |  |                | 0.7700   |   |                   | 



Based on the Company’s foreign currency exposures
noted above, a 10% strengthening of the Canadian dollar against the U.S. dollar as at March 31, 2016 would have increased the net
loss by approximately $10,000 (December 31, 2015 – decrease of $6,000), assuming all other variables remained constant. A
10% weakening of the Canadian dollar would have an opposite effect, assuming that all other variables remained constant.



| | (iii) | Price risk
| | ----- | ----------

The Company is exposed to price risk with respect
to Active Pharmaceutical Ingredient (“API”) prices used in research and development activities. The Company monitors
API prices in the United States, Europe and Asia to determine the appropriate course of action to be taken by the Company. Management
believes that the price risk concentration with respect to API is minimal.



| | (iv) | Fair value
| | ---- | ----------

IFRS require that the Company disclose information
about the fair value of its financial assets and liabilities. Fair value estimates are made at the interim consolidated statement
of financial position dates based on relevant market information and information about the financial instrument. These estimates
are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect these estimates.



Accounts payable and accrued liabilities are classified
as other financial liabilities, which are measured at amortized cost.



The carrying amounts for cash, accounts payable and
accrued liabilities on the interim consolidated statements of financial position approximate fair value because of the short-term
nature of these instruments.



- 11 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 5. | RISK MANAGEMENT (continued)
| | -- | ---------------------------



Capital risk management



The Company manages its capital structure and makes
adjustments, based on the funds available to the Company, in order to support its research and development activities. The Company’s
capital structure consists of share capital, warrants and share-based payments. The Board of Directors does not establish quantitative
return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future
development of the business.



The product candidate that the Company currently
has in its pipeline is in the research stage; as such, the Company is dependent on external financing to fund its activities. In
order to carry out the planned research and development and pay for administration costs, the Company intends to spend its existing
working capital and raise additional amounts, as needed.



Management reviews its capital management approach
on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.



There were no changes in the Company’s approach
to capital management during the period ended March 31, 2016. The Company and Cynapsus U.S., its wholly-owned subsidiary, and Adagio,
its previously wholly-owned subsidiary, are not subject to externally imposed capital requirements.



- 12 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 6. | PROPERTY, PLANT AND EQUIPMENT
| | -- | -----------------------------



The following is a summary of property, plant and
equipment as at March 31, 2016 and activity for the period then ended:



|                                       |  | Computer Equipment |         |  | Furniture and Fixtures |  |        | Leasehold Improvements |  |  | R&D Equipment |  |  | Total |       
|-------------------------------------- |  | ------------------ | ------- |  | ---------------------- |  | ------ | ---------------------- |  |  | ------------- |  |  | ----- | ------
|                                       |  | $                  |         |  | $                      |  |        | $                      |  |  | $             |  |  | $     |       
|Cost                                   |  |                    |         |  |                        |  |        |                        |  |  |               |  |  |       |       
|Balance as at December 31, 2015        |  |                    | 274,955 |  |                        |  | 60,522 |                        |  |  | 156,673       |  |  |       | 26,878
|Additions                              |  |                    | 88,024  |  |                        |  | 3,331  |                        |  |  | -             |  |  |       | 2,698 
|Balance as at March 31, 2016           |  |                    | 362,979 |  |                        |  | 63,853 |                        |  |  | 156,673       |  |  |       | 29,576
|                                       |  |                    |         |  |                        |  |        |                        |  |  |               |  |  |       |       
|Accumulated depreciation               |  |                    |         |  |                        |  |        |                        |  |  |               |  |  |       |       
|Balance as at December 31, 2015        |  |                    | 66,034  |  |                        |  | 15,613 |                        |  |  | 27,316        |  |  |       | 672   
|Depreciation                           |  |                    | 17,973  |  |                        |  | 2,340  |                        |  |  | 10,488        |  |  |       | 2,168 
|Balance as at March 31, 2016           |  |                    | 84,007  |  |                        |  | 17,953 |                        |  |  | 37,804        |  |  |       | 2,840 
|                                       |  |                    |         |  |                        |  |        |                        |  |  |               |  |  |       |       
|Net book value                         |  |                    |         |  |                        |  |        |                        |  |  |               |  |  |       |       
|Net book value as at December 31, 2015 |  |                    | 208,921 |  |                        |  | 44,909 |                        |  |  | 129,357       |  |  |       | 26,206
|Net book value as at March 31, 2016    |  |                    | 278,972 |  |                        |  | 45,900 |                        |  |  | 118,869       |  |  |       | 26,736



- 13 -







|CYNAPSUS THERAPEUTICS INC.                                      
|----------------------------------------------------------------
|Notes to the Unaudited Consolidated Interim Financial Statements
|March 31, 2016                                                  
|(in U.S. dollars)                                               



| | 7. | INTANGIBLE ASSETS
| | -- | -----------------



The following is a summary of
intangible assets as at March 31, 2016 and activity for the period then ended:



|                                       |  | APL-130277 Patents |         |  | License Agreement |  |         | Total | 
|-------------------------------------- |  | ------------------ | ------- |  | ----------------- |  | ------- | ----- | 
|                                       |  | $                  |         |  | $                 |  |         | $     | 
|Cost                                   |  |                    |         |  |                   |  |         |       | 
|Balance as at December 31, 2015        |  |                    | 518,865 |  |                   |  | 144,500 |       | 
|                                       |  |                    |         |  |                   |  |         |       | 
|Accumulated amortization               |  |                    |         |  |                   |  |         |       | 
|Balance as at December 31, 2015        |  |                    | 138,364 |  |                   |  | 144,500 |       | 
|Amortization                           |  |                    | 8,648   |  |                   |  | -       |       | 
|Balance as at March 31, 2016           |  |                    | 147,012 |  |                   |  | 144,500 |       | 
|                                       |  |                    |         |  |                   |  |         |       | 
|Net book value                         |  |                    |         |  |                   |  |         |       | 
|Net book value as at December 31, 2015 |  |                    | 380,501 |  |                   |  | -       |       | 
|Net book value as at March 31, 2016    |  |                    | 371,853 |  |                   |  | -       |       | 



- 14 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 7. | INTANGIBLE ASSETS (continued)
| | -- | -----------------------------



ARx LLC Supply Agreement



On March 17, 2015, the Company entered into an agreement
with ARx LLC (“ARx”), whereby ARx assigned to the Company certain patents related to APL-130277, and in exchange the
agreement provides that ARx is the sole partner for formulation and process development activities for APL-130277 during the term
of the agreement and the expectation of entering into a commercial supply agreement, under which ARx will be the majority supplier
of APL-130277 in the United States prior to filing for Food and Drug Administration (“FDA”) approval of APL-130277.
The agreement provides that the Company retain sole ownership of all filings with respect to APL-130277. The non-monetary transaction
has been recorded at nil, as the fair value of the patents received by the Company and considerations given up could not be reliably
measured.



| | 8. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| | -- | ----------------------------------------



The following is a summary of
accounts payable and accrued liabilities as at December 31, 2015 and March 31, 2016:



|                                            |  | March 31, 2016 |           |  | December 31, 2015 | 
|------------------------------------------- |  | -------------- | --------- |  | ----------------- | 
|                                            |  | $              |           |  | $                 | 
|Trade payables                              |  |                | 3,089,304 |  |                   | 
|Due to related parties (Note 14)            |  |                | 206,811   |  |                   | 
|Bonus accruals to related parties (Note 14) |  |                | 15,341    |  |                   | 
|Other accrued liabilities                   |  |                | 347,722   |  |                   | 
|                                            |  |                | 3,659,178 |  |                   | 





- 15 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 9. | SHARE CAPITAL
| | -- | -------------



| | i) | Authorized common shares
| | -- | ------------------------



Unlimited
number of common shares with no par value



| | ii) | Issued and outstanding common shares
| | --- | ------------------------------------



On May 15, 2015, the Company completed a share consolidation
of the Company’s issued and outstanding common shares on the basis of one (1) new common share for every sixteen (16) common
shares issued and outstanding. All common shares, options, warrants and per share amounts have been restated to give retrospective
effect to those share consolidations.



|                                                 |  | Number of Common Shares |           
|------------------------------------------------ |  | ----------------------- | ----------
|                                                 |  | #                       |           
|Balance,  December 31, 2015                      |  |                         | 12,278,133
|Shares issued for cash from exercise of warrants |  |                         | 31,233    
|Balance,  March 31, 2016                         |  |                         | 12,309,366



- 16 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 9. | SHARE CAPITAL (continued)
| | -- | -------------------------



| | iii) | Warrants
| | ---- | --------



The number of warrants outstanding as at December
31, 2015 and March 31, 2016 and changes during the period then ended are presented below:



|                           |  | Number of Warrants |           |   | Warrants |  |            | Weighted Average Exercise Price/Share | 
|-------------------------- |  | ------------------ | --------- | - | -------- |  | ---------- | ------------------------------------- | 
|                           |  | #                  |           |   | $        |  |            | Cdn$                                  | 
|Balance, December 31, 2015 |  |                    | 3,127,739 |   |          |  | 10,622,950 |                                       | 
|Exercised                  |  |                    | (31,233   | ) |          |  | (99,731    | )                                     | 
|Balance, March 31, 2016    |  |                    | 3,096,506 |   |          |  | 10,523,219 |                                       | 



A summary of warrants exercised
during the period ended March 31, 2016 is as follows:





|Number of Warrants |        |  | Cash Proceeds |  |         | Exercise Price | 
|------------------ | ------ |  | ------------- |  | ------- | -------------- | 
|#                  |        |  | $             |  |         | Cdn$           | 
|                   | 21,658 |  |               |  | 147,366 |                | 
|                   | 5,200  |  |               |  | 37,710  |                | 
|                   | 4,375  |  |               |  | 41,119  |                | 
|                   | 31,233 |  |               |  | 226,195 |                | 



- 17 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 9. | SHARE CAPITAL (continued)
| | -- | -------------------------



| | iii) | Warrants (continued)
| | ---- | --------------------



Warrants outstanding and exercisable
as at March 31, 2016 were as follows:



|Number of Warrants |           |  | Exercise Price |  |       | Exercise Trigger |  |  | Expiry Date |  | Description
|------------------ | --------- |  | -------------- |  | ----- | ---------------- |  |  | ----------- |  | -----------
|#                  |           |  | Cdn$/Share     |  |       | Cdn$/Share       |  |  |             |  |            
|                   | 11,875    |  |                |  | 16.00 |                  |  |  | 24.00       |  |            
|                   | 13,751    |  |                |  | 10.00 |                  |  |  | -           |  |            
|                   | 7,887     |  |                |  | 10.00 |                  |  |  | -           |  |            
|                   | 563,634   |  |                |  | 9.20  |                  |  |  | 22.08       |  |            
|                   | 181,575   |  |                |  | 9.20  |                  |  |  | 22.08       |  |            
|                   | 2,317,784 |  |                |  | 12.96 |                  |  |  | 31.20       |  |            
|                   | 3,096,506 |  |                |  |       |                  |  |  |             |  |            



Included in some of the warrant agreements are provisions
such that each warrant entitles the holder to purchase one common share at a price equal to the exercise price per share for a
period up to the expiration date, except that, subject to certain exceptions, the warrants will be cancelled if they are not exercised
within 30 days after written notice from the Company that the closing price of its common shares on the principal stock exchange
of the Company has been three times the unit price of the offering for more than 20 consecutive trading days (the “Exercise
Trigger”).



There were no warrants issued during the period ended
March 31, 2016. The weighted average contractual life remaining for the warrants outstanding as at March 31, 2016 is 2.75 years
(December 31, 2015 - 3.00 years).



- 18 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 9. | SHARE CAPITAL (continued)
| | -- | -------------------------



| | iv) | Share-based payments (continued)
| | --- | --------------------------------



The Company has in place a stock option plan for the
purchase of common shares by its directors, officers, employees and other service providers, which was amended and restated effective
as of May 10, 2016 (as amended and restated, the “Plan”). No amounts are paid or payable by the recipient on receipt
of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date
of vesting to the date of their expiry, for cash or on a cashless basis, as provided in the Plan. Prior to the amendment and restatement
of the stock option plan on May 10, 2016, options could be exercised only for cash under the plan. The number of options granted
is approved by the Board of Directors. After the resignation of an employee, director or consultant, any vested option held by
such optionee may be exercised within a reasonable period (not to exceed one year), as determined by the Board of Directors and
set forth in the applicable option agreement, provided such date is no later than the expiration of the applicable option period
(as defined in the Plan).



The aggregate number of common shares reserved for
issuance under the Plan is a maximum of 10% of the issued and outstanding common shares of the Company at the time of grant. As
at March 31, 2016, there were a total of 1,045,085 options outstanding, representing 8.5% of the issued and outstanding common
shares of the Company (December 31, 2015 – 1,007,765 options, and 8.2%, respectively). No one person shall be granted options
representing more than 5% of the issued and outstanding common shares of the Company at the time of grant. Option grants to insiders
(as defined in the Plan) within any 12-month period, or issuable to insiders at any time, may not exceed 10% of the issued and
outstanding common shares of the Company at such time. The options are non-assignable and non-transferable and may be granted for
a term not exceeding 10 years. The exercise price of the options is fixed by the Board of Directors of the Company and shall not
be lower than the market price (as defined by the TSX) of the common shares at the time of grant, subject to all applicable regulatory
requirements.



- 19 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 9. | SHARE CAPITAL (continued)
| | -- | -------------------------



| | iv) | Share-based payments (continued)
| | --- | --------------------------------



The number of stock options outstanding
as at December 31, 2015 and changes during the period ended March 31, 2016 are as follows:



|                                            |  | Number of Options |           |   | Weighted Average Exercise Price/Share | 
|------------------------------------------- |  | ----------------- | --------- | - | ------------------------------------- | 
|                                            |  | #                 |           |   | Cdn$                                  | 
|Options outstanding as at December 31, 2015 |  |                   | 1,007,765 |   |                                       | 
|Granted                                     |  |                   | 38,000    |   |                                       | 
|Forfeited                                   |  |                   | (680      | ) |                                       | 
|Options outstanding as at March 31, 2016    |  |                   | 1,045,085 |   |                                       | 



On February 16, 2016, the Company granted stock options
to acquire 38,000 common shares. The stock options were granted to an employee of the Company at an exercise price equal to Cdn$19.00
per share and expire 10 years from the date of grant. One-fifth will vest in six months, one-fifth will vest in one year, one-fifth
will vest in two years, one-fifth will vest in three years, and one-fifth will vest in four years.



Weighted average assumptions used in the Black-Scholes
option pricing model to determine the fair value of stock options granted during the three months ended March 31, 2016 are as follows:



|Exercise price                                 |  | Cdn$ | 19.00     |  
|---------------------------------------------- |  | ---- | --------- | -
|Grant date share price                         |  | Cdn$ | 19.00     |  
|Risk-free interest rate                        |  |      | 0.90      | %
|Expected dividend yield                        |  |      | -         |  
|Expected volatility                            |  |      | 97.6      | %
|Expected option term                           |  |      | 6.1 years |  
|Weighted average fair value of options granted |  | Cdn$ | 14.71     |  



- 20 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 9. | SHARE CAPITAL (continued)
| | -- | -------------------------



| | iv) | Share-based payments (continued)
| | --- | --------------------------------



The risk-free interest rate is based on the Government
of Canada marketable bonds average yield over the expected option term as of the option grant date, as published on the Bank of
Canada website. Expected volatility is based on the historical volatility of the Company’s common shares traded on the TSX
and TSXV exchanges, as applicable, over the expected option term of each option grant. The expected option term of each option
grant is estimated as the midpoint between the vesting period and the expiry period.



Stock options issued and outstanding as at March 31,
2016 were as follows:



|Number of Options Outstanding |           |  | Number of Options Vested and Exercisable |  |         | Effective Exercise Price/ Share |  |  | Expiry Date
|----------------------------- | --------- |  | ---------------------------------------- |  | ------- | ------------------------------- |  |  | -----------
|#                             |           |  | #                                        |  |         | Cdn$                            |  |  |            
|                              | 3,124     |  |                                          |  | 3,124   |                                 |  |  | 16.00      
|                              | 2,500     |  |                                          |  | 2,500   |                                 |  |  | 16.00      
|                              | 17,185    |  |                                          |  | 17,185  |                                 |  |  | 16.00      
|                              | 1,625     |  |                                          |  | 1,625   |                                 |  |  | 16.00      
|                              | 937       |  |                                          |  | 937     |                                 |  |  | 16.00      
|                              | 23,332    |  |                                          |  | 23,332  |                                 |  |  | 7.36       
|                              | 55,998    |  |                                          |  | 55,998  |                                 |  |  | 5.76       
|                              | 1,562     |  |                                          |  | 1,562   |                                 |  |  | 4.96       
|                              | 137,749   |  |                                          |  | 137,749 |                                 |  |  | 10.40      
|                              | 67,185    |  |                                          |  | 34,712  |                                 |  |  | 19.84      
|                              | 240,618   |  |                                          |  | 89,923  |                                 |  |  | 21.76      
|                              | 413,650   |  |                                          |  | 64,830  |                                 |  |  | 21.40      
|                              | 14,000    |  |                                          |  | 2,800   |                                 |  |  | 20.00      
|                              | 27,620    |  |                                          |  | 5,660   |                                 |  |  | 20.10      
|                              | 38,000    |  |                                          |  | -       |                                 |  |  | 19.00      
|                              | 1,045,085 |  |                                          |  | 441,937 |                                 |  |  |            



The total number of common shares that were issuable
pursuant to stock options that were exercisable as at March 31, 2016 is 441,937 (December 31, 2015 - 441,937). The weighted average
exercise price of those options as at March 31, 2016 is Cdn$18.49 (December 31, 2015 - Cdn$18.47).



The weighted average contractual life remaining for
the (i) vested and exercisable, and (ii) aggregate outstanding stock options as at March 31, 2016 is 4.07 years and 6.24 years,
respectively (December 31, 2015 - 4.33 years and 6.36 years, respectively).



Total share-based payments compensation expense for
the period ended March 31, 2016 was $1,012,548 (March 31, 2015 - $220,926), and has been allocated to components of research and
development expenses and operating, general and administrative expenses.



- 21 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 10. | RESEARCH AND DEVELOPMENT
| | --- | ------------------------



Components of research and development
expenses for the three months ended March 31 were as follows:



|                                                                  |  |       |  | Three Months Ended March 31, |          
|----------------------------------------------------------------- |  | ----- |  | ---------------------------- | ---------
|                                                                  |  | Notes |  | 2016                         |          
|                                                                  |  |       |  | $                            |          
|APL-130277 research and development excluding the following items |  |       |  |                              | 4,211,586
|Salaries, benefits and bonuses                                    |  |       |  |                              | 619,774  
|Share-based payments                                              |  | 9     |  |                              | 376,957  
|Amortization of intangible assets                                 |  | 7     |  |                              | 8,648    
|Depreciation of property, plant and equipment                     |  | 6     |  |                              | 2,168    
|Recovery on scientific research                                   |  |       |  |                              | -        
|Research grant                                                    |  | 12    |  |                              | -        
|                                                                  |  |       |  |                              | 5,219,133



| | 11. | OPERATING, GENERAL AND ADMINISTRATIVE
| | --- | -------------------------------------



Components of operating, general
and administrative expenses for the three months ended March 31 were as follows:



|                                                                    |  |       |  | Three Months Ended March 31, |          
|------------------------------------------------------------------- |  | ----- |  | ---------------------------- | ---------
|                                                                    |  | Notes |  | 2016                         |          
|                                                                    |  |       |  | $                            |          
|Operating general, and administrative excluding the following items |  |       |  |                              | 1,961,821
|Salaries, benefits, bonuses and board fees                          |  |       |  |                              | 512,817  
|Share-based payments                                                |  | 9     |  |                              | 635,591  
|Depreciation of property, plant and equipment                       |  | 6     |  |                              | 30,801   
|                                                                    |  |       |  |                              | 3,141,030



- 22 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 12. | RESEARCH GRANT
| | --- | --------------



On July 3, 2014, the Company was awarded a grant
of $500,000 from The Michael J. Fox Foundation for Parkinson’s Research (“MJFF”) to support clinical studies
to develop APL-130277. This MJFF grant was used to fund the Company’s CTH-105 clinical study. Funds awarded by MJFF are to
be used solely for the specified project and are conditioned on meeting certain milestones and deliverables. Milestone payments
of $400,000 were received and recognized as research grant income during the year ended December 31, 2014. The final milestone
payment of $100,000 was received on March 13, 2015 and was recognized as research grant income in the first quarter of 2015.



As part of the MJFF grant agreement, Cynapsus is
required to support further PD research by making up to $1,000,000 in contributions to MJFF based on future sales of APL-130277
beginning the year that the Company posts net sales of APL-130277 in excess of $5,000,000.



- 23 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 13. | ACQUISITION MILESTONE SHARE-BASED PAYMENT
| | --- | -----------------------------------------



On December 22, 2011, the Company completed the acquisition
of 100% of the outstanding common shares of Adagio and certain indebtedness of Adagio (the “Transaction”). The Transaction
was structured as a share exchange, with Adagio shareholders receiving newly issued common shares of the Company in exchange for
all of the issued and outstanding shares of Adagio. The Transaction also provided for contingent payments upon the completion of
operational milestones. On January 28, 2015, the Company and the former Adagio shareholders, who are substantially represented
by key management and, therefore, are related parties, signed an amendment to the Adagio Share Purchase Agreement to better reflect
the contemplated agreement between the parties resulting in an amended condition as described in milestone payment (a) below. Adagio
shareholders were entitled to the following additional payments pursuant to the Transaction:



| | a) | a payment of Cdn$1,500,000 conditional upon the successful completion of the Company’s Phase 2 CTH-105 study in Parkinson’s
patients, and written confirmation from the FDA, that one Phase 3 efficacy study, one Phase 3 safety study, a bridging study and
an ease-of-use study will be sufficient to allow the Company to pursue approval for a new drug application pursuant to Section
505(b)(2) of the United States Federal Food, Drug and Cosmetic Act, as amended, to be satisfied by the issuance of common shares
at a deemed value equal to the 30-day volume weighted average trading price (“VWAP”) immediately prior to the first
public announcement of the receipt of written minutes from the FDA confirming the above; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | a payment of Cdn$2,500,000 conditional upon the successful completion of the APL-130277 final safety study, to be satisfied
by the issuance of common shares at a deemed value equal to the 30-day VWAP immediately prior to the first public announcement
of the results of such study.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



With respect to the payments described in (a) and
(b) above, the VWAP of the common shares may not be less than the “discounted market price” as defined in the policies
of the TSX.



On March 11, 2015, the Company announced the results
of the end of Phase 2 meeting with the FDA, which triggered the milestone payment described in (a) above to former Adagio shareholders
of 69,960 common shares at a deemed value of Cdn$21.44 per common share. The fair value of these shares, in the amount of $1,209,150,
was recorded as an expense. See Note 14, Related Party Transactions.



- 24 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 14. | RELATED PARTY TRANSACTIONS
| | --- | --------------------------



Key management personnel are those persons having
authority and responsibility for planning, directing and controlling the activities of the Company, including directors and officers.
Compensation paid or payable to key management was composed of the following during the periods ended March 31:



|                                                      |  | Three Months Ended March 31, |        
|----------------------------------------------------- |  | ---------------------------- | -------
|                                                      |  | 2016                         |        
|                                                      |  | $                            |        
|Short-term salaries, benefits and bonuses to officers |  |                              | 347,518
|Directors’ fees                                       |  |                              | 83,098 
|                                                      |  |                              | 430,616



As at March 31, 2016, included in accounts payable
and accrued liabilities was $206,811 (December 31, 2015 - $184,188) due to officers and directors of the Company (see Note 8, Accounts
Payable and Accrued Liabilities). These amounts are unsecured and non-interest bearing with no fixed terms of repayment. As at
March 31, 2016, there were accrued bonuses to related parties of $15,341 (December 31, 2015 - $385,093).



The Company’s employment agreements with its
executive officers provide for additional payments in the event of termination without cause (see Note 15, Commitments and Contingent
Liabilities).



On March 11, 2015, the Company
announced the results of the end of Phase 2 meeting with the FDA, which triggered a milestone payment to former Adagio shareholders
of 69,960 common shares. Of the total, 37,652 common shares were issued to the Company’s President and Chief Executive Officer,
the value of which is not included in the table above (see Note 13, Acquisition Milestone Share-based Payment).



During the period ended March 31, 2016, fees of $72,000
were paid or payable to one of the Company’s directors as compensation for consulting services rendered (March 31, 2015 –
nil).



- 25 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 15. | COMMITMENTS AND CONTINGENT LIABILITIES
| | --- | --------------------------------------



As at March 31, 2016, the Company had research and
development and other service contract commitments, as well as minimum future payments under operating leases for the periods presented
as follows:



|                              |  | Less than 1 year |            |  | 1 - 3 years |  |           | Total | 
|----------------------------- |  | ---------------- | ---------- |  | ----------- |  | --------- | ----- | 
|                              |  | $                |            |  | $           |  |           | $     | 
|Purchase obligations          |  |                  | 19,611,000 |  |             |  | 4,285,000 |       | 
|Operating leases              |  |                  | 134,000    |  |             |  | 245,000   |       | 
|Total contractual obligations |  |                  | 19,745,000 |  |             |  | 4,530,000 |       | 



Of the total purchase obligations, one consulting
contract contains a change of control clause in which, subject to certain conditions, the Company agrees to pay the vendor an amount
equal to fees based on the minimum billable hours for the remainder of the agreement term. As a triggering event has not taken
place, these contingent payments have not been recognized in these consolidated interim financial statements. The Company does
not have a practicable estimate for the expected value of this contingent liability due to the nature of the triggering event.
As at March 31, 2016, the maximum amount of any contingent liability, based on a remaining term of two months, was $101,520, which
was included in the amount of unrecognized purchase obligations.



The Company is a party to certain employment contracts
for its executive officers and employees. Minimum employment contract termination commitments under the agreements, for termination
without cause, total approximately $1,885,336 and would be payable within one year, but are not included in the table of purchase
obligations above.



See also Note 12, Research Grant, Note 13, Acquisition
Milestone Share-based Payment, and Note 16, Subsequent Events for other contingent liabilities that are not included in the table
of contractual obligations above.



- 26 -







|CYNAPSUS THERAPEUTICS INC.                                                
|--------------------------------------------------------------------------
|Notes to the Unaudited Condensed Interim Consolidated Financial Statements
|March 31, 2016                                                            
|(in U.S. dollars)                                                         



| | 16. | SUBSEQUENT EVENTS
| | --- | -----------------



On April 1, 2016, Cynapsus and MonoSol Rx, LLC (“MonoSol
Rx”) entered into a license agreement (the “License Agreement”) pursuant to which MonoSol Rx granted Cynapsus
an exclusive, worldwide license (with the right to sub-license) to certain intellectual property, including existing and future
patents and patent applications, covering all oral films containing apomorphine for the treatment of OFF episodes in Parkinson’s
disease patients, as well as two other fields. In consideration for the rights granted to Cynapsus under the License Agreement,
MonoSol Rx received an upfront payment of $5 million. MonoSol Rx shall also receive (i) an aggregate of $13 million in connection
with specified regulatory and development milestones in the United States and Europe, which are due and payable on or before December
1, 2018 (the “Initial Milestone Payments”), (ii) certain one-time milestone payments related to product availability
and regulatory approval in the United States and Europe, (iii) certain one-time milestone payments based on the achievement of
specific annual net sales thresholds of APL-130277, and (iv) ongoing mid-single digit percentage royalty payments related to the
net sales of APL-130277 (subject to reduction to low-single digit percentage royalty payments in certain circumstances), subject
to certain minimum payments. With the exception of the Initial Milestone Payments, there can be no guarantee that any such milestones
will in fact be met or payable.



- 27 -







ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.



The following “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, or MD&A, relates to the financial position
and results of operations of Cynapsus for the three months ended March 31, 2016 and should be read in conjunction with our unaudited
condensed interim consolidated financial statements and related notes for the three months ended March 31, 2016 as well as our
audited annual consolidated financial statements and related notes for the year ended December 31, 2015 included in our Annual
Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 9, 2016, as amended by Amendment No. 1 to
Form 10-K/A filed with the SEC on March 18, 2016. Our unaudited condensed interim consolidated financial statements for the period
ended March 31, 2016 and related notes have been prepared in compliance with International Accounting Standard 34, Interim Financial
Reporting. The policies applied in the unaudited condensed interim consolidated financial statements are consistent with those
followed in preparation of the Company’s annual consolidated financial statements for the year ended December 31, 2015.





The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the
forward-looking statements and you are cautioned not to place undue reliance on forward-looking statements. Factors that could
cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly
in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” The forward-looking statements
included in this Quarterly Report on Form 10-Q are made only as of the date hereof.



Change in functional and presentation currency



In this MD&A, unless otherwise indicated,
all dollar amounts are expressed in U.S. dollars. The term “dollars” and the symbols “$” and “US$”
refer to U.S. dollars and the symbol “Cdn$” refer to Canadian dollars.



Effective January 1, 2016, we changed our
functional currency from Cdn$ to US$. We determined that our expenditures and cash flows are now principally denominated in US$,
and are expected to remain principally denominated in US$ in the future. Concurrent with this change, we also changed our presentation
currency from the Cdn$ to US$ in order to better reflect our underlying performance. We believe that these changes will result
in more relevant and reliable information for our financial statement users, and will more accurately reflect the results of our
operations. For the period ended December 31, 2015 and all prior periods, we previously presented our unaudited condensed interim
consolidated financial statements in Cdn$. The comparative figures disclosed in our unaudited condensed interim consolidated financial
statements for the three months ended March 31, 2016, and in this MD&A, have been retrospectively changed to reflect the change
in presentation currency to US$, as if the US$ had been used as the presentation currency for all prior periods.



Overview



Cynapsus is a specialty central nervous
system, or CNS, pharmaceutical company developing and preparing to commercialize a Phase 3, fast-acting, easy-to-use, sublingual
thin film for the on-demand management of debilitating OFF episodes associated with PD. PD is a chronic, progressive neurodegenerative
disease characterized by motor symptoms including tremor at rest, rigidity and impaired movement as well as significant non-motor
symptoms such as cognitive impairment and mood disorders. The re-emergence of PD symptoms is referred to as an OFF episode. We
have successfully completed a Phase 2 clinical trial for our product candidate, APL-130277, a sublingual formulation of apomorphine
hydrochloride, or apomorphine. Apomorphine is the only molecule approved for acute, intermittent treatment of OFF episodes for
advanced PD patients, but is currently only approved as a subcutaneous injection in the United States. APL-130277 is a “turning
ON” medication designed to rapidly, safely and reliably convert a PD patient from the OFF to the ON state while avoiding
many of the issues associated with subcutaneous delivery of apomorphine. It is designed to convert all types of OFF episodes, including
morning OFF episodes, often considered the most difficult to treat. We have initiated our Phase 3 clinical program for APL-130277,
relying on the abbreviated Section 505(b)(2) regulatory pathway in the United States, and we intend to submit an NDA, near the
end of 2016 or in early 2017.



Since our inception in 2004, we have
devoted substantially all of our resources to business planning, capital raising and identifying and developing our product candidates,
preparing for and conducting clinical studies of our product candidates, providing general and administrative support for these
operations and protecting our intellectual property. We have funded our operations primarily through the public and private placements
of common shares and warrants, the exercise of warrants and options, and the issuance of secured debentures. From inception, we
have received net proceeds of approximately $129.2 million from such transactions. As of March 31, 2016, we had cash in the amount
of $68.6 million.



- 28 -







We expect to continue to incur significant
expenses and increasing operating losses for at least the next several years. We also expect expenses will increase substantially
in connection with our ongoing activities, as we:



| | · | continue the development of our APL-130277 product candidate, including conducting planned and future clinical trials;
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | continue to engage third-party providers to supply and manufacture our clinical study materials and to develop large-scale
manufacturing capabilities;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | seek regulatory approvals for our product candidate in the United States, Europe and other jurisdictions;
| | - | ---------------------------------------------------------------------------------------------------------



| | · | add personnel, including personnel to support our product development and future commercialization of APL-130277 in the United
States;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | · | add operational, financial and management information systems;
| | - | --------------------------------------------------------------



| | · | maintain, leverage and expand our intellectual property portfolio; and
| | - | ----------------------------------------------------------------------



| | · | operate as a public company in the United States and Canada.
| | - | ------------------------------------------------------------



We are a clinical stage company and have
not generated any revenue. We have incurred significant losses and negative cash flows from operations since our inception. As
of March 31, 2016, we had a deficit accumulated of $61 million and expect to continue to incur significant losses for the foreseeable
future. Management expects our research and development and general and administrative expenses to continue to increase substantially
for the foreseeable future and, as a result, we may need additional capital to fund operations, which may be obtained through one
or more public or private equity or debt financings, or other sources such as potential licensing or partnership arrangements.



Recent Developments



On January 4, 2016, we announced that, in
order to simplify the corporate structure of Cynapsus and to reduce administrative costs, effective January 1, 2016, we completed
a vertical short-form amalgamation pursuant to the Canada Business Corporations Act with our previously wholly-owned subsidiary,
Adagio. Pursuant to the amalgamation, all of the issued and outstanding shares of Adagio were cancelled and the assets and liabilities
of Adagio were assumed by Cynapsus. No securities of Cynapsus were issued in connection with the amalgamation and the share capital
of Cynapsus remains unchanged. The amalgamation will not have any significant effect on the business and operations of Cynapsus.



On January 7, 2016, we and The Michael J.
Fox Foundation for Parkinson’s Research, or MJFF, announced that we are working together to incorporate wearable device
technology and “big data” approaches into our pivotal Phase 3 clinical study of APL-130277. This is a pilot effort
to understand how clinical studies can harness data science approaches to objectively measure disease progression with the goal
of speeding progress toward breakthroughs in drug development. The project builds on MJFF’s ongoing data science partnership
with Intel Corporation, launched in August 2014, to develop platforms for the storage of large volumes of patient-generated data
and algorithms to glean insights from this data.



On February 2, 2016, we formed our wholly-owned
subsidiary, Cynapsus U.S.



On April 1, 2016, we and MonoSol Rx, LLC,
or Monosol Rx, entered into a license agreement pursuant to which MonoSol Rx granted us an exclusive, worldwide license (with the
right to sub-license) to certain intellectual property, including existing and future patents and patent applications, covering
all oral films containing apomorphine for the treatment of OFF episodes in PD patients, as well as two other fields.



- 29 -







Results of Operations – Comparison of the three months
ended March 31, 2016 and the three months ended March 31, 2015



Loss and Loss Per Share



For the three months ended March 31,



|                                 |  | 2016
($) |           |  | 2015
($) |  |           | $ change in 2016 |  |  | % change in 2016 |  
|-------------------------------- |  | -------- | --------- |  | -------- |  | --------- | ---------------- |  |  | ---------------- | -
|Loss                             |  |          | 8,356,026 |  |          |  | 4,106,622 |                  |  |  | 4,249,404        |  
|Basic and diluted loss per share |  |          | 0.68      |  |          |  | 0.78      |                  |  |  | (0.10            | )



Net loss for the three months ended March
31, 2016 exceeded the loss for the three months ended March 31, 2015 due mainly to higher research and development program costs
related to the APL-130277 Phase 3 clinical program, higher personnel costs with the number of staff increasing from 17 to 27 people,
higher professional and consulting fees, investor relations and costs related to preparing for commercialization, and higher share-based
compensation expenses.



Net loss for the three months ended March
31, 2015 also included a charge of $1,209,150 for acquisition milestone share-based payment, partially offset by a $953,158 unrealized
foreign exchange gain.



Total share-based payments expense for the
three months ended March 31, 2016 increased to $1,012,548 from $220,926 in the three months ended March 31, 2015 due to the higher
Black Scholes fair value recognized for options vested during the current period. Share-based payments expense has been allocated
to components of research and development expenses and operating, general and administrative expenses according to the respective
classification of the grantee.



Basic loss per share is calculated using
the weighted average number of common shares outstanding during the period. As a result of losses in the respective periods, there
is no dilutive loss per share calculation.



The weighted average number of common shares
outstanding for the three months ended March 31, 2016 was 12,291,040 (March 31, 2015 – 5,233,766).



- 30 -







Research and Development (R&D)



For the three months ended March 31,



|                                                                   |  | 2016
($) |           |  | 2015
($) |  |           | $ change in 2016 |  |  | % change in 2016 |  
|------------------------------------------------------------------ |  | -------- | --------- |  | -------- |  | --------- | ---------------- |  |  | ---------------- | -
|APL-130277 research and development, excluding the following items |  |          | 4,211,586 |  |          |  | 2,012,489 |                  |  |  | 2,199,097        |  
|Salaries, benefits and bonuses                                     |  |          | 619,774   |  |          |  | 301,906   |                  |  |  | 317,868          |  
|Share-based payments                                               |  |          | 376,957   |  |          |  | 156,169   |                  |  |  | 220,788          |  
|Amortization of intangible assets                                  |  |          | 8,648     |  |          |  | 9,648     |                  |  |  | (1,000           | )
|Depreciation of property, plant and equipment                      |  |          | 2,168     |  |          |  | -         |                  |  |  | 2,168            |  
|Recovery on scientific research                                    |  |          | -         |  |          |  | (24,183   | )                |  |  | 24,183           |  
|Research grant                                                     |  |          | -         |  |          |  | (102,947  | )                |  |  | 102,947          |  
|Total R&D                                                          |  |          | 5,219,133 |  |          |  | 2,353,082 |                  |  |  | 2,866,051        |  



Research and development expenses for the
three months ended March 31, 2016 were substantially higher than for the three months ended March 31, 2015 due to increased activity
associated with the APL-130277 program. Expenditures increased as a result of increases in consulting, clinical research, packaging
development, patent protection, analytics, scientific communications and educational initiatives, and scale-up chemistry, manufacturing
and controls, or CMC, work for APL-130277. Salaries and benefits increased during the three months ended March 31, 2016 due to
an increase in the number of R&D employees from seven to 12. Share-based payments expense increased due to the higher Black
Scholes fair value recognized for options vested during the current period.



Operating, General and Administrative (OG&A)



For the three months ended March 31,



|                                                                    |  | 2016
($) |           |  | 2015
($) |  |           | $ change in 2016 |  |  | % change in 2016 | 
|------------------------------------------------------------------- |  | -------- | --------- |  | -------- |  | --------- | ---------------- |  |  | ---------------- | 
|Operating, general and administrative excluding the following items |  |          | 1,961,821 |  |          |  | 1,069,410 |                  |  |  | 892,411          | 
|Salaries, benefits, bonuses and board fees                          |  |          | 512,817   |  |          |  | 363,957   |                  |  |  | 148,860          | 
|Share-based payments                                                |  |          | 635,591   |  |          |  | 64,757    |                  |  |  | 570,834          | 
|Depreciation of property, plant and equipment                       |  |          | 30,801    |  |          |  | 6,680     |                  |  |  | 24,121           | 
|Total OG&A                                                          |  |          | 3,141,030 |  |          |  | 1,504,804 |                  |  |  | 1,636,226        | 



OG&A costs for the three months ended
March 31, 2016 were higher than the three months ended March 31, 2015 due mainly to increases in investor and public relations
activities, professional and consulting fees, activities in preparing for commercialization, and travel costs. Salaries, benefits
and board fees increased with the addition of new staff and higher employee base salaries. Share-based payments expense increased
due to the higher Black Scholes fair value recognized for options vested during the current period.



- 31 -







Other Expenses (Recoveries)



For the three months ended March 31,



|                                                            |  | 2016
($) |        |   | 2015
($) |  |           | $ change in 2016 |  |  | % change in 2016 |  
|----------------------------------------------------------- |  | -------- | ------ | - | -------- |  | --------- | ---------------- |  |  | ---------------- | -
|Unrealized foreign exchange gain                            |  |          | (4,137 | ) |          |  | (953,158  | )                |  |  | 949,021          |  
|Acquisition milestone share-based payment                   |  |          | -      |   |          |  | 1,209,150 |                  |  |  | (1,209,150       | )
|Interest income net of interest expense and related charges |  |          | -      |   |          |  | (7,256    | )                |  |  | 7,256            |  



Unrealized foreign exchange gains for the
three months ended March 31, 2016 were $4,137 compared to $953,158 in the three months ended March 31, 2015. Unrealized foreign
exchange gains recorded in the three months ended March 31, 2015 substantially arose from the revaluation of U.S. dollar cash
balances on hand against the Canadian dollar, which was our functional currency at that time. Effective January 1, 2016, we changed
our functional currency from Cdn$ to US$. Accordingly, our U.S. dollar cash balances are no longer subject to foreign exchange
revaluations. Unrealized foreign exchange gains for the three months ended March 31, 2016 represent the revaluation of monetary
assets and liabilities denominated in non-U.S. currencies.



Under the terms of the amended Adagio Share Purchase Agreement,
we are required to pay the former Adagio shareholders contingent consideration upon the completion of certain operational milestones
(see “Commitments and Contingent Liabilities” below). On March 11, 2015, we announced the results of our end of
Phase 2 meeting with the FDA, which triggered a milestone payment to former Adagio shareholders of 69,960 newly issued common shares.
The fair value of these shares, in the amount of $1,209,150, was recorded as an expense during the three months ended March 31,
2015.



Income Taxes



Management uses estimates when determining
deferred income taxes. These estimates are used to determine the recoverability of tax loss carry forward amounts, research and
development expenditures and investment tax credits. Significant judgment is required regarding future profitability of the Company
to be able to recognize deferred taxes. Changes in market conditions, changes in tax legislation, patent challenges and other factors,
including the approval or launch of generic versions of our products, could adversely affect the ongoing value of deferred taxes.
The carrying amount of deferred income tax assets is reassessed at each reporting period and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to utilize all or part of the deferred income tax assets. Unrecognized
deferred income tax assets are reassessed at each reporting period and are recognized to the extent that it is probable that there
will be sufficient taxable profits to allow all or part of the asset to be recovered.



We had approximately Cdn$61,757,000 of non-capital
losses as at December 31, 2015, which under certain circumstances can be used to reduce the taxable income of future years. We
currently have not recognized any deferred income tax assets with respect to these balances.



- 32 -







Summary of Quarterly Results



The following table presents a summary of
our unaudited quarterly results of operations for each of our last eight quarters. This data has been derived from our unaudited
condensed interim consolidated financial statements. The policies applied were based on IFRS, the same basis as our annual audited
financial statements, and, in our opinion, include all adjustments necessary, consisting solely of normal recurring adjustments,
for the fair presentation of such information.



Financial Information



(Numbers rounded to the nearest thousands, except for
per share amounts)



|                                                            |  | Q1 2016 ($) |            |   | Q4 2015 ($) |  |            | Q3 2015 ($) |  |  | Q2 2015 ($) |  
|----------------------------------------------------------- |  | ----------- | ---------- | - | ----------- |  | ---------- | ----------- |  |  | ----------- | -
|Total assets                                                |  |             | 69,964,000 |   |             |  | 77,221,000 |             |  |  | 83,715,000  |  
|R&D                                                         |  |             | 5,219,000  |   |             |  | 6,472,000  |             |  |  | 5,691,000   |  
|OG&A                                                        |  |             | 3,141,000  |   |             |  | 2,754,000  |             |  |  | 2,066,000   |  
|Other operating recoveries                                  |  |             | -          |   |             |  | (2,833,000 | )           |  |  | (5,550,000  | )
|Interest income net of interest expense and related charges |  |             | (4,000     | ) |             |  | (2,000     | )           |  |  | (2,000      | )
|Loss                                                        |  |             | 8,356,000  |   |             |  | 6,391,000  |             |  |  | 2,206,000   |  
|Loss per share (basic and diluted)                          |  |             | 0.68       |   |             |  | 0.53       |             |  |  | 0.18        |  



|                                                            |  | Q1 2015 ($) |            |   | Q4 2014 ($) |  |            | Q3 2014 ($) |  |  | Q2 2014 ($) |  
|----------------------------------------------------------- |  | ----------- | ---------- | - | ----------- |  | ---------- | ----------- |  |  | ----------- | -
|Total assets                                                |  |             | 30,344,000 |   |             |  | 15,991,000 |             |  |  | 18,212,000  |  
|R&D                                                         |  |             | 2,353,000  |   |             |  | 2,725,000  |             |  |  | 1,072,000   |  
|OG&A                                                        |  |             | 1,505,000  |   |             |  | 2,083,000  |             |  |  | 1,086,000   |  
|Other operating expenses (recoveries)                       |  |             | 256,000    |   |             |  | (302,000   | )           |  |  | (592,000    | )
|Interest income net of interest expense and related charges |  |             | (7,000     | ) |             |  | (14,000    | )           |  |  | (12,000     | )
|Loss                                                        |  |             | 4,107,000  |   |             |  | 4,492,000  |             |  |  | 1,554,000   |  
|Loss per share (basic and diluted)                          |  |             | 0.78       |   |             |  | 0.90       |             |  |  | 0.31        |  



Other operating expenses (recoveries) consist
of unrealized foreign exchange gains or losses, and an acquisition milestone share-based payment in the first quarter of 2015,
and a loss on impairment of intangible assets in the fourth quarter of 2014.



- 33 -







Liquidity and Capital Resources



Since inception, our cash requirements have
been financed primarily through issuances of common shares, warrants and secured debentures. We anticipate future funding requirements
to be met primarily through additional securities issuances, research and development tax credits, other potential sources of government
funding, grants from foundations that support PD research, or a combination of the foregoing.



The development of pharmaceutical
products is a process that requires significant investment. We expect to incur significant research and development expenses, including
expenses related to completing Phase 3 clinical trials, NDA submissions with the FDA, commercialization studies, clinical trials
in Europe, and preparation for a U.S. product launch. We also expect that our general and administrative expenses will increase
in the future as we add infrastructure, including personnel costs, investor relations activities and professional fees.



Our future capital requirements will depend
on a number of factors, including, without limitation, the continued progress of our research and development for our APL-130277
product candidate, the timing and outcome of clinical trials and regulatory approvals, payments received or made under licensing
or other collaborative agreements, if any, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing
patent claims and other intellectual property rights, defending against patent infringement claims, the acquisition of licenses
or technologies, the status of competitive products and our success in developing and maintaining markets for our product candidate,
if approved.



Our cash balance was $68,621,813 at March
31, 2016 compared to $75,802,951 at December 31, 2015. Such decrease was substantially due to research and development activity
being conducted.



Based on our current operating plan, we
believe that existing cash will be sufficient to fund research and development and OG&A overhead expenditures, complete Phase
3 clinical studies and CMC requirements for an NDA in the United States near the end of 2016 or in early 2017, continue to prepare
for commercial launch of APL-130277 in the U.S. market in late 2017 or early 2018, commence initial regulatory, clinical and commercial
activities for European market registration, and initiate other early stage pipeline development programs.



There are a significant number of warrants
and options of Cynapsus outstanding, some of which are in-the-money and may provide future sources of capital. As at March 31,
2016, we had 745,209 warrants outstanding with an exercise price of Cdn$9.20, which, if exercised as of March 31, 2016, would have
resulted in gross proceeds to us of approximately Cdn$6,855,923. Also, as at March 31, 2016, we had 2,317,784 warrants outstanding
with an exercise price of Cdn$12.96, which, if exercised as of March 31, 2016, would have resulted in gross proceeds to us of approximately
Cdn$30,038,481. There can be no assurance that such warrants or options of Cynapsus will ever be exercised or that we will realize
the gross proceeds resulting from exercise of those securities.



- 34 -







Operating Activities



For the three months ended March 31, 2016,
our operating activities used cash of $7,317,417 compared to $4,620,530 in the three months ended March 31, 2015. The increase
is primarily attributed to increased research and development expenses associated with Phase 3 clinical trials for the APL-130277
product candidate. Cash used in operating activities for the three months ended March 31, 2016 reflects the net loss of $8,356,026
for the three months ended March 31, 2016, adjusted for non-cash items including share-based payments, amortization of intangible
assets, depreciation of property, plant and equipment, changes in non-cash working capital (including prepaid expenses and other
current assets, and accounts payable and accrued liabilities) and unrealized gains on foreign exchange.



Investing Activities



For the three months ended March 31, 2016,
we purchased $94,053 of property, plant and equipment, compared to $107,329 in the three months ended March 31, 2015.



Financing Activities



For the three months ended March 31, 2016,
our net financing activities generated cash of $226,195 compared to $19,066,155 for the three months ended March 31, 2015.



During the three months ended March 31,
2015, we raised net proceeds of $15,578,045 through a private placement of common shares. During the three months ended March 31,
2016, we generated $226,195 in proceeds from the exercise of warrants, compared to $3,420,101 during the three months ended March
31, 2015. In addition, during the three months ended March 31, 2016, we generated $Nil in proceeds from the exercise of stock options,
compared to $68,009 during the three months ended March 31, 2015.



Effect of Exchange Rate Changes



For the three months ended March 31, 2016,
the effect of exchange rate changes on cash was $4,137 as result of the Canadian dollar strengthening relative to the U.S. dollar,
compared to ($435,031) in the three months ended March 31, 2015.



As at March 31, 2016, we had cash of $131,968
and accounts payable of $234,245 denominated in Canadian dollars (December 31, 2014 - $277,760 and $219,802, respectively).



Off-Balance Sheet Arrangements



We do not have any off-balance sheet arrangements.



- 35 -







Related Party Transactions



Key management personnel are those persons
having authority and responsibility for planning, directing and controlling the activities of the Company, including directors
and officers. Compensation paid or payable to key management was composed of the following during the periods ended March 31:



|                                                      |  | Three Months Ended March 31, |        
|----------------------------------------------------- |  | ---------------------------- | -------
|                                                      |  | 2016                         |        
|                                                      |  | $                            |        
|Short-term salaries, benefits and bonuses to officers |  |                              | 347,518
|Directors’ fees                                       |  |                              | 83,098 
|                                                      |  |                              | 430,616



As at March 31, 2016, included in accounts
payable and accrued liabilities was $206,811 (December 31, 2015 - $184,188) due to our officers and directors. These amounts are
unsecured and non-interest bearing with no fixed terms of repayment. As at March 31, 2016, there were accrued bonuses to related
parties of $15,341 (December 31, 2015 - $385,093).



The employment agreements with our executive
officers provide for additional payments in the event of termination without cause.



On March 11, 2015,
we announced the results of the end of Phase 2 meeting with the FDA, which triggered a milestone payment to former Adagio shareholders
of 69,960 common shares. Of the total, 37,652 common shares were issued to our President and Chief Executive Officer, the value
of which is not included in the table above.



During the three month period ended March
31, 2016, fees of $72,000 were paid or payable to one of our directors as compensation for consulting services rendered (March
31, 2015 – nil).



- 36 -







Commitments and Contingent Liabilities



As at March 31, 2016, we had research and
development and other service contract commitments, as well as minimum future payments under operating leases for the periods presented
as follows:



|                              |  | Less than 1 year |            |  | 1 - 3 years |  |           | Total | 
|----------------------------- |  | ---------------- | ---------- |  | ----------- |  | --------- | ----- | 
|                              |  | $                |            |  | $           |  |           | $     | 
|Purchase obligations          |  |                  | 19,611,000 |  |             |  | 4,285,000 |       | 
|Operating leases              |  |                  | 134,000    |  |             |  | 245,000   |       | 
|Total contractual obligations |  |                  | 19,745,000 |  |             |  | 4,530,000 |       | 



Of the total purchase obligations, one consulting
contract contains a change of control clause in which, subject to certain conditions, we agreed to pay the vendor an amount equal
to fees based on the minimum billable hours for the remainder of the agreement term. As a triggering event has not taken place,
these contingent payments have not been recognized in these consolidated financial statements. We do not have a practicable estimate
for the expected value of this contingent liability due to the nature of the triggering event. As at March 31, 2015, the maximum
amount of any contingent liability, based on a remaining term of two months, was $101,520, which was included in the amount of
unrecognized purchase obligations.



We are a party to certain employment agreements
for our executive officers and employees. Minimum employment contract termination commitments under the agreements, for termination
without cause, total approximately $1,885,336 and would be payable within one year, but are not included in the table of purchase
obligations above.



On December 22,
2011, we completed the acquisition of 100% of the outstanding common shares of Adagio and certain indebtedness of Adagio, which
we refer to as the Transaction. The Transaction was structured as a share exchange with Adagio shareholders receiving newly issued
common shares of Cynapsus in exchange for all of the issued and outstanding shares of Adagio. On January 28, 2015, we and
the former Adagio shareholders, who are substantially represented by key management and therefore are related parties, signed an
amendment to the Adagio Share Purchase Agreement to better reflect the contemplated agreement between the parties. Adagio shareholders
are entitled to a payment of Cdn$2,500,000 conditional upon the successful completion of the APL-130277 final safety study, to
be satisfied by the issuance of common shares at a deemed value equal to the 30 day volume weighted average trading price, or VWAP,
immediately prior to the first public announcement of the results of such study. This amount has not been included in the table
of purchase obligations above. The VWAP of the common shares may not be less than the “discounted market price” as
defined in the policies of the TSX.



Our President and
Chief Executive Officer was also a director, officer and majority shareholder of Adagio. To satisfy our board of director’s
fiduciary duties and to appropriately manage the Transaction, our board of directors appointed a special committee comprised of
independent directors. The special committee also retained independent legal counsel as well as an independent registered financial
advisor registered with the Financial Industry Regulatory Authority, Inc., or FINRA, to provide a fairness opinion. We also obtained
minority shareholder approval in connection with the Adagio Share Purchase Agreement.



As a condition
of the second MJFF grant agreement, we are required to support further PD research by making up to $1,000,000 in contributions
to MJFF conditional on future sales of APL-130277, beginning the year that we post net sales of APL-130277 in excess of $5,000,000
(if ever).This amount has not been included in the table of purchase obligations above.





Subsequent to March 31, 2016, on April 1,
2016, we and MonoSol Rx entered into a license agreement, or the License Agreement, pursuant to which MonoSol Rx granted us an
exclusive, worldwide license (with the right to sub-license) to certain intellectual property, including existing and future patents
and patent applications, covering all oral films containing apomorphine for the treatment of OFF episodes in PD patients, as well
as two other fields. In consideration for the rights granted to us under the License Agreement, MonoSol Rx received an upfront
payment of $5 million. MonoSol Rx shall also receive (i) an aggregate of $13 million in connection with specified regulatory and
development milestones in the United States and Europe, which are due and payable on or before December 1, 2018, or the Initial
Milestone Payments, (ii) certain one-time milestone payments related to product availability and regulatory approval in the United
States and Europe, (iii) certain one-time milestone payments based on the achievement of specific annual net sales thresholds of
APL-130277, and (iv) ongoing mid-single digit percentage royalty payments related to the net sales of APL-130277 (subject to reduction
to low-single digit percentage royalty payments in certain circumstances), subject to certain minimum payments. With the exception
of the Initial Milestone Payments, there can be no guarantee that any such milestones will in fact be met or payable. These amounts
have not been included in the table of purchase obligations above.





- 37 -







Critical Accounting Policies and Estimates



A summary of significant accounting policies
is included in Note 5 of our audited consolidated financial statements for the years ended December 31, 2015, 2014 and 2013
included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 9, 2016, as amended
by Amendment No. 1 to Form 10-K/A filed with the SEC on March 18, 2016. Critical accounting estimates require our management to
make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and
liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting
period. Actual outcomes could differ from these estimates. Changes in our management’s accounting estimates can have a material
impact on our financial results. Our significant accounting judgments, estimates and assumptions are included in Note 4 of our
audited consolidated financial statements for the years ended December 31, 2015, 2014 and 2013, and Note 4 of our unaudited
condensed interim consolidated financial statements for the three months ended March 31, 2016 included in this Quarterly Report
on Form 10-Q, and are also described below.



The estimates and underlying assumptions
are reviewed on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised
and in any future periods affected. The areas involving a higher degree of judgment or complexity, or areas where the assumptions
and estimates are significant to the unaudited condensed interim consolidated financial statements were the same as those applied
to our consolidated financial statements as at and for the years ended December 31, 2015, 2014 and 2013.



Intangible assets



We estimate the useful lives of intangible
assets from the date they are available for use in the manner intended by our management and periodically review the useful lives
to reflect our management’s intent about developing and commercializing the assets. Our management also estimates their recoverability
to assess if there has been an impairment. The amounts and timing of recorded expenses for amortization and impairments of intangible
assets for any period are affected by these estimates. The estimates are reviewed at least annually and are updated if expectations
change as a result of technical or commercial obsolescence, generic threats and legal or other limits to use. It is possible that
changes in these factors may cause significant changes in the estimated useful lives of our intangible assets in the future.



Share-based payments



Our management determines costs for share-based
payments using market-based valuation techniques. The fair value of the market-based and performance-based share awards are determined
at the date of grant using generally accepted valuation techniques. Assumptions are made and judgments are used in applying valuation
techniques. These assumptions and judgments include estimating the future volatility of the stock price, expected dividend yield,
future employee turnover rates and future employee stock option exercise behaviors and corporate performance. Such judgments and
assumptions are inherently uncertain. Any changes in these assumptions would affect the fair value estimates.



- 38 -







Share Capital



Since the three months ended March 31, 2016,
the following changes have occurred to common shares, stock options and warrants of Cynapsus:



|                     |  | As at May 10, 2016 |           
|-------------------- |  | ------------------ | ----------
|                     |  | Number of shares   |           
|                     |  | #                  |           
|As at March 31, 2016 |  |                    | 12,309,366
|Warrants exercised   |  |                    | 7,075     
|As at May 10, 2016   |  |                    | 12,316,441



Exercised Warrants



Summary of warrants
exercised since the three months ended March 31, 2016 are as follows:



|Number of Warrants |       |  | Cash Proceeds |  |        | Exercise Price |  |  | Expiry Date
|------------------ | ----- |  | ------------- |  | ------ | -------------- |  |  | -----------
|#                  |       |  | $             |  |        | Cdn$           |  |  |            
|                   | 7,075 |  |               |  | 49,965 |                |  |  | 9.20       
|                   | 7,075 |  |               |  | 49,965 |                |  |  |            



- 39 -







| | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
| | ------- | -----------------------------------------------------------



Financial Risk Management



In the normal course of business, we are
exposed to a number of financial risks that can affect our operating performance, which include credit risk, liquidity risk and
market risk. Our overall risk management program and prudent business practices seek to minimize any potential adverse effects
on our financial performance. There were no changes in our approach to risk management during the three months ended March 31,
2016.



Credit risk



Our cash balance is on deposit with a Canadian
chartered bank. We have no significant concentration of credit risk arising from operations. Our management believes that the credit
risk concentration with respect to these financial instruments is remote.



Liquidity risk



Our approach to managing liquidity risk
is to ensure that we will have sufficient liquidity to meet liabilities when due. As at March 31, 2016, we had cash of $68,621,813
and prepaid expenses and other current assets of $499,965 (December 31, 2015 - $75,802,951 and $628,588, respectively) to settle
current liabilities of $3,659,178 (December 31, 2015 - $3,799,220). Most of our accounts payable and accrued liabilities have contractual
maturities of less than 30 days and are subject to normal trade terms.



Market risk



| | (a) | Interest rate risk
| | --- | ------------------



We had a cash balance of $68,621,813 as at March
31, 2016 (December 31, 2015 - $75,802,951). Our current policy is to invest excess cash in a business savings account. We consider
interest rate risk to be minimal.



| | (b) | Foreign currency risk
| | --- | ---------------------



Foreign currency risk is the risk that the fair value
or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Our functional and
presentation currency is the U.S. dollar and all amounts in the unaudited condensed interim consolidated financial statements are
expressed in U.S. dollars, unless otherwise noted. We fund the majority of research and development expenses denominated in the
U.S. dollar from our U.S. dollar bank account held in Canada and certain expenses denominated in the Euro on a cash call basis
using the Euro converted from our U.S. dollar bank account held in Canada. We believe that while currency conversions could affect
results of operations, there is not a significant risk to our ability to meet our obligations. We believe the foreign exchange
risk derived from currency conversions is not significant and, therefore, we do not hedge our foreign exchange risk.



- 40 -







The following table summarizes accounts denominated
in Canadian dollars, reported in U.S. dollar equivalents, and the effective Cdn$/US$ exchange rate applied as at:



|                       |  | March 31, 2016 |          |   | December 31, 2015 | 
|---------------------- |  | -------------- | -------- | - | ----------------- | 
|                       |  | $              |          |   | $                 | 
|Cash                   |  |                | 131,968  |   |                   | 
|Accounts payable       |  |                | 234,245  |   |                   | 
|Net exposure           |  |                | (102,277 | ) |                   | 
|                       |  |                |          |   |                   | 
|Cdn$/US$ exchange rate |  |                | 0.7700   |   |                   | 



Based on the foreign currency exposures noted above,
a 10% strengthening of the Canadian dollar against the U.S. dollar as at March 31, 2016 would have increased the net loss by approximately
$10,000 (December 31, 2015 – decrease of $6,000), assuming all other variables remained constant. A 10% weakening of the
Canadian dollar would have an opposite effect, assuming that all other variables remained constant



See “Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Effect of Exchange Rate Changes” in this Quarterly
Report on Form 10-Q, which information is incorporated herein by reference.



| | (c) | Price risk
| | --- | ----------



We are exposed to price risk with respect to the
active pharmaceutical ingredient, or API, used in research and development activities. We monitor API prices in the United States,
Europe and Asia to determine the appropriate course of action to be taken by us. Our management believes that the price risk concentration
with respect to API is minimal.



| | (d) | Fair value
| | --- | ----------



IFRS requires that we disclose information about
the fair value of our financial assets and liabilities. Fair value estimates are made at the consolidated statement of financial
position dates based on relevant market information and information about the financial instrument. These estimates are subjective
in nature and involve uncertainties in significant matters of judgment and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect these estimates.



Accounts payable and accrued liabilities are classified
as other financial liabilities, which are measured at amortized cost.



The carrying amounts for cash, accounts payable and
accrued liabilities on the consolidated statements of financial position approximate fair value because of the short term nature
of these instruments.



- 41 -







Capital risk management



We manage our capital structure and make
adjustments to it, based on the funds available to us, in order to support our research and development activities. Our capital
structure consists of share capital, warrants and share-based payments. Our board of directors does not establish quantitative
return on capital criteria for management, but rather relies on the expertise of our management to sustain future development of
the business.



The product candidate that we currently
have in our pipeline is in the research stage; as such, we are dependent on external financing to fund our activities. In order
to carry out the planned research and development and pay for administration costs, we intend to spend our existing working capital
and raise additional amounts, as needed.



Management reviews our capital management
approach on an ongoing basis and believes that this approach, given our relative size, is reasonable.



There were no changes in our approach to
capital management during the period ended March 31, 2016. We and our subsidiary are not subject to externally imposed capital
requirements.



- 42 -







| | ITEM 4. | CONTROLS AND PROCEDURES.
| | ------- | ------------------------



Evaluation of Disclosure Controls
and Procedures



We conducted an
evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. The evaluation was conducted
under the supervision and with the participation of management, including our President and Chief Executive Officer (“CEO”),
who is our principal executive officer, and Chief Operating Officer and Chief Financial Officer (“CFO”), who is our
principal financial officer, as of December 31, 2015. Based on the evaluation, our CEO and CFO concluded that such disclosure
controls and procedures—as defined in Canada under National Instrument 52-109— Certification of Disclosure in Issuers’
Annual and Interim Filings, are effective as at December 31, 2015.



We also conducted
an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report. Such evaluation was conducted under the supervision and with
the participation of management, including our CEO and CFO, as of March 31, 2016. Based on such evaluation, our CEO and CFO concluded
that as of March 31, 2016, such disclosure controls and procedures were effective to ensure that information required to be disclosed
by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in SEC rules and forms, and accumulated and communicated to our management, including our CEO and CFO, to allow
timely decisions regarding required disclosure.



It should be noted
that while our disclosure controls and procedures are designed to provide a reasonable level of assurance of achieving their objectives,
our CEO and CFO do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent
all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.



Changes in Internal Control over
Financial Reporting



There were no changes
in our internal control over financial reporting during the quarter ended March 31, 2016 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.



- 43 -







PART II - OTHER INFORMATION



ITEM
1.   LEGAL PROCEEDINGS.



In the
ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of
litigation relating to intellectual property, commercial arrangements, employment and other matters. While the outcome of these
proceedings and claims cannot be predicted with certainty, as of March 31, 2016, we were not party to any legal or arbitration
proceedings that may have, or have had in the recent past, significant effects on our financial position. No governmental proceedings
are pending or, to our knowledge, contemplated against us. We are not a party to any material proceedings in which any director,
officer or affiliate of ours, any owner of record or beneficially of more than five percent of our common shares, or any associate
of any of the foregoing, is either a party adverse to us or our subsidiary or has a material interest adverse to us or our subsidiary.



ITEM 1A.   RISK FACTORS.



Investing in our common shares involves
numerous risks. You should carefully consider the risks and uncertainties described below together with all of the other information
contained in this Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes appearing in
this Quarterly Report on Form 10-Q, before deciding to invest in our common shares. If any of the following risks actually occurs,
our business, prospects, operating results and financial condition could suffer materially, the trading price of our common shares
could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones
we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely
affect our business.



This Quarterly Report on Form 10-Q also
contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below
and elsewhere in this Quarterly Report on Form 10-Q. See “Special Note Regarding Forward-Looking Statements” for information
relating to these forward-looking statements.



Risks Related to Our Financial Position
and Need for Additional Capital



We have incurred net losses since our inception and anticipate
that we will continue to incur substantial operating losses for the foreseeable future. We may never achieve or sustain profitability.



We have incurred net losses during each
fiscal period since our inception. Our net loss was $21.6 million for the year ended December 31, 2015. As of December 31, 2015,
we had a deficit accumulated during the development stage of $52.4 million. Our net loss was $8.4 million for the quarter ended
March 31, 2016, and as of March 31, 2016, we had a deficit of $60.8 million. We do not know when or whether we will become profitable.
To date, we have not commercialized any products or generated any revenues from the sale of products, and we do not expect to generate
any product revenues in the near future. Our losses have resulted principally from costs incurred in our research and development
activities. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year.



We have devoted most of our financial resources
to research and development, including our clinical and preclinical development activities. To date, we have financed our operations
primarily through the sale of equity securities and debt and, to a lesser extent, through grants from charitable foundations. The
amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding
through equity or debt financings, strategic collaborations (such as licensing agreements or the sale of a share of our revenue
stream) or additional grants. We have not completed pivotal clinical trials for our product candidate and APL-130277 may not be
ready for commercial launch in the U.S. market until late 2017 or early 2018, if ever. Even if we obtain regulatory approval to
market our product candidate, our future revenues (if any) will depend upon a number of factors, including the size of any markets
in which our product candidate has received approval, and our ability to achieve sufficient market acceptance, reimbursement from
third-party payors and adequate market share for our product candidate in those markets.



We expect to continue to incur significant
expenses and increasing net losses for at least the next several years. We expect our expenses will increase substantially in connection
with our ongoing activities, as we:



| | • | conduct our Phase 3 clinical trials for APL-130277;
| | - | ---------------------------------------------------



| | • | prepare and submit our Section 505(b)(2) NDA to the FDA;
| | - | --------------------------------------------------------



| | • | seek regulatory approval for APL-130277 in the United States and elsewhere;
| | - | ---------------------------------------------------------------------------



- 44 -







| | • | add personnel to support our product development and commercialization efforts;
| | - | -------------------------------------------------------------------------------



| | • | continue evaluating additional product opportunities within the CNS field; and
| | - | ------------------------------------------------------------------------------



| | • | operate as a public company in both Canada and the United States.
| | - | -----------------------------------------------------------------



If we are required by the FDA, or any equivalent
foreign regulatory authority, to perform clinical trials or studies in addition to those we currently expect to conduct, or if
there are any delays in completing the clinical trials of APL-130277, our expenses could further increase.



To become and remain profitable, we must
succeed in developing our product candidate, obtaining regulatory approval for it, and manufacturing, marketing and selling our
product when and if we obtain regulatory approval in the United States or elsewhere. We may not succeed in these activities, and
we may never generate revenue from our product sales that is significant enough to achieve profitability. Even if we achieve profitability
in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would
depress our market value and could impair our ability to raise capital, expand our business, discover or develop other product
candidates or continue our operations. A decline in our value could cause you to lose all or part of your investment.



We will require substantial additional financing to achieve
our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product
development or commercialization efforts.



Our cash was $68.6 million as of March 31,
2016. Based on our current operating plan, we believe that our existing cash will be sufficient to fund research and development
and OG&A overhead expenditures, complete Phase 3 clinical studies and CMC requirements for the filing of an NDA near the end
of 2016 or in early 2017 under the abbreviated Section 505(b)(2) regulatory pathway in the United States, continue to prepare for
commercial launch of APL-130277 in the U.S. market in late 2017 or early 2018, commence initial regulatory and clinical activities
for European market registration, and initiate other early stage pipeline development programs. We believe that we will continue
to expend substantial resources for the foreseeable future developing APL-130277. These expenditures will include costs associated
with research and development, conducting Phase 3 clinical trials, potentially obtaining regulatory approvals and manufacturing
products, as well as marketing and selling products approved for sale, if any, and potentially acquiring new technologies. In addition,
other unanticipated costs may arise. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we
cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product
candidate. Our costs will increase if we suffer any delays in our Phase 3 clinical trials for APL-130277, including, without limitation,
delays in enrollment of patients. We expect to continue incurring additional costs associated with operating as a public company
in the United States, hiring additional personnel and expanding our facilities.



Our future capital requirements depend on
many factors, including:



| | • | the scope, progress, results and costs of researching and developing APL-130277 and conducting clinical trials in the United
States and elsewhere;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the timing of, and the costs involved in, obtaining regulatory approvals in the United States, Europe and elsewhere for APL-130277
if clinical trials are successful;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the cost of commercialization activities for APL-130277, if our product candidate is approved for sale, including marketing,
sales and distribution costs;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the cost of manufacturing APL-130277 for clinical trials in preparation for regulatory approval and in preparation for commercialization;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | • | our ability to establish and maintain licensing or other arrangements with third-parties and the financial terms of such agreements;
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | • | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation
costs and the outcome of such litigation; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the timing, receipt, and amount of sales of, or royalties on, our product candidate, if any.
| | - | --------------------------------------------------------------------------------------------



- 45 -







Our operating plan may change as a result
of many factors currently unknown to us. As a result of these factors, we may need additional funds sooner than planned. In addition,
we may seek additional capital due to strategic considerations even if we believe we have sufficient funds for our current or future
operating plans. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate
funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate clinical trials or other
development activities for our product candidate, or delay, limit, reduce or terminate our establishment of sales and marketing
capabilities or other activities that may be necessary to commercialize our product candidate.



Raising additional capital may cause dilution to our existing
shareholders, restrict our operations or require us to relinquish rights to our product candidate on unfavorable terms to us.



We may seek additional capital through a
variety of means, including through private and public equity offerings and debt financings. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of such
equity or convertible debt securities may include liquidation or other preferences that are senior to, or otherwise adversely affect,
your rights as a shareholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting
our ability to take certain actions, such as incurring indebtedness, making capital expenditures, declaring dividends or encumbering
our assets to secure future indebtedness. If we raise additional funds through strategic partnerships with third-parties, we may
have to relinquish valuable rights to our product candidate, or grant licenses on terms that are not favorable to us. If we are
unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate
our product development or commercialization efforts for APL-130277, or grant rights to develop and market our product candidate
that we would otherwise prefer to develop and market ourselves or on terms less favorable than we might otherwise negotiate.



Risks Related to Clinical Development and Regulatory Approval
of Our Product Candidate



Clinical failure may occur at any stage of clinical development,
and we may never succeed in developing marketable products or generating product revenue.



Although the active ingredient in APL-130277,
apomorphine, has been used safely as apomorphine hydrochloride in injectable form for treatment of PD for a number of years, it
has not previously been approved or demonstrated to be safe in sublingual form. Our early encouraging clinical results for APL-130277
are not necessarily predictive of the results of our ongoing or future clinical trials, including our Phase 3 clinical trials,
and the safety of our product candidate. Promising results in preclinical studies and early clinical trials of any product candidate
may not be predictive of similar results in humans during later clinical trials. Any further clinical trials that we may conduct
may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidate and the FDA
could require us to complete additional safety, efficacy or other studies. If the results of our ongoing or future clinical trials
are inconclusive with respect to the efficacy of our product candidate or if we do not meet the clinical endpoints with statistical
significance or if there are safety concerns associated with our product candidate, we may be prevented from or delayed in obtaining
marketing approval for our product candidate. In some instances, there can be significant variability in safety or efficacy results
between different clinical trials of the same product candidate due to numerous factors, including, without limitation, changes
in trial procedures set forth in protocols, differences in the size and type of the patient populations, differences in the dosage
amounts of APL-130277 and the response of patients to such amounts, changes in and adherence to the clinical trial protocols and
the rate of dropout among clinical trial participants.



Alternatively, even if we
obtain regulatory approval, that approval may be for indications or patient populations that are not as broad as intended or
desired or may require labeling that includes significant use or distribution restrictions or safety warnings. For example,
certain existing formulations of apomorphine outside the United States used for the treatment of OFF episodes (ApoGo,
ApokinON and Apomin) are currently only indicated for advanced PD patients, and there can be no assurance that our product
candidate will not be similarly limited in its indications for the treatment of PD. We may also be required by the FDA to
perform additional or unanticipated clinical trials to obtain approval, including, without limitation, an ease-of-use study
to be completed in patients in the morning OFF state; a Thorough QT study in healthy volunteers to determine the potential
arrhythmia liability of our product candidate; additional toxicity studies; and additional safety and/or efficacy studies if
the primary endpoint does not show a large enough delta, if the FDA finds a small safety signal or does not accept our final
safety data, or is concerned with our study blinding.



Our CTH-200 bioavailability study was
completed comparing APL-130277 to the reference listed drug, ApoGo®, the apomorphine product approved in Europe and Asia,
rather than Apokyn®, the apomorphine product approved in the United States. At this time, it has not yet been determined
whether the FDA will accept our clinical study comparing APL-130277 to ApoGo (rather than Apokyn) for purposes of a Section
505(b)(2) NDA. If the FDA does not accept our clinical study comparing APL-130277 to ApoGo, we may be required to perform an
additional bioavailability study comparing APL-130277 to Apokyn.



We could also be subject to additional post-approval
or post-marketing testing requirements to maintain regulatory approval. In addition, regulatory authorities may withdraw their
approval of a product or impose restrictions on its distribution, such as in the form of a modified Risk Evaluation and Mitigation
Strategy. The failure to obtain timely regulatory approval of our product candidate, any product marketing limitations or a product
withdrawal would negatively impact our business, results of operations and financial condition.



- 46 -







Delays or failure in the commencement, enrollment or completion
of clinical trials of our product candidate could result in increased costs to us as well as a delay or failure in obtaining regulatory
approval, or prevent us from commercializing our product candidate on a timely basis, or at all.



We cannot guarantee that clinical trials,
including those associated with Phase 3 clinical trials for APL-130277, will be conducted as planned or completed on schedule,
if at all. A delay or failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful
or timely commencement, enrollment or completion of clinical development include, without limitation:



| | • | delays by us in reaching a consensus with regulatory agencies on trial design;
| | - | ------------------------------------------------------------------------------



| | • | delays in reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial
sites;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | • | delays in obtaining required Institutional Review Board approval at each clinical trial site;
| | - | ---------------------------------------------------------------------------------------------



| | • | delays in recruiting suitable patients to participate in clinical trials and/or recruitment occurring more slowly than expected;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | • | insufficient or inadequate supply or quality of materials, including API, to conduct our clinical trials;
| | - | ---------------------------------------------------------------------------------------------------------



| | • | imposition of a clinical hold by regulatory agencies for any reason, including safety concerns or after an inspection of clinical
operations or trial sites;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | failure by CROs, other third-parties or us to adhere to clinical trial requirements;
| | - | ------------------------------------------------------------------------------------



| | • | failure to perform in accordance with the FDA’s good clinical practices, or GCP, or applicable regulatory guidelines
in other countries;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | • | delays or other problems in the testing, validation, manufacturing and delivery of our product candidate to the clinical sites;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | • | delays or negative results caused by patients not completing participation in a trial or not returning for post-treatment follow-up;
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | • | delays in clinical trial site start-up;
| | - | ---------------------------------------



| | • | impact of placebo administered on patient participation in clinical trials and on efficacy of our product candidate;
| | - | --------------------------------------------------------------------------------------------------------------------



| | • | failure to adhere to our Phase 3 clinical trial protocols, including not administering the thin film correctly;
| | - | ---------------------------------------------------------------------------------------------------------------



| | • | patients’ inability for whatever reason to dose at home as a part of such clinical trials;
| | - | ------------------------------------------------------------------------------------------



| | • | occurrence of serious adverse events, or AEs, in further clinical trials that are associated with our product candidate and
such AEs viewed to outweigh our product candidate’s potential benefits;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; or
| | - | --------------------------------------------------------------------------------------------------------------



| | • | varying interpretations of data by the FDA and foreign regulatory agencies.
| | - | ---------------------------------------------------------------------------



Moreover, principal investigators for our
clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection
with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA. The FDA may
conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise
affected interpretation of the trial. The FDA may therefore question the integrity of the data generated at the applicable clinical
trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection,
of our marketing applications by the FDA and may ultimately lead to the denial of marketing approval of our product candidate.



- 47 -







Delays, including delays caused by the above
or other factors, can be costly and could negatively affect our ability to complete a clinical trial, which could negatively affect
the price of our common shares. If we are not able to successfully complete clinical trials, we will not be able to obtain regulatory
approval and will not be able to commercialize our product candidate.



Clinical development, regulatory review and approval of
the FDA and comparable foreign authorities are lengthy, time consuming, and inherently unpredictable. If we are ultimately unable
to obtain regulatory approval for our product candidate, our business will be materially adversely affected.



Our product candidate will be subject to
extensive governmental regulations relating to, among other things, development, clinical trials, manufacturing and commercialization.
In order to obtain regulatory approval for the commercial sale of our product candidate, we must demonstrate through extensive
preclinical studies and clinical trials that our product candidate is safe and effective for use in the target indication.



The time required to obtain approval by
the FDA and comparable foreign authorities is unpredictable, typically takes many years following the commencement of clinical
trials, and depends upon numerous factors.



In addition, approval policies, regulations,
or the type and amount of clinical data necessary to gain approval may change during the course of our product candidate’s
clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an
application. We have not obtained regulatory approval for our product candidate in any jurisdiction, and it is possible that our
product candidate or any product candidates we may seek to develop in the future will not obtain regulatory approval in any jurisdiction.
In addition, we may gain regulatory approval for APL-130277 in some but not all of the jurisdictions available or some but not
all of the target indications, resulting in limited commercial opportunity for our product candidate, if approved.



Applications for our product candidate could
be delayed or could fail to receive regulatory approval for many reasons, including, but not limited to, the following:



| | • | the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | • | the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full
population for which we seek approval;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical studies
or clinical trials;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| | • | the data collected from clinical trials of our product candidate may not be sufficient to support the submission of an NDA
or other submission or to obtain regulatory approval in the United States or elsewhere;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA may determine that we cannot rely on Section 505(b)(2) for our product candidate, in which case we may be required
to conduct additional clinical trials, provide additional data and information and meet additional standards for product approval,
resulting in increased time and financial resources required to obtain FDA approval for our product candidate;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA may not grant our product candidate three years of marketing exclusivity under the United States Drug Price Competition
and Patent Term Restoration Act of 1984;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA may determine that we have indentified the wrong Reference Listed Drug, or RLD, or that approval of a Section 505(b)(2)
application for our product candidate is blocked by patent or non patent exclusivity of the RLD or RLDs;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | • | the FDA may require us to conduct additional clinical trials depending on the safety data from our planned future clinical
trials, including our Phase 3 clinical trials for APL-130277;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that our product candidate’s
risk-benefit ratio for its proposed indication is acceptable;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications,
or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 48 -







| | • | our third-party providers may be unable to demonstrate compliance with current good manufacturing practices, or cGMP, to the
satisfaction of the FDA or comparable foreign regulatory authorities, which could result in delays in regulatory approval or require
us to withdraw or recall products and interrupt commercial supply of our products; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a
manner rendering our clinical data insufficient for approval.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This lengthy approval process, as well as
the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market our product
candidate or any of our product candidates in the future, which would significantly harm our business, results of operations, and
prospects.



We currently have only one product candidate, APL-130277,
in clinical trials and are substantially dependent on this single product candidate. A failure of this product candidate in clinical
development would adversely affect our business. If we decide to leverage success with our APL-130277 product candidate to develop
other product opportunities, we may not be successful in such efforts.



APL-130277 is our only product candidate.
If we were required to discontinue development of APL-130277, if APL-130277 does not receive regulatory approval, if we do not
obtain our targeted indications for APL-130277 or if APL-130277 fails to achieve sufficient market acceptance for any indication,
we would be delayed by many years in our ability to achieve profitability, if ever, and would materially adversely affect our business
prospects and financial condition. Moreover, if we decide to leverage success with our APL-130277 product candidate to develop
other product opportunities, we may not be successful in such efforts. In any such event, our business will be materially adversely
affected.



If we fail to obtain regulatory approval in jurisdictions
outside the United States, we will not be able to market our products in those jurisdictions.



We intend to market our product candidate,
APL-130277, if approved, in international markets, including in Europe, either directly or through partnerships. Such marketing
will require separate regulatory approvals in each market and compliance with numerous and varying regulatory requirements, including
initial regulatory and clinical activities for European market registration. The approval procedures vary from country to country
and may require additional testing that we are not required to perform to obtain regulatory approval in the United States. Moreover,
the time required to obtain approval may differ from that required to obtain FDA approval. In addition, in many countries outside
the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. Approval
by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign
regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory
approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals
on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize
APL-130277 or any of our future products in any market. If we and/or any future partner are unable to obtain regulatory approval
for APL-130277 in one or more significant foreign jurisdictions, then the commercial opportunity for APL-130277, and our financial
condition, will be adversely affected.



Even if we receive regulatory approval for APL-130277
for any indication, it will be subject to ongoing regulatory review, which may result in significant additional expense. Additionally,
our product, if approved, could be subject to labeling and other restrictions, and we may be subject to penalties if we fail to
comply with regulatory requirements or experience unanticipated problems with our product.



Any regulatory approvals that we receive
for our product candidate may also be subject to limitations on the approved indicated uses for which the product may be marketed
or to conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical
trials, and surveillance to monitor safety and efficacy. In addition, if the FDA or comparable foreign regulatory authorities approve
our product candidate, the manufacturing process, labeling, packaging, distribution, AE reporting, storage, advertising, promotion
and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include
submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP
and GCP, for any clinical trials that we conduct post-approval.



Later discovery of previously unknown problems
with our approved product, including AEs of unanticipated severity or frequency, or with manufacturing operations or processes,
or failure to comply with regulatory requirements, may result in, among other things:



| | • | restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory
product recalls;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



- 49 -







| | • | fines, warning letters, or holds on clinical trials;
| | - | ----------------------------------------------------



| | • | refusal by the FDA or comparable foreign regulatory authorities to approve supplements to approved applications filed by us,
or suspension or revocation of product license approval;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | product seizure or detention, or refusal to permit the import or export of our product; and
| | - | -------------------------------------------------------------------------------------------



| | • | injunctions or the imposition of civil or criminal penalties.
| | - | -------------------------------------------------------------



The policies of the FDA and comparable foreign
regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory
approval of our product candidate in the United States or foreign jurisdictions. We cannot predict the likelihood, nature or extent
of government regulation that may arise from future legislation or administrative action, either in the United States or abroad.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or not able
to maintain regulatory compliance, we may lose any marketing approval that may have been obtained and we may not achieve or sustain
profitability, which would adversely affect our business.



Our product candidate may cause undesirable side effects
or have other properties that delay or prevent its regulatory approval or limit its commercial potential.



Undesirable side effects caused by our product
candidate could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of
regulatory approval by the FDA or other regulatory authorities and potential product liability claims. Serious AEs deemed to be
caused by our product candidate could have a material adverse effect on the development of our product candidate and our business
as a whole. The AEs seen in clinical studies in healthy volunteers and PD patients to date reflect typical dopaminergic AEs seen
with all dopaminergic medications. In particular, apomorphine, the active ingredient in APL-130277, has been associated with several
safety and tolerability challenges, including nausea, vomiting, lowering of blood pressure and orthostatic hypotension (a form
of low blood pressure that may cause lightheadedness or fainting). Our understanding of the relationship between APL-130277 and
these events may change as we gather more information, and additional unexpected AEs may occur. As we complete additional clinical
trials for our product candidate, the FDA could potentially require labeling recommending extensive physician monitoring during
titration (same as with injectable apomorphine), which could adversely affect the commercial potential of our product candidate.
In addition, although apomorphine has been in use for over 20 years, the long-term impact of using apomorphine in sublingual delivery
form is not well understood. Although side effects exhibited by patients in our clinical trials have been limited so far, there
can be no assurance that, in later clinical trials or if approved, our product candidate will not cause patients to experience
unexpected side effects or expected side effects on a more severe level. Moreover, incorrect or improper use of our thin film (including
if a patient swallows the film rather than allowing it to dissolve under the tongue) will result in the apomorphine drug not having
its intended effect, and may result in additional unexpected side effects or AEs. While we intend to invest in physician and patient
education to foster correct and proper use, there can be no assurance that our product candidate will be used correctly, and if
used incorrectly, such misuse could hamper commercial adoption of our product candidate, if approved, at the rate we currently
expect.



If we or others identify undesirable side
effects caused by our product candidate either before or after receipt of marketing approval, a number of potentially significant
negative consequences could result, including, without limitation:



| | • | our clinical trials may be put on hold;
| | - | ---------------------------------------



| | • | we may be unable to obtain regulatory approval for our product candidate;
| | - | -------------------------------------------------------------------------



| | • | regulatory authorities may withdraw approvals of our product candidate;
| | - | -----------------------------------------------------------------------



| | • | regulatory authorities may require additional warnings on the label;
| | - | --------------------------------------------------------------------



| | • | we may be required to change the way our product candidate is administered, conduct additional clinical trials or change the
labeling of our product candidate;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | we may be subject to limitations on how we may promote our product candidate;
| | - | -----------------------------------------------------------------------------



| | • | a medication guide outlining the risks of such side effects for distribution to patients may be required;
| | - | ---------------------------------------------------------------------------------------------------------



| | • | we could be sued and held liable for harm caused to patients; and
| | - | -----------------------------------------------------------------



| | • | our reputation may suffer.
| | - | --------------------------



- 50 -







Any of these events could prevent us from
achieving or maintaining market acceptance of our product candidate and could substantially increase commercialization costs and
materially adversely affect our business, prospects and financial condition.



Risks Related to Development and Manufacturing of Our Product
Candidate and Our Reliance on Third-Parties



We rely on third-parties to supply APIs and manufacture
and package our sublingual thin film formulation of apomorphine. We do not have long-term contracts with such manufacturers or
suppliers.



We depend on third-party suppliers
of APIs and third-party contract manufacturing organizations for all clinical supply and packaging of APL-130277, our
sublingual thin film formulation of apomorphine, for use in our clinical trials. Any problems we experience with any such
third-parties could delay the manufacturing of our product candidate and our clinical studies, which could harm our business
and results of operations. We do not currently have a long-term commercial manufacturing contract for our sublingual thin
film formulation of apomorphine. We anticipate entering into a commercial supply agreement with ARx under which ARx will be
the majority supplier of APL-130277 with respect to the United States prior to our filing for FDA approval of APL-130277.
Under our existing agreement with ARx, we have agreed to pay ARx in certain circumstances a fee based on the invoiced cost
incurred by us with respect to the manufacturer of APL - 130277 (less the costs of the related API and packaging) in the U.S.
by the contingency supplier (as defined in the agreement), or any other party outside of the U.S., which could make it more
costly in certain circumstances for us to use a supplier other than ARx for APL-130277.



We receive the API for use in our
clinical trials of our product candidate on a purchase order basis. We may be unable to enter into long-term agreements or
agreements that would provide sufficient quantities of any materials for our product candidate. Though we expect that
third-party contract manufacturing organizations will be able to provide sufficient quantities of our sublingual thin film
formulation of apomorphine for our Phase 3 clinical trials and for commercializing our product candidate if and when it is
approved, we do not have agreements in place that guarantee the supply or the price of the materials for our product
candidate, so there can be no assurance that we actually receive sufficient quantities. In particular, orders of our API,
which is derived from the opium poppy, must be made with significant lead time due to limited supply of opium poppy produced
for this purpose. In addition, production of our API is generally lower in priority to other opium poppy derivatives, such as
morphine. In the event of supply limitations, due to adverse events (including poor germination conditions or catastrophic
events) or otherwise, the supply of our API may be significantly reduced. Any such decrease in the availability or
significant delay in the acquisition of our API or other material could considerably delay the manufacturing of our product
candidate. If we are unable to arrange for alternative third-party sources, or for contingency options with our current API
provider, or to do so on commercially reasonable terms or in a timely manner, we may be delayed in completing our remaining
clinical trials of, obtaining regulatory approval for and commercializing our product candidate. In addition, because we do
not have any control over the process or timing of the supply of the API, there is greater risk that we will not have
sufficient quantities of the API at an acceptable cost or quantity, which could delay, prevent or impair our development or
commercialization efforts.



Reliance on third-party manufacturers and
suppliers entails risks to which we would not be subject if we manufactured and packaged our product candidate ourselves, including
reliance on the third-party for regulatory compliance and quality assurance, the possibility of breach of the agreement by the
third-party because of factors beyond our control (including a failure to manufacture our product candidate in accordance with
our specifications) and the possibility of termination or nonrenewal of the agreement by the third-party, based on its own business
priorities, at a time that is costly or damaging to us. In addition, our product candidate may compete with others for access to
manufacturing facilities and capacity. There are a limited number of manufacturers that operate under cGMP regulations in the United
States or elsewhere and that might be capable of manufacturing for us. We may therefore be subject to unexpected increases in the
cost of our supplies or manufacture of our product candidate, which may far exceed the cost of producing a drug substance and require
increased capital expenditures.



We are subject to a number of risks relating to our third-party
service providers, any of which could substantially increase our costs and limit supply of our products.



If our offices or any facility of our third-party
service providers, such as the CROs, contract manufacturing organizations and API suppliers that we utilize to develop and manufacture
our product candidate, were to suffer an accident or a force majeure event such as major fire or explosion, major equipment failure
or power failure lasting beyond the capabilities of its backup generators or other similar event, we could be materially adversely
affected and any of our clinical trials could be materially delayed. Such an extended shut down may force us to procure a new research
and development facility or another manufacturer or supplier, which could be time-consuming and costly. During any such period,
we may be unable to receive our product candidate. For example, our API is derived from the opium poppy, which is sensitive to
changes in weather and environmental conditions. Any adverse changes in such conditions or other catastrophe could significantly
reduce the supply of API for our product candidate.



- 51 -







The process of manufacturing the active
drug in APL-130277 is complex, highly regulated and subject to the risk of product loss due to contamination, equipment failure
or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing
processes or quality requirements for our product candidate could result in reduced production yields, product defects and other
supply disruptions. If microbial, viral, or other contaminations are discovered in our product candidate or in the manufacturing
facilities in which our product candidate is or will be made, such manufacturing facilities may need to be closed to investigate
and remedy the contamination. Any adverse developments affecting manufacturing operations for our product candidate may result
in shipment delays, inventory shortages, lot failures, withdrawals or recalls, or other interruptions in the supply of our product
candidate. We may also have to take inventory write-offs and incur other charges and expenses for our product candidate that fails
to meet specifications, undertake costly remediation efforts, or seek more costly manufacturing alternatives. Also, as any third-party
manufacturer we engage scales up manufacturing of our product candidate, if approved, it may encounter unexpected issues relating
to the manufacturing process or the quality, purity and stability of the product candidate, and it may be required to refine or
alter its manufacturing processes to address these issues. Resolving these issues could result in significant delays and may result
in significantly increased costs. If any of our third-party manufacturers experience significant delays or other obstacles in producing
any approved product for commercial scale, our ability to market and sell any approved products may be adversely affected and our
business could suffer.



Our third-party manufacturers and suppliers
are subject to FDA inspection from time to time. Failure by our third-party manufacturers and suppliers to pass such inspections
and otherwise satisfactorily complete the FDA approval regimen with respect to our product candidate may result in regulatory actions
such as the issuance of FDA Form 483 notices of observations, warning letters or injunctions or the loss of operating licenses.
Based on the severity of the regulatory action, our clinical or commercial supply of product and packaging and other services could
be interrupted or limited, which could have a material adverse effect on our business. In addition, in order to obtain regulatory
approval for our product candidate, our third-party manufacturers will be required to consistently produce the API used in our
product candidate in commercial quantities and of specified quality on a repeated basis and document their ability to do so. This
is referred to as process validation. If the third-party manufacturers are unable to satisfy this requirement, our business will
be materially and adversely affected.



Furthermore, if our product candidate or
any future product candidate is approved and contract manufacturers fail to deliver the required commercial quantities of finished
product on a timely basis or at commercially reasonable prices, and we are unable to find one or more replacement manufacturers
capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis,
we would likely be unable to meet demand for our product and could lose potential revenue. It may take several years to establish
an alternative source of supply for our product candidate and to have any new source approved by the FDA, the European Medicines
Agency, or EMA, or any other relevant regulatory authorities.



The ability of our third-party manufacturers and suppliers
to continue manufacturing and supplying our product candidate depends on their continued adherence to cGMP regulations.



The manufacturing processes for our product
candidate and API are governed by detailed cGMP regulations. Failure by third-party manufacturers, suppliers and quality operations
units to adhere to established regulations or to meet a specification or procedure set forth in cGMP requirements could require
that a product or material be rejected and destroyed. Adherence to cGMP regulations and the effectiveness of our quality control
systems are periodically assessed through inspections of manufacturing facilities by regulatory authorities, including the FDA
through its facilities inspection program. Such inspections could result in deficiency citations, which would require action to
correct those deficiencies to the satisfaction of the applicable regulatory authorities. If critical deficiencies are noted or
if recurrences are not prevented, we may have to recall product or suspend operations until appropriate measures are implemented.
Since cGMP reflects ever-evolving standards, manufacturing processes and procedures must be regularly updated to comply with cGMP.
We have limited or no control over our manufacturers’ or suppliers’ compliance with these regulations and standards.
These changes may cause us to incur additional costs and may adversely impact our results of operations. For example, more sensitive
testing assays (if and when they become available) may be required or existing procedures or processes may require revalidation,
all of which may be costly and time-consuming and could delay or prevent the manufacturing of our product candidate. If the safety
of any product candidate or API supplied is compromised due to our manufacturers’ or suppliers’ failure to adhere to
applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our product
candidate and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical
studies, regulatory submissions, approvals or commercialization of our product candidate, entail higher costs or impair our reputation.



If we change the manufacturers of our product candidate,
we may be required to conduct comparability studies evaluating the manufacturing processes of the product candidate.



The FDA and other regulatory authorities
maintain strict requirements governing the manufacturing process for medical delivery systems, such as the thin films used to deliver
the apomorphine sublingually in our product candidate. For example, when a manufacturer seeks to modify or change that process,
the FDA typically requires the applicant to conduct non-clinical and, depending on the magnitude of the changes, potentially clinical
comparability studies that evaluate the potential differences in the product candidate resulting from the change in the manufacturing
process. Delays in designing and completing a comparability study to the satisfaction of the FDA or other regulatory agencies could
delay or preclude our development plans and, thereby, delay our ability to receive marketing approval, or limit our revenue and
growth once our product candidate is approved. In addition, in the event that the FDA or other regulatory agencies do not accept
non-clinical comparability data, we may need to conduct a study involving dosing of patients comparing the two products. That study
may result in a delay of the approval or launch of our product candidate.



- 52 -







We rely on third-parties to conduct clinical trials for
APL-130277, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory
approvals for APL-130277.



We have designed the clinical trials for
APL-130277. However, we rely on CROs and other third-parties to assist in managing, monitoring and otherwise carrying out many
of these trials. We compete with many other companies for the resources of these third-parties. There is a limited number of third-party
service providers that specialize or have the expertise required to achieve our business objectives. The third-parties on whom
we rely generally may terminate their engagements at any time, and having to enter into alternative arrangements would delay development
and commercialization of our product candidate.



The FDA and comparable foreign regulatory
authorities require compliance with regulations and standards, including GCP, for designing, conducting, monitoring, recording,
analyzing, and reporting the results of clinical trials to assure that the data and results are credible and accurate and that
the rights, integrity and confidentiality of trial participants are protected. Although we rely on third-parties to conduct many
of our clinical trials, they are not our employees, and we are responsible for ensuring that each of these clinical trials is conducted
in accordance with its general investigational plan, protocol and other requirements. Our reliance on these third-parties for research
and development activities will reduce our control over these activities but will not relieve us of our responsibilities, and we
cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our
clinical trials comply with GCP regulations.



These CROs and third-parties are not our
employees and we will not be able to control, other than by contract, the amount of resources, including time, which they devote
to our product candidate and clinical trials. In addition, the use of third-party service providers requires us to disclose our
proprietary information to these parties, which could increase the risk that this information will be misappropriated. If these
third-parties do not successfully carry out their duties under their agreements, if the quality or accuracy of the data they obtain
is compromised due to their failure to adhere to clinical trial protocols or to regulatory requirements, or if they otherwise fail
to comply with clinical trial protocols or meet expected deadlines, the clinical trials of our product candidate may not meet regulatory
requirements. If clinical trials do not meet regulatory requirements or if these third-parties need to be replaced, such clinical
trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory
approval of our product candidate on a timely basis or at all.



We may not be successful in establishing and maintaining
strategic partnerships, which could adversely affect our ability to develop and commercialize products, negatively impacting our
operating results.



We continue to evaluate and, as deemed appropriate,
we expect to enter into partnerships in the future when strategically attractive, with one or more pharmaceutical companies for
the development and commercialization of APL-130277 in Europe, Japan and other countries. We face significant competition in seeking
appropriate partners for our product candidate, and the negotiation process is time-consuming and complex. In order for us to successfully
partner our product candidate, potential partners must view our product candidate as economically valuable in markets they determine
to be attractive in light of the terms that we are seeking and other available products for development and commercialization or
licensing by other companies. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree
upon may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for example, development or
approval of our product candidate is delayed or sales of our approved product are disappointing. Any delay in entering into strategic
partnership agreements related to our product candidate could delay the development and commercialization of our product candidate
and reduce its competitiveness even if it reaches the market.



If we fail to establish and maintain strategic
partnerships related to our product candidate, we will bear all of the risk and costs related to the development and commercialization
of our product candidate, and we may need to seek additional financing, hire additional employees and otherwise develop expertise,
such as regulatory expertise. This could negatively affect the development of our product candidate.



- 53 -







Risks Related to Commercialization of Our Product Candidate



Our future commercial success depends upon attaining significant
market acceptance of our product candidate, if approved, among physicians, health care payors, patients and the medical community.



Even if we obtain regulatory approval for
APL-130277, our product candidate may not gain market acceptance among physicians, health care payors (both private insurers and
government programs, such as Medicare and Medicaid), patients and the medical community. Market acceptance of our product candidate,
if approved, depends on a number of factors, including, without limitation:



| | • | the efficacy and safety of the product, as demonstrated in clinical trials, compared to other products;
| | - | -------------------------------------------------------------------------------------------------------



| | • | the indications for which the product is approved and the label approved by regulatory authorities for use with the product,
including any limitations or warnings that may be required on the label;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | acceptance by physicians and patients of the product as a safe and effective treatment;
| | - | ---------------------------------------------------------------------------------------



| | • | the cost, safety and efficacy of treatment in relation to alternative treatments;
| | - | ---------------------------------------------------------------------------------



| | • | proper use of the product by patients;
| | - | --------------------------------------



| | • | changes in the standard of care for the targeted indications for our product candidate;
| | - | ---------------------------------------------------------------------------------------



| | • | the availability of adequate reimbursement and pricing by third-party payors and government authorities;
| | - | --------------------------------------------------------------------------------------------------------



| | • | relative convenience and ease of administration, including, but not limited to, the potential need for titration in a physician’s
office, the ease of opening the packaging and retrieving the thin film and the limited need to administer medication to control
for any side effects such as nausea;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the prevalence and severity of adverse side effects; and
| | - | --------------------------------------------------------



| | • | the effectiveness of our sales and marketing efforts.
| | - | -----------------------------------------------------



Market acceptance is critical to our ability
to generate significant revenue and become profitable. Our product candidate, if approved and commercialized, may be accepted in
only limited capacities or not at all. If our approved product is not accepted by the market to the extent that we expect, we may
not be able to generate significant revenue and our business would suffer.



The market for our product candidate may not be as large
as we expect.



Our estimates of the potential market opportunity
for APL-130277 include several key assumptions based on our industry knowledge, industry publications, third-party research reports
and other surveys, and market research with health care providers, payors and patients. These assumptions include the prevalence
and growth of PD, the percentage of patients receiving apomorphine as part of their treatment regimen, the percentage of these
patients experiencing OFF episodes and the percentage of PD patients for which APL-130277 may be an effective treatment option.
While we believe that our internal assumptions are reasonable, if any of these assumptions proves to be inaccurate, then the actual
market for APL-130277 could be smaller than our estimates of our potential market opportunity. If the actual market for APL-130277
is smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.



In addition, final product labeling specifically
lists the approved therapeutic indications, the types of patients that should be treated with the product, how frequently and for
how long these patients should be treated and how treatment should be initiated. While physicians are free to use the product as
they choose, we and any pharmaceutical company partner are prohibited from marketing or promoting the product outside these approved
indications and uses. In addition, certain existing formulations of apomorphine outside the United States used for the treatment
of OFF episodes (ApoGo, ApokinON and Apomin) are currently only indicated for advanced PD patients. Should final approved labeling
differ materially from our proposed labeling, the actual market for APL-130277 could be smaller than our estimates of our potential
market opportunity.



We currently have no sales and marketing staff and no
product distribution network. If we are unable to establish sales and marketing arrangements, we will not be successful in commercializing
our product candidate.



We do not currently have a sales or marketing
infrastructure and do not have experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial
success for our product candidate in the United States, Europe and other jurisdictions, we may enter into sales, marketing and
distribution agreements with third-parties in respect of the commercialization of our product candidate in such jurisdictions.
Entering into arrangements with third-parties to perform these services may result in lower product revenues and profitability,
if any, than if we were to market, sell and distribute our product ourselves. In addition, we may not be successful in entering
into arrangements with third-parties in the future to sell, market and distribute our product candidate or may be unable to do
so on terms that are favorable to us. We likely will have little control over such third-parties, and any of them may fail to devote
the necessary resources and attention to sell and market our product effectively.



- 54 -







In the future, we expect to build a focused
sales and marketing infrastructure to market APL-130277 and, potentially, other product candidates in the United States, if and
when they are approved. There are risks involved with establishing our own sales, marketing and distribution capabilities. For
example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial
launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur
for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our
investment would be lost if we cannot retain or reposition our sales and marketing personnel.



Factors that may inhibit our efforts to
commercialize our products on our own include:



| | • | our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
| | - | -------------------------------------------------------------------------------------------------------



| | • | our inability to effectively reach our target audience of general neurologists and movement disorder specialists;
| | - | -----------------------------------------------------------------------------------------------------------------



| | • | the lack of adequate numbers of physicians to prescribe our product candidate, if approved, or any future products;
| | - | -------------------------------------------------------------------------------------------------------------------



| | • | the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative
to companies with more extensive product lines; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | unforeseen costs and expenses associated with creating an independent sales and marketing organization.
| | - | -------------------------------------------------------------------------------------------------------



If we do not successfully establish sales,
marketing and distribution capabilities, either on our own or in collaboration with third-parties, we will not be successful in
commercializing our product candidates.



Reimbursement may be limited or unavailable in certain
market segments for our product candidate, which could make it difficult for us to sell our product, if approved, profitably.



In both domestic and foreign markets, sales
of our product, if approved, will depend, in part, on the extent to which the costs of our product will be covered by third-party
payors, such as government health programs, commercial insurance and managed health care organizations. These third-party payors
decide which drugs will be covered and establish reimbursement levels for those drugs. The containment of health care costs has
become a priority of governments in the United States, Europe and elsewhere as well as private third-party payors. The prices of
drugs have been a focus in this effort. Governments and private third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product, if approved,
profitably. Cost-control initiatives could cause us to decrease the price we might establish for our product, if approved, which
could result in lower than anticipated product revenues.



In the United States, we will need to obtain
approvals for payment for our product candidate from private insurers, including managed care organizations, and from governmental
health care programs including Medicare and Medicaid. Coverage and reimbursement by a third-party payor may depend upon a number
of factors, including the third-party payor’s determination that use of our product candidate is:



| | • | a covered benefit under its health plan;
| | - | ----------------------------------------



| | • | safe, effective and medically necessary;
| | - | ----------------------------------------



| | • | appropriate for the specific patient;
| | - | -------------------------------------



| | • | cost-effective; and
| | - | -------------------



| | • | neither experimental nor investigational.
| | - | -----------------------------------------



Adverse pricing limitations may hinder our
ability to recoup our investment in APL-130277, even if such product candidate obtains marketing approval.



- 55 -







Obtaining coverage and reimbursement approval
for our product candidate from a government or other third-party payor is a time consuming and costly process that could require
us to provide supporting scientific, clinical and cost-effectiveness data for the use of our product candidate to the payor. Further,
there is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs, including those
with novel formulations such as APL-130277. We may not be able to provide data sufficient to gain acceptance with respect to coverage
and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for our product candidate. Also,
we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our product candidate. If reimbursement
is not available or is available only to limited levels, we may not be able to commercialize our product, if approved. In addition,
in the United States, third-party payors are increasingly attempting to contain health care costs by limiting access, coverage,
and the level of reimbursement of new drugs. As a result, significant uncertainty exists as to whether and how much third-party
payors will reimburse patients for their use of newly approved drugs, which in turn will put pressure on the pricing of drugs.



Price controls may be imposed in foreign markets, which
may adversely affect our future profitability.



In some countries other than the United
States, particularly member states of the European Union, the pricing of prescription drugs is subject to governmental control.
In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval
for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement
levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate
pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various
European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further
reduce prices. In some countries, additional clinical research may be required to enable comparison of the cost-effectiveness of
our product candidate to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication
of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the
country of publication and other countries. If reimbursement of our product candidate is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, our business could be adversely affected.



The impact on us of health care reform legislation and
other changes in the health care industry and in health care spending is currently unknown, and may adversely affect our business
model.



Our revenue prospects could be affected
by changes in health care spending and policy in the United States and abroad. We operate in a highly regulated industry and new
laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health care
availability, the method of delivery or payment for health care products and services could negatively impact our business, operations
and financial condition.



There have been, and likely will continue
to be, legislative and regulatory proposals and initiatives within the United States and foreign jurisdictions directed at broadening
the availability of health care and containing or lowering the cost of health care. We cannot predict the initiatives that may
be adopted in the future or whether initiatives that have been adopted will be repealed or modified. These legislative and/or regulatory
changes may negatively impact the reimbursement for drug products, following approval, and thus affect our ability to sell our
product profitably. The continuing efforts of governments, insurance companies, managed care organizations and other payors of
health care services to contain or reduce costs of health care may adversely affect:



| | • | the demand for our product candidate if we obtain regulatory approval;
| | - | ----------------------------------------------------------------------



| | • | our ability to set a price that we believe is fair for our product candidate;
| | - | -----------------------------------------------------------------------------



| | • | our ability to obtain coverage and reimbursement approval for our product candidate;
| | - | ------------------------------------------------------------------------------------



| | • | our ability to generate revenues and achieve or maintain profitability;
| | - | -----------------------------------------------------------------------



| | • | the level of taxes that we are required to pay; and
| | - | ---------------------------------------------------



| | • | our access to capital.
| | - | ----------------------



Any significant spending reductions affecting
Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, and/or any significant taxes
or fees that may be imposed on us, as part of any broader deficit reduction effort or legislative replacement to the United States
Budget Control Act, could have an adverse impact on our anticipated product revenues.



- 56 -







We face substantial competition, which may result in others
discovering, developing or commercializing products before, or more successfully, than we do.



Our industry is highly competitive and subject
to rapid and significant technological change. While we believe that our technology, knowledge, experience and scientific resources
provide us with competitive advantages, we face competition from many different sources, including large pharmaceutical, specialty
pharmaceutical, biotechnology and generic drug companies and academic and government institutions. These organizations may have
significantly greater resources than we do and conduct similar research, seek and obtain patent protection that may impact our
freedom to operate and establish collaborative arrangements for research, development, manufacturing and marketing of products
that compete with our product candidate. Our commercial opportunity could be reduced or eliminated if our competitors have products
that are better in one or more of these categories. Furthermore, our competitors may, among other things: develop and commercialize
products that are, or are perceived to be, safer, more effective, less expensive, or more convenient or easier to administer; obtain
quicker regulatory approval; establish superior proprietary positions; have access to more manufacturing capacity; implement more
effective approaches to sales and marketing; or form more advantageous strategic alliances.



We believe that the main competitors for
APL-130277 are therapies that can limit the occurrence of OFF episodes and other therapies for the on-demand treatment of OFF episodes.
These therapies include both pharmacotherapies and invasive therapies for advanced patients such as intestinal-infused levodopa
that may be used in less advanced PD patients. Pharmacotherapies that can maintain consistent plasma concentration of levodopa
over extended durations could reduce the occurrence of motor fluctuations and thus reduce the need for on-demand treatments for
OFF episodes such as APL-130277. Approaches to achieve consistent levodopa plasma concentrations include new formulations of carbidopa/levodopa,
a combination of levodopa and an inhibitor of DOPA decarboxylase (an enzyme found throughout the body) referred to as carbidopa,
such as extended-release and intestinal infusions, and therapies that prolong the effect of levodopa. Extended-release formulations
of oral and patch carbidopa/levodopa are being developed by groups including Impax Laboratories, Inc., Depomed Inc. and Neuroderm
Ltd. A continuous administration of a gel-containing levodopa through a tube that is surgically implanted into the intestine is
being developed by AbbVie Inc. This therapy, known as Duodopa/Duopa, is approved in the European Union and recently gained approval
in the United States. Additionally, new formulations of dopamine agonist therapies (such as pramipexole and rotigotine) may be
developed that are adjunctive to carbidopa/levodopa regimens and could reduce the frequency or severity of motor fluctuations.



If approved for the treatment of OFF episodes,
APL-130277 would also compete against on-demand therapies that aim to specifically address OFF episodes, such as the levodopa capsules
administered through an inhaler for the treatment of OFF episodes that are being developed by Acorda Therapeutics, Inc. If such
treatment is approved before our product candidate, then such treatment could capture a large percentage of the market share for
the treatment of OFF episodes and could affect the acceptance and adoption of our product candidate. At this time, an injectable
formulation of apomorphine, Apokyn, which is a STADA Arzneimittel AG product distributed by U.S. Worldmeds, LLC in the United States,
is the only therapy approved for the treatment of OFF episodes. Apokyn was approved for this use in the United States in 2004,
and for advanced PD patients in Europe in 1993. As we complete additional clinical trials for our product candidate, if our pharmacokinetic
data suggests that the time to ON associated with our product candidate is slower than with Apokyn, the commercialization of our
product candidate could be adversely affected.



One or more of our competitors may utilize
their expertise in sublingual delivery of drugs to develop and obtain approval for sublingual delivery products that may compete
with APL-130277. If approved, our product candidate may face competition in the target commercial areas. The availability of our
competitors’ products could limit the demand and the price we are able to charge for our product candidate that we may develop
and commercialize.



Risks Related to Our Intellectual Property



If we are unable to obtain and maintain sufficient intellectual
property protection for our product candidate, or if the scope of the intellectual property protection is not sufficiently broad,
our ability to successfully commercialize our product candidate and compete effectively may be adversely affected.



Our success depends in large part on our
ability to obtain and maintain protection with respect to our intellectual property and proprietary technology. We rely upon a
combination of patents (including certain licensed patents), trade secret protection and confidentiality agreements to protect
the intellectual property related to APL-130277. If we do not adequately protect our intellectual property, competitors may be
able to use our technologies and erode or negate any competitive advantage that we may have, which could harm our business and
ability to achieve profitability. In particular, our success depends in large part on our ability to obtain and maintain patent
protection with respect to our product candidate in the United States, Europe, Japan, and other countries. The patentability of
inventions and the validity, enforceability and scope of patents in the pharmaceutical field can be uncertain because they involve
complex legal and factual considerations. The standards applied by the United States Patent and Trademark Office, or USPTO, and
other foreign patent offices in granting patents are not always applied uniformly or predictably, even within a given jurisdiction.
For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in patents.
The same patent applications that we own may fail to result in additional issued patents in the United States, Europe, Japan, China,
New Zealand, Indonesia, and South Africa, or at all in other countries, and if they do, such patents may not cover our product
candidate in the United States, the European Union, Japan or in other countries. The patent prosecution process is expensive and
time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost
or in a timely manner. It is also possible that we may fail to identify patentable aspects of our research and development prior
to the deadlines for taking action to obtain patent protection on such research and developments. No patentability searches have
been completed nor have written patentability opinions of counsel been obtained. There is no assurance that all potentially relevant
prior art relating to our patents and patent applications has been found. We may be unaware of prior art that could be used to
invalidate an issued patent or prevent our pending patent applications from issuing as patents. The issuance of a patent is not
conclusive as to the correctness of its inventorship, ownership, priority, validity or enforceability. Therefore, even if patents
do successfully issue and even if such patents cover our product candidate, third-parties may challenge their validity, enforceability
or scope, and such challenges may result in such patents being narrowed or invalidated. Furthermore, even if they are unchallenged,
our patents and patent applications may not adequately protect our intellectual property, provide sufficient exclusivity for our
product candidate, prevent others from designing around our claims or otherwise provide us with a competitive advantage.



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Additionally, our confidentiality agreements
and other contractual protections may not be adequate to protect our intellectual property from unauthorized disclosure, third-party
infringement or misappropriation. We may not have adequate remedies in the case of a breach of any such agreements, and our trade
secrets and other proprietary information could be disclosed to our competitors or others may independently develop substantially
equivalent or superior proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technologies.
ARx is a non-exclusive licensee in all fields other than generic apomorphine sublingual thin film applications of our patent family
entitled “Sublingual Films”, of which ARx was previously a co-owner with us. Accordingly, ARx has some freedom to operate
with respect to these patents. In addition, ARx is an exclusive licensee of all APL-130277-related formulation and process intellectual
property generated under our agreement with ARx in all fields, in respect of other products and formulations (not APL-130277) and
such license affects our use of such intellectual property and survives termination of the agreement. Additionally, the laws of
some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, Europe,
and Japan, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and
other intellectual property protection, particularly those relating to pharmaceuticals, and this could make it difficult for us
to stop the infringement of our patents. Any of these outcomes could impair our ability to prevent competition from third-parties,
which may have an adverse impact on our business.



If the patent applications we own or license
with respect to our product candidate fail to issue, if their breadth or strength of protection is threatened, or if they fail
to provide meaningful exclusivity, it could dissuade companies from collaborating with us. We cannot offer any assurances about
which, if any, patents will issue, the breadth of any such patents or whether any issued patents will be found invalid and unenforceable
or will be threatened by third-parties. Any successful challenge to these patents or any other patents owned or licensed by us
could deprive us of rights necessary for the successful commercialization of our product candidate. Since patent applications in
the United States, Europe, and Japan, and most other countries are confidential for a period of time after filing, and some remain
so until issued, we cannot be certain that we were the first to file any patent application related to our product candidate. Furthermore,
if third-parties have filed such patent applications, an interference proceeding in the United States can be initiated by the USPTO
or a third-party to determine who was the first to invent the subject matter covered by the patent claims of our first two families
of patents and applications. In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent
is generally 20 years after the utility application is filed. Various extensions may be available; however, the life of a patent
and the protection it affords is limited. If we encounter delays in obtaining regulatory approvals, the period of time during which
we could market our product under patent protection could be reduced. Even if patents covering our product candidate are obtained,
once the patent life has expired or lapsed for a product, we may be open to competition from similar or generic products. The launch
of a generic version of our product in particular would be likely to result in an immediate and substantial reduction in the demand
for our product, which could have a material adverse effect on our business.



Recent patent reform legislation could increase
the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued
patents. On September 16, 2011, the United States Leahy-Smith America Invents Act, or AIA, was signed into law. The AIA includes
a number of significant changes to United States patent law. These include provisions that affect the way patent applications are
prosecuted, redefine what qualifies as relevant prior art, may affect patent litigation, and switch the United States patent system
from a “first-to-invent” system to a “first-to-file” system. The USPTO recently developed new regulations
and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA,
and in particular, the first-to-file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if
any, impact the AIA will have on the operation of our business. The AIA and its implementation could increase the uncertainties
and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which
could have a material adverse effect on our business and financial condition. Further changes to the patent laws in the United
States and other jurisdictions could also diminish the value of our patents and patent applications or narrow the scope of our
patent protection.



Obtaining and maintaining our patent protection
depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental
patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. The USPTO
and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other
provisions during the patent process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means
in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse
of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In this
event, competitors might be able to enter the market earlier than would otherwise have been the case. Any loss of patent protection
could have a material adverse impact on our business. We may be unable to prevent competitors from entering the market with a product
that is similar to or the same as our product candidate.



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We may become involved in lawsuits to protect or enforce
our intellectual property, which could be expensive, time consuming and unsuccessful.



Competitors may infringe, misappropriate
or otherwise violate our patents or our other intellectual property rights. To counter infringement or unauthorized use, litigation
may be necessary to enforce or defend our intellectual property rights, to protect our trade secrets and/or to determine the validity
and scope of our own intellectual property rights or the proprietary rights of others. Such litigation can be expensive and time
consuming, and any such claims could provoke these parties to assert counterclaims against us, including claims alleging that we
infringed their patents or other intellectual property rights. Many of our current and potential competitors have the ability to
dedicate substantially greater resources to litigate intellectual property rights than we can. Accordingly, despite our efforts,
we may not be able to prevent third-parties from infringing upon or misappropriating our intellectual property. Litigation could
result in substantial costs and diversion of management attention and resources, which could harm our business and financial results.
In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable,
or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology
in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated,
held unenforceable or interpreted narrowly, and could put any of our patent applications at risk of not issuing as a patent. Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential information could be compromised by disclosure during such litigation.



We could become subject to interference
or derivation proceedings provoked by third-parties or brought by the USPTO or other foreign patent authorities to determine the
priority of inventions or other matters of inventorship with respect to our patents or patent applications. Our business could
be harmed if the prevailing party does not offer us a license on commercially reasonable terms, if any license is offered at all.
We may also become involved in other proceedings, such as inter partes review, re-examination or opposition proceedings,
before the USPTO, the European Patent Office, or other foreign counterparts relating to our intellectual property or the intellectual
property rights of others. An unfavorable outcome in any such proceedings could require us to cease using the related technology
or require us to attempt to license rights to the related technology from the prevailing party, or could cause us to lose valuable
intellectual property rights. We may also become involved in disputes with others regarding the ownership of intellectual property
rights. For example, where we jointly develop intellectual property with certain parties, disagreements may arise as to the ownership
of the intellectual property developed pursuant to these relationships. If we are unable to resolve these disputes, we could lose
valuable intellectual property rights.



Third-party claims of intellectual property infringement
or misappropriation may prevent or delay our development and commercialization efforts or impact our share price.



Our commercial success depends, in part,
on us not infringing the patents and proprietary rights of third-parties. There is a substantial amount of litigation, both within
and outside the United States, involving patent and other intellectual property rights in the pharmaceutical industry, including
patent infringement lawsuits, interferences, oppositions and inter partes re-examination proceedings before the USPTO and
corresponding foreign patent offices. Numerous United States and foreign issued patents and pending patent applications owned by
third-parties exist in the field in which we are developing our product candidate. As the pharmaceutical industry expands and more
patents are issued, the risk increases that our product candidate may be subject to claims of infringement of the patent rights
of third-parties. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.
If we are sued for patent infringement, we would need to demonstrate that our product candidate or methods either do not infringe
the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Demonstrating
patent invalidity and/or non-infringement may be difficult. Even if we are successful in these proceedings, we may incur substantial
costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which
could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful
conclusion.



Third-parties may assert that we, our customers, licensees or parties indemnified by us are employing their proprietary technology without authorization or have infringed
upon, misappropriated or otherwise violated their intellectual property or other rights. For example, we may be subject to claims
that we are infringing the patent, trademark or copyright rights of third-parties, or that our employees have misappropriated or
divulged their former employers’ trade secrets or confidential information. There may be third-party patents or patent applications
with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our
product candidate, that we failed to identify. For example, applications filed before November 29, 2000 and certain applications
filed after that date that will not be filed outside the United States remain confidential until issued as patents. Except for
the preceding exceptions, patent applications in the United States and elsewhere are generally published only after a waiting period
of approximately 18 months after the earliest filing, and sometimes not at all. Therefore, patent applications covering our product
candidate could have been filed by others without our knowledge. Additionally, pending patent applications that have been published
can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our product candidate
or the use or manufacture of our product candidate.



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If any third-party patents were held by
a court of competent jurisdiction to cover aspects of our product candidate, including the materials, formulations, methods of
manufacture, methods of analysis, and/or methods for treatment, the holders of any such patents would be able to block our ability
to develop and commercialize our product candidate until such patent expired or unless we obtain a license from such third-party
in order to use the infringing technology and continue developing and commercializing our infringing product candidate. Such licenses
may not be available on commercially acceptable terms, if at all. Even if we were able to obtain a license, the rights may be nonexclusive,
which could result in our competitors gaining access to the same intellectual property licensed to us. Ultimately, we could be
prevented from commercializing our product candidate, or be forced to cease some aspect of our business operations, if, as a result
of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.



Parties making claims against us may obtain
injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product
candidate. Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time consuming,
regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden
us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on
the time and attention of our management team, distracting them from the pursuit of other company business. In the event of a successful
claim of infringement against us, in addition to potential injunctive relief, we may have to pay substantial damages, including
treble damages and attorneys’ fees if we are found to have willfully infringed a patent, pay royalties, redesign our infringing
product or obtain one or more licenses from third-parties, which may be impossible or require substantial time and monetary expenditure.



We have surveyed third party patents and pending patent applications for those patents and applications
that may pose risks to the commercialization of APL-130277 in the U.S. and Europe, and we have identified possibly relevant patents
and applications. We have entered into a license with
MonoSol Rx who possesses patents and other intellectual property that is relevant to the manufacture, sale or use of APL-130277.
If the manufacture, sale or use of APL-130277 were found to infringe an unlicensed valid and enforceable third-party patent claim,
such a finding could adversely impact our commercial efforts. For example, such a finding may result in our having to obtain a
license from a third-party patent owner in order to continue commercializing our product candidate, and such a license may not
be available on commercially reasonable terms, or at all. If one or more third-party patents were asserted against us, we expect
to vigorously contest such an action.



We may face a claim of misappropriation
if a third-party believes that we inappropriately obtained and used trade secrets of such third-party. We are not aware of any
material threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against
such claims. If we are found to have misappropriated a third-party’s trade secrets, we may be prevented from further using
such trade secrets, limiting our ability to develop our product candidate, and we may be required to pay damages.



During the course of any patent or other
intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions, and other
interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived
value of our product candidate or intellectual property could be diminished and it could have a substantial adverse effect on the
market price of our common shares. Such litigation or proceedings could substantially increase our operating losses and reduce
the resources available for development activities or any future marketing or distribution activities.



We use certain intellectual property
that we license from third parties. We could lose our rights under such license or fail to realize the anticipated benefits of
such license.





We rely, in part, on a global licensing
agreement with MonoSol Rx to use certain intellectual property that is important to our business. This license provides access
to certain intellectual property (including 31 U.S. patents, 45 foreign patents, and numerous pending and future patent applications),
some of which are relevant to the commercialization of our films containing apomorphine for the treatment of OFF episodes in PD
patients. Our rights to use the products and technologies claimed in the licensed patents are subject to our abiding by the terms
of the license (including, without limitation, making all payments due under such license) and the licensor not terminating the
license. We believe we are currently in material compliance with all requirements of such license. We do not control the filing,
prosecution or maintenance of the patent rights to which we hold a license and may rely upon our licensor to prosecute infringement
of those rights. The scope of our rights under such license may be subject to dispute by our licensor or third parties. Under the
license agreement, MonoSol Rx has received and will receive up front and contingent milestone payments and single-digit royalty
payments on net sales of APL-130277. Despite making such payments, we may fail to realize some or all of the anticipated benefits
of the license for any of the reasons discussed under “Risk Factors – Risks Related to Our Intellectual Property”
herein.





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We will not be able to protect our intellectual property
rights throughout the world.



Filing, prosecuting and defending patents
on our product candidate throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions
where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products
to territories where we have patent protection but where enforcement is not as strong as in the United States. These products may
compete with our product candidate in jurisdictions where we do not have any issued patents and our patent claims or other intellectual
property rights may not be effective or sufficient to prevent them from so competing. Many companies have encountered significant
problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,
particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or
marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign
jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.



Confidentiality agreements with employees and third-parties
may not prevent unauthorized disclosure of trade secrets and other proprietary information.



In addition to the protection afforded by
patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable
or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our platform technology
and discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents.
Trade secrets can be difficult to protect. Any disclosure to, misappropriation by, or reverse engineering by third-parties of our
confidential proprietary information or know-how could enable competitors to quickly duplicate or surpass our technological achievements,
thus eroding our competitive position in our market. We seek to protect our proprietary technology and processes, in part, by entering
into confidentiality agreements, non-disclosure and invention assignment agreements with our employees, consultants, and third-party
scientific advisors, contractors and collaborators. However, we cannot be certain that such agreements have been entered into with
all relevant parties, that our trade secrets and other confidential proprietary information will not be disclosed or that competitors
will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.
Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, or outside scientific
advisors might intentionally or inadvertently disclose our trade secret information to competitors.



Enforcing a claim that a third-party illegally
obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition,
courts outside the United States sometimes do not protect proprietary rights such as trade secrets to the same extent or in the
same manner as United States courts. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive
position and may have a material adverse effect on our business, results of operations and financial condition.



Risks Related to Our Business and Industry



If we fail to attract and keep senior management and key
scientific personnel, we may be unable to successfully develop our product candidate, conduct our clinical trials and commercialize
our product candidate.



We are highly dependent on members of our
senior management, including Anthony Giovinazzo, our President and Chief Executive Officer, Albert Agro, our Chief Medical Officer,
Thierry Bilbault, our Chief Scientific Officer and Executive Vice President, CMC, and Andrew Williams, our Chief Operating Officer
and Chief Financial Officer. The loss of the services of any of these persons could impede the achievement of our research, development
and commercialization objectives. Also, each of these persons may terminate their employment with us at any time. We do not maintain
“key person” insurance for any of our executives or other employees.



Recruiting and retaining qualified scientific,
clinical, sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel
on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also
experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition,
we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development
and commercialization strategy. Our consultants and advisors, including our scientific founders, may be employed by employers other
than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to
us.



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We may encounter difficulties in managing our growth and
expanding our operations successfully.



As we seek to advance our product candidate
through clinical trials and commercialization, we will need to expand our development, regulatory, manufacturing, marketing and
sales capabilities or contract with third-parties to provide these capabilities for us. As our operations expand, we expect that
we will need to manage additional relationships with one or more strategic partners, and with suppliers and other third-parties.
Future growth will impose significant added responsibilities on members of management. Our future financial performance and our
ability to commercialize our product candidate and to compete effectively will depend, in part, on our ability to manage any future
growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train
and integrate additional management, administrative and, if necessary, sales and marketing personnel. Due to our limited financial
resources, we may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully
growing our company or disrupt our operations.



Our relationships with health care professionals, institutional
providers, principal investigators, consultants, customers (actual and potential) and third-party payors are, and will continue
to be, subject, directly and indirectly, to Canadian and United States federal and state health care fraud and abuse, false claims,
marketing expenditure tracking and disclosure, government price reporting, and health information privacy and security laws. If
we are unable to comply, or have not fully complied, with such laws, we could face penalties, including, without limitation, civil,
criminal, and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare,
Medicaid and other government health care programs, contractual damages, reputational harm, diminished profits and future earnings,
and curtailment or restructuring of our operations.



Our business operations and activities may
be directly or indirectly subject to various fraud and abuse laws, including, without limitation, the United States federal Anti-Kickback
Statute and the United States False Claims Act. If we obtain FDA approval for our product candidate and begin commercializing our
product candidate in the United States, our potential exposure under such laws will increase significantly, and our costs associated
with compliance with such laws are also likely to increase. These laws may impact, among other things, our current activities with
principal investigators and research subjects, as well as proposed and future sales, marketing and education programs. In addition,
we may be subject to patient privacy regulation by the federal government and state governments in which we conduct our business.
The laws that may affect our ability to operate include, but are not limited to:



| | • | the United States federal health care Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting,
receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly,
in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation
of any good, facility, item or service for which payment may be made, in whole or in part, under a United States federal health
care program, such as the Medicare and Medicaid programs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | United States federal civil and criminal false claims laws, including the United States False Claims Act, and civil monetary
penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented,
claims for payment or approval from Medicare, Medicaid, or other third-party payors that are false or fraudulent or knowingly making
a false statement to improperly avoid, decrease or conceal an obligation to pay money to the United States government;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the United States Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal
statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit
program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned
by, or under the custody or control of, any health care benefit program, regardless of the payor (public or private) and knowingly
and willfully falsifying, concealing, or covering up by any trick or device a material fact or making any materially false statements
in connection with the delivery of, or payment for, health care benefits, items or services relating to health care matters;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | HIPAA, as amended by the United States Health Information Technology for Economic and Clinical Health Act of 2009 and their
respective implementing regulations, which impose requirements on certain covered health care providers, health plans, and health
care clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure
of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable
health information without appropriate authorization;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the United States federal physician self-referral law, commonly known as the Stark Law, which prohibits a physician from making
a referral to an entity for certain designated health services reimbursed by Medicare or Medicaid if the physician or a member
of the physician’s family has a financial relationship with the entity, and which also prohibits the submission of any claims
for reimbursement for designated health services furnished pursuant to a prohibited referral;
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| | • | the United States Physician Payments Sunshine Act, created under Section 6002 of the United States Patient Protection and Affordable
Care Act, as amended by the United States Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, and its
implementing regulations requires manufacturers of drugs, devices, biologicals and medical supplies for which payment is available
under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the United
States Department of Health and Human Services information related to payments or other transfers of value made to physicians (defined
to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment
interests held by physicians and their immediate family members, with data collection required beginning August 1, 2013 and reporting
to the Centers for Medicare & Medicaid Services required by March 31, 2014 and by the 90th day of each subsequent calendar
year;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | United States federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities
that potentially harm consumers;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | United States federal government price reporting laws, changed by the ACA to, among other things, increase the minimum Medicaid
rebates owed by most manufacturers under the Medicaid Drug Rebate Program, as amended by the Covered Outpatient Drugs final rule,
and offer such rebates to additional populations and on more expensive infused, inhaled, instilled, implanted or injected drugs,
that require us to calculate and report complex pricing metrics to government programs, where such reported prices may be used
in the calculation of reimbursement and/or discounts on our marketed drugs (participation in these programs and compliance with
the applicable requirements may subject us to potentially significant discounts on our products, increased infrastructure costs,
and potentially limit our ability to offer certain marketplace discounts);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the United States Foreign Corrupt Practices Act, which regulates certain financial relationships with foreign government officials
(which could include, for example, certain medical professionals); and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | U.S. state law equivalents of each of the above federal laws, such as anti-kickback, false claims, consumer protection and
unfair competition laws which may apply to our business practices, including but not limited to, research, distribution, sales
and marketing arrangements as well as submitting claims involving health care items or services reimbursed by any third-party payor,
including commercial insurers; state laws that require biotech companies to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise restricts payments
that may be made to health care providers; state laws that require drug manufacturers to file reports with states regarding marketing
information, such as the tracking and reporting of gifts, compensation and other remuneration and items of value provided to health
care professionals and entities (compliance with such requirements may require investment in infrastructure to ensure that tracking
is performed properly, and some of these laws result in the public disclosure of various types of payments and relationships, which
could potentially have a negative effect on our business and/or increase enforcement scrutiny of our activities); and state laws
governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant
ways and often are not preempted by HIPAA, thus complicating compliance efforts.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, the regulatory approval and
commercialization of our product candidate outside the United States will also likely subject us to foreign equivalents of the
health care laws mentioned above, among other foreign laws.



Because of the breadth of these laws and
the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could
be subject to challenge under one or more of such laws. In addition, recent health care reforms have strengthened some of these
laws. Efforts to ensure that our business arrangements will comply with applicable health care laws may involve substantial costs.
It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current
or future statutes, regulations or case law interpreting applicable fraud and abuse or other health care laws and regulations.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply
to us, we may be subject to penalties, including, without limitation, civil, criminal, and administrative penalties, damages, monetary
fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other state and federal government health
care programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring
of our operations, any of which could materially adversely affect our ability to operate our business and our financial results.



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We or our third-party providers may experience a security
breach that could lead to the loss of critical information.



Our business is increasingly dependent on
critical, complex and interdependent information technology systems, including Internet-based systems, to support business processes
as well as internal and external communications. The size and complexity of our and our third-party providers’ computer systems
make them potentially vulnerable to breakdown, natural disaster, malicious intrusion, malware and other cyber-attacks, which may
result in the impairment of production and key business processes. In addition, our and our third-party providers’ systems
are potentially vulnerable to data security breaches—whether by employees or others—that may expose sensitive data
to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, the
value of which may be contingent upon maintaining its confidentiality, or could lead to the public exposure of personal information
(including sensitive personal information) of our employees, clinical trial patients, partners and others. This could require us
to expend significant efforts and resources or incur significant expense to eliminate these problems and address related security
concerns. Such disruptions and breaches of data security could have a material adverse effect on our business, reputation, and
financial condition, could cause significant interruptions in our operations and impair our ability to conduct our business and
comply with regulations during the occurrence of any such incident.



Our employees may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and requirements and insider trading.



We are exposed to the risk of employee fraud
or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate
information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health care
fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities
to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and
regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict
or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other
business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical
trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and
deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming
from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not
successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including
the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from
participation in Medicare, Medicaid and other federal health care programs, contractual damages, reputational harm, diminished
profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability
to operate our business and our results of operations.



If product liability lawsuits are brought against us,
we may incur substantial liabilities and may be required to limit commercialization of our product candidate.



We face an inherent risk of product liability
as a result of the clinical testing of our product candidate and will face an even greater risk if we commercialize our product
candidate. For example, we may be sued if the product we develop allegedly causes injury or is found to be otherwise unsuitable
during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects
in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a
breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves
against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product
candidate. Even a successful defense would require significant financial and management resources. Regardless of the merits or
eventual outcome, liability claims may result in, without limitation:



| | • | injury to our reputation;
| | - | -------------------------



| | • | decreased demand for our product candidate;
| | - | -------------------------------------------



| | • | withdrawal of clinical trial participants;
| | - | ------------------------------------------



| | • | costs to defend the related litigations;
| | - | ----------------------------------------



| | • | a diversion of management’s time and our resources;
| | - | ---------------------------------------------------



| | • | substantial monetary awards to trial participants or patients;
| | - | --------------------------------------------------------------



| | • | product recalls, withdrawals, or labeling, marketing or promotional restrictions;
| | - | ---------------------------------------------------------------------------------



| | • | loss of revenue;
| | - | ----------------



| | • | the inability to commercialize our product candidate; and
| | - | ---------------------------------------------------------



| | • | a decline in our share price.
| | - | -----------------------------



- 64 -







Failure to obtain and retain sufficient
product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit
the commercialization of our product candidate. We currently carry product liability insurance covering our clinical trials. Although
we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount
that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance
policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will
have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered
by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. If we are unable to obtain
or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims,
it could prevent or inhibit the development and commercial production and sale of our product candidate, which could adversely
affect our business, financial condition, results of operations and prospects.



We and our third-party contract manufacturers and suppliers
must comply with environmental, health and safety laws and regulations, and failure to comply with these laws and regulations could
expose us to significant costs or liabilities.



We and our third-party manufacturers and
suppliers are subject to numerous and increasingly stringent environmental, health and safety laws and regulations, including those
governing laboratory procedures and the use, generation, manufacture, distribution, storage, handling, treatment, remediation and
disposal of hazardous materials and wastes. Hazardous chemicals, including flammable and biological materials, are involved in
certain aspects of our business, and we cannot eliminate the risk of injury or contamination from the use, generation, manufacture,
distribution, storage, handling, treatment or disposal of hazardous materials and wastes. In the event of contamination or injury,
or failure to comply with environmental, health and safety laws and regulations, we could be held liable for any resulting damages
and any such liability could exceed our assets and resources. We could also incur significant costs associated with civil or criminal
fines and penalties for failure to comply with such laws and regulations. If our third-party manufacturers and suppliers fail to
operate in compliance with applicable environmental, health and safety laws and regulations or properly dispose of wastes associated
with our product candidate, we could be held liable for any resulting damages, suffer reputational harm or experience a disruption
in the manufacture and supply of our product candidate.



Risks Related to Our Common Shares



If we are a passive foreign investment company, or PFIC,
for United States federal income tax purposes in any year, certain adverse tax rules could apply to U.S. Holders of our common
shares.



Based on estimates of the composition of
our income and the value of our assets, we believe that we may be a PFIC for United States federal income tax purposes for our
current taxable year.



We will be classified as a PFIC for any
taxable year for United States federal income tax purposes if either (i) 75% or more of our gross income in that taxable year is
passive income or (ii) the average percentage of our assets by value in that taxable year which produce or are held for the production
of passive income (which includes cash) is at least 50%.



PFIC status is determined annually and depends
upon the composition of a company’s income and assets and the market value of its stock from time to time. Therefore, there
can be no assurance as to our PFIC status for future taxable years. The value of our assets will be based, in part, on the then
market value of our common shares, which is subject to change.



If we are a PFIC for any taxable year during
which a U.S. Holder (as defined below) holds common shares, such U.S. Holders could be subject to adverse United States federal
income tax consequences (whether or not we continue to be a PFIC). For example, U.S. Holders may become subject to increased tax
liabilities under United States federal income tax laws and regulations, and will become subject to burdensome reporting requirements.
If we are a PFIC during which a U.S. Holder holds common shares, such U.S. Holder may be able to make a “mark-to-market”
election or a “qualified electing fund” election that could mitigate the adverse United States federal income tax consequences
that would otherwise apply to such U.S. Holder. We will provide the information necessary for a U.S. Holder to make the qualified
election; however, no assurance can be given that such information will be available for any lower-tier PFIC that we do not control.



The term “U.S. Holder” means
a holder of a common share of Cynapsus that is for United States federal income tax purposes:



| | • | an individual citizen or resident of the United States;
| | - | -------------------------------------------------------



| | • | a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or the District of Columbia;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 65 -







| | • | an estate the income of which is subject to United States federal income taxation regardless of its source; or
| | - | --------------------------------------------------------------------------------------------------------------



| | • | a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons
have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United
States Treasury regulations to be treated as a United States person.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



U.S. Holders are urged to consult their
own tax advisers as to whether we may be treated as a PFIC and the tax consequences thereof.



We are eligible to be treated as an “emerging growth
company,” as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make our common shares less attractive to investors.



We are an “emerging growth company,”
as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from
various reporting requirements that are applicable to other public companies that are not emerging growth companies, including,
but not limited to, (1) not being required to comply with the auditor attestation requirements of Section 404 of the United States
Sarbanes-Oxley Act of 2002, (2) reduced disclosure obligations regarding executive compensation in our periodic reports, and (3)
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any
golden parachute payments not previously approved.



We could be an emerging growth company for
up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common
shares held by non-affiliates exceeds US$700 million as of any June 30 before that time or if we have total annual gross revenue
of US$1.0 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company
as of the following December 31 or, if we issue more than US$1.0 billion in non-convertible debt during any three-year period before
that time, we would cease to be an emerging growth company immediately. We cannot predict if investors will find our common shares
less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result,
there may be a less active trading market for our common shares and our share price may be more volatile.



There is no assurance that an active trading market in
our common shares will be sustained. We do not know what the market price of our common shares will be and, as a result, it may
be difficult for you to sell your common shares.



Our common shares are listed on the Toronto
Stock Exchange, or TSX, in Canada and the NASDAQ Global Market, or NASDAQ, in the United States. If a robust market for our common
shares is not sustained, it may be more difficult for you to sell your common shares at an attractive price. Further, an inactive
market in either Canada or the United States may also impair our ability to raise capital by selling common shares and may impair
our ability to enter into strategic partnerships or acquire companies or products by using our common shares as consideration.
We cannot predict the prices at which our common shares will trade. It is possible that in one or more future periods our results
of operations may be below the expectations of public market analysts and investors and, as a result of these and other factors,
the price of our common shares may fall.



- 66 -







The market price of our common shares may be highly volatile,
which could cause our investors to incur substantial losses.



The market price of our common shares could
be subject to wide fluctuations in response to many risk factors listed in this “Risk Factors” section, and others
beyond our control, including, but not limited to:



| | • | results and timing of clinical trials of our product candidate, APL-130277;
| | - | ---------------------------------------------------------------------------



| | • | results of clinical trials of our competitors’ products;
| | - | --------------------------------------------------------



| | • | failure to adequately protect our intellectual property or proprietary technology;
| | - | ----------------------------------------------------------------------------------



| | • | pending or threatened litigation involving our intellectual property or proprietary technology or us infringing upon a third-party’s
intellectual property or proprietary technology;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our inability to raise additional capital, or if we are able to raise capital, the terms on which we raise it;
| | - | --------------------------------------------------------------------------------------------------------------



| | • | commencement or termination of any licensing or other partnering arrangement;
| | - | -----------------------------------------------------------------------------



| | • | regulatory actions with respect to our product candidate or our competitors’ products;
| | - | --------------------------------------------------------------------------------------



| | • | actual or anticipated fluctuations in our financial condition and operating results;
| | - | ------------------------------------------------------------------------------------



| | • | publication of research reports by securities analysts about us or our competitors or our industry;
| | - | ---------------------------------------------------------------------------------------------------



| | • | our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may
give to the market;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | • | additions and departures of key personnel;
| | - | ------------------------------------------



| | • | strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments
or changes in business strategy;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the passage of legislation or other regulatory developments affecting us or our industry;
| | - | -----------------------------------------------------------------------------------------



| | • | fluctuations in the valuation of companies perceived by investors to be comparable to us;
| | - | -----------------------------------------------------------------------------------------



| | • | sales of our common shares by us, our insiders or our other shareholders;
| | - | -------------------------------------------------------------------------



| | • | speculation in the press or investment community about us, our common shares or our industry;
| | - | ---------------------------------------------------------------------------------------------



| | • | announcement or expectation of additional financing efforts;
| | - | ------------------------------------------------------------



| | • | changes in accounting principles;
| | - | ---------------------------------



| | • | terrorist acts, acts of war or periods of widespread civil unrest;
| | - | ------------------------------------------------------------------



| | • | natural disasters and other calamities;
| | - | ---------------------------------------



| | • | changes in market conditions for biotechnology and pharmaceutical stocks; and
| | - | -----------------------------------------------------------------------------



| | • | changes in general market and economic conditions.
| | - | --------------------------------------------------



In addition, the stock market has recently
experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company
stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating
performance of the companies represented by the stock. As a result of this volatility, the price of our common shares may decline
even if our operating results, underlying asset values or prospects have not changed. As we operate in a single industry, we are
especially vulnerable to these factors to the extent that they affect our industry or our products, or to a lesser extent our markets.
Continued listing of our common shares on the NASDAQ in addition to the TSX may increase share price volatility on the TSX and
also result in volatility of the trading price on the NASDAQ because trading will be split between the two markets, resulting in
less liquidity on both exchanges. In addition, different liquidity levels, volume of trading, currencies and market conditions
on the two exchanges may result in different prevailing trading prices. In the past, securities class action litigation has often
been initiated against companies following periods of volatility in their share price. This type of litigation could result in
substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments
to satisfy judgments or to settle litigation.



- 67 -







We do not expect to pay any cash dividends for the foreseeable
future.



You should not rely on an investment in
our common shares to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common
shares in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. In addition, any
future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid
on our common shares. Accordingly, investors must rely on sales of their common shares after price appreciation, which may never
occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase
our common shares.



If securities or industry analysts do not publish research,
or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.



The trading market for our common shares
will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one
or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business,
our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price
would likely decline. If one or more of these analysts cease coverage of us and/or our common shares, or fail to publish reports
on us and/or our common shares regularly, demand for our common shares could decrease, which might cause our share price and trading
volume to decline.



As we are a Canadian company, it may be difficult for
United States shareholders to effect service on us or to realize on judgments obtained in the United States.



We are incorporated under the federal laws
of Canada, most of our directors and officers are residents of Canada, and most or all of our assets and the assets of such persons
are located outside the United States. Consequently, it may be difficult for United States investors to effect service of process
within the United States upon us or upon such persons who are not residents of the United States, or to realize in the United States
upon judgments of United States courts predicated upon civil liabilities under United States securities laws. A judgment of a United
States court predicated solely upon such civil liabilities may be enforceable in Canada by a Canadian court if the United States
court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. There is substantial
doubt whether an original action could be brought successfully in Canada against any of such persons or us predicated solely upon
such civil liabilities.



As a foreign private issuer, we are subject to different
United States securities laws and rules than a domestic United States issuer, which may limit the information publicly available
to our shareholders.



We are currently a “foreign private
issuer” as defined under U.S. securities laws. As a result, even though we are subject to the informational requirements
of the Exchange Act, as a foreign private issuer, we are currently exempt from certain informational requirements of the Exchange
Act to which domestic U.S. issuers are subject, such as the proxy solicitation rules under Section 14 of the Exchange Act. In order
to be more easily compared to our principal competitors, we voluntarily file annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K, with the SEC, as if we were a U.S. domestic issuer. The insider reporting and short-profit
provisions under Section 16 of the Exchange Act are not applicable to us, so our shareholders may not know on as timely a basis
when our officers, directors and principal shareholders purchase or sell our common shares, as the reporting periods under the
corresponding Canadian insider reporting requirements are longer.



We may lose our foreign private issuer status in the future,
which could result in significant additional costs and expenses to us.



In the future, we might potentially lose
our foreign private issuer status. If we are not a foreign private issuer, we would not be eligible to use certain foreign issuer
forms and would be required to file periodic and current reports and registration statements on United States domestic issuer forms
with the SEC. In addition, we may lose the ability to rely upon exemptions from NASDAQ corporate governance requirements that are
available to foreign private issuers. Further, if we engage in capital raising activities after losing our foreign private issuer
status, there is a higher likelihood that investors may require us to file resale registration statements with the SEC as a condition
to any such financing.



- 68 -







ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.



(a) Sales of Unregistered
Securities



Set forth below are certain sales of our
securities sold by us during the quarter ended March 31, 2016, which were not registered under the United States Securities Act
of 1933, as amended, or the Securities Act.





From January 1, 2016 to March 31, 2016, we issued
an aggregate of 31,233 common shares pursuant to the exercise of warrants, for aggregate cash consideration of $226,195. Such common
shares were issued outside the United States to persons that are not “U.S. persons” (as both such terms are defined
in Regulation S under the Securities Act, or Regulation S) in reliance upon Regulation S.





(b) Use of Proceeds



On June 17, 2015, our registration statement
on Form F-10 (File No. 333-204226) was declared effective by the SEC for our initial public offering in the United States pursuant
to which we sold an aggregate of 5,175,000 common shares (inclusive of 675,000 common shares sold by us pursuant to the full exercise
of an option granted to the underwriters in connection with the offering) at a price to the public of US$14.00 per share for aggregate
gross offering proceeds of approximately $72.5 million. Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as sole
book-running manager for the offering, Nomura Securities International, Inc. acted as a lead manager and Noble Financial Capital
Markets acted as co-manager. On June 23, 2015, we closed the sale of such common shares, resulting in net proceeds to us of approximately
$66.4 million after deducting underwriting discounts and commissions of approximately $5.1 million and other offering expenses
of approximately $1 million. No payments were made by us to directors, officers or persons owning ten percent or more of our
common shares or to their associates, or to our affiliates.









From June 17, 2015 to March 31, 2016, none
of the offering proceeds were used. Instead, we used other cash previously on hand of approximately $25 million and proceeds of
approximately $1.5 million from exercises of warrants and options. As of March 31, 2016, we held all of the net offering proceeds
in cash.



Because we have not yet to date had to use such offering proceeds to advance our business, including Phase 3 clinical
trials and studies and pre-approval commercialization efforts, and as a result of other recent developments, including, without
limitation, our license agreement with MonoSol Rx and the milestone payments due thereunder, our intended use of proceeds from the offering disclosed in future periods may change from the use of proceeds previously
described in our prospectus that forms a part of our registration statement on Form F-10 (File No. 333-204226), as supplemented
and filed with the SEC on June 18, 2015.



Further, we have certain warrants and options
outstanding which, if exercised, may result in additional proceeds to us and could further alter our current estimated intended
use of proceeds from the offering.



(c) Issuer Purchases of Equity Securities



Not
applicable.



- 69 -







| | ITEM 6. | EXHIBITS.
| | ------- | ---------



|Exhibit
Number |  | Description                                                                                                                                                                                                                                         
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                     
|3.1            |  | Certificate and Articles of Amalgamation of Cynapsus, dated as of January 1, 2016 (incorporated by reference to Exhibit 3.1 to Cynapsus’s current report on Form 8-K filed with the SEC on January 4, 2016 (File No. 001-37426))                    
|               |  |                                                                                                                                                                                                                                                     
|10.1           |  | Lease, effective February 1, 2016, by and between Richmond Walnut Business Centre Inc. and Cynapsus (incorporated by reference to Exhibit 10.1 to Cynapsus’s current report on Form 8-K filed with the SEC on February 3, 2016 (File No. 001-37426))
|               |  |                                                                                                                                                                                                                                                     
|10.2#          |  | License Agreement dated April 1, 2016 by and between MonoSol Rx and Cynapsus (incorporated by reference to Exhibit 10.1 to Cynapsus’s current report on Form 8-K filed with the SEC on April 6, 2016 (File No. 001-37426))                          
|               |  |                                                                                                                                                                                                                                                     
|31.1*          |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                       
|               |  |                                                                                                                                                                                                                                                     
|31.2*          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                       
|               |  |                                                                                                                                                                                                                                                     
|32.1**         |  | Certifications of Chief Executive Officer and 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 herewith.                                                                                                                                                                          
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ** | Furnished herewith.                                                                                                                                                                      
| | #  | Confidential portions of the exhibit have been redacted and filed separately with the SEC pursuant to a confidential treatment
request in accordance with Rule 24b-2 of the Exchange Act.



- 70 -







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.



|                   | CYNAPSUS THERAPEUTICS INC. |                                                    
|------------------ | -------------------------- | ---------------------------------------------------
|                   |                            |                                                    
|Date: May 11, 2016 | By:                        | /s/ Andrew Williams                                
|                   |                            | Andrew Williams                                    
|                   |                            | Chief Operating Officer and Chief Financial Officer
|                   |                            | (principal financial and accounting officer)       



- 71 -







EXHIBIT INDEX



|Exhibit
Number |  | Description                                                                                                                                                                                                                                         
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                     
|3.1            |  | Certificate and Articles of Amalgamation of Cynapsus, dated as of January 1, 2016 (incorporated by reference to Exhibit 3.1 to Cynapsus’s current report on Form 8-K filed with the SEC on January 4, 2016 (File No. 001-37426))                    
|               |  |                                                                                                                                                                                                                                                     
|10.1           |  | Lease, effective February 1, 2016, by and between Richmond Walnut Business Centre Inc. and Cynapsus (incorporated by reference to Exhibit 10.1 to Cynapsus’s current report on Form 8-K filed with the SEC on February 3, 2016 (File No. 001-37426))
|               |  |                                                                                                                                                                                                                                                     
|10.2#          |  | License Agreement dated April 1, 2016 by and between MonoSol Rx and Cynapsus (incorporated by reference to Exhibit 10.1 to Cynapsus’s current report on Form 8-K filed with the SEC on April 6, 2016 (File No. 001-37426))                          
|               |  |                                                                                                                                                                                                                                                     
|31.1*          |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                       
|               |  |                                                                                                                                                                                                                                                     
|31.2*          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                       
|               |  |                                                                                                                                                                                                                                                     
|32.1**         |  | Certifications of Chief Executive Officer and 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 herewith.                                                                                                                                                                          
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ** | Furnished herewith.                                                                                                                                                                      
| | #  | Confidential portions of the exhibit have been redacted and filed separately with the SEC pursuant to a confidential treatment
request in accordance with Rule 24b-2 of the Exchange Act.



- 72 -