UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



FORM 10-K



(Mark One)

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



For the fiscal year ended December 31, 2015



| |  ̈ | 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 jurisdiction
    of incorporation or organization)                  | 98-1226819(I.R.S. Employer
    Identification 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)



Securities registered
pursuant to Section 12(b) of the Act:



|Title of each
    class:    | Name of each exchange
    on which registered:
|--------------------------- | ----------------------------------------------
|Common shares, no par value | The NASDAQ Stock Market
    LLC               



Securities registered pursuant to Section
12(g) of the Act: None



Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ̈ No x



Indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ̈ No x



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 if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. x



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 Act). Yes  ̈ No x



The aggregate market value of the common
shares held by non-affiliates of the registrant computed by reference to the price at which the common shares were last sold on
the NASDAQ Global Market, as of June 30, 2015, was approximately US$165,350,146.



As of March 8, 2016, there were
12,300,566 common shares, no par value per share, of Cynapsus Therapeutics Inc. outstanding.











CYNAPSUS THERAPEUTICS
INC.



FORM 10-K

TABLE OF CONTENTS





|                                                  | Page                                                                                                        
|------------------------------------------------- | ------------------------------------------------------------------------------------------------------------
|                                                  |                                                                                                             
|General Matters                                   | ii                                                                                                          
|Special Note Regarding Forward-Looking Statements | iii                                                                                                         
|Exchange Rate Information                         | v                                                                                                           
|                                                  |                                                                                                             
|PART I                                           
|                                                  |                                                                                                             
|Item 1.                                           | Business                                                                                                    
|Item 1A.                                          | Risk Factors                                                                                                
|Item 1B.                                          | Unresolved Staff Comments                                                                                   
|Item 2.                                           | Properties                                                                                                  
|Item 3.                                           | Legal Proceedings                                                                                           
|Item 4.                                           | Mine Safety Disclosures                                                                                     
|                                                  |                                                                                                             
|PART II                                          
|                                                  |                                                                                                             
|Item 5.                                           | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|Item 6.                                           | Selected Financial Data                                                                                     
|Item 7.                                           | Management’s Discussion and Analysis of Financial Condition  and Results of Operations                      
|Item 7A.                                          | Quantitative and Qualitative Disclosures About Market Risk                                                  
|Item 8.                                           | Financial Statements and Supplementary Data                                                                 
|Item 9.                                           | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        
|Item 9A.                                          | Controls and Procedures                                                                                     
|Item 9B.                                          | Other Information                                                                                           
|                                                  |                                                                                                             
|PART III                                         
|                                                  |                                                                                                             
|Item 10.                                          | Directors, Executive Officers and Corporate Governance                                                      
|Item 11.                                          | Executive Compensation                                                                                      
|Item 12.                                          | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters              
|Item 13.                                          | Certain Relationships and Related Transactions, and Director Independence                                   
|Item 14.                                          | Principal Accounting Fees and Services                                                                      
|                                                  |                                                                                                             
|PART IV                                          
|                                                  |                                                                                                             
|Item 15.                                          | Exhibits, Financial Statement Schedules                                                                     
|                                                  |                                                                                                             
|Signatures                                        | 122                                                                                                         
|Exhibit Index                                     | 124                                                                                                         





- i -







GENERAL
MATTERS



In this Annual Report on Form 10-K, 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. 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 Annual
Report on Form 10-K gives effect to such share consolidation.



Unless otherwise indicated, financial information
in this Annual Report on Form 10-K has been prepared in accordance with International Financial Reporting Standards, or IFRS, as
issued by the International Accounting Standards Board, or IASB. Unless otherwise noted herein, all references to “$,”
“Cdn$,” “Canadian dollars,” or “dollars” are to the currency of Canada and “US$,”
“United States dollars,” or “U.S. dollars” are to the currency of the United States.



- ii -







Special
Note Regarding Forward-Looking Statements



Some of the statements contained in this
Annual Report on Form 10-K 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 our intellectual property;
| | - | --------------------------------------------------------------



| | • | our expectations regarding future capital needs and funding requirements 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;
| | - | ------------------------------------------------------------------------------------------



- iii -







| | • | 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;
| | - | ----------------------------------------------------------------



| | • | 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 -







EXCHANGE RATE INFORMATION



The following table sets forth, for each
period indicated, the highest exchange rates, lowest exchange rates, average exchange rates (based on the average of the exchange
rates on the last day of each month in such periods), and the exchange rates at the end of each period, for Canadian dollars expressed
in terms of one U.S. dollar, based upon the noon rate of exchange as published by the Bank of Canada. The exchange rates set forth
below demonstrate trends in exchange rates, but the actual exchange rates used throughout this Annual Report on Form 10-K may vary.



|(in Canadian dollars)          |  | Year Ended December 31, |      
|------------------------------ |  | ----------------------- | -----
|                               |  | 2015                    |      
|Highest rate during the period |  |                         | 1.399
|Lowest rate during the period  |  |                         | 1.173
|Average rate during the period |  |                         | 1.279
|Rate at end of the period      |  |                         | 1.384



As of March 8, 2016, the noon rate of exchange
published by the Bank of Canada was US$1.00 = Cdn$1.3389.



- v -







PART I



ITEM 1. BUSINESS.



We are a specialty central nervous system,
or CNS, pharmaceutical company 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 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.



PD is the second most common neurodegenerative
disease worldwide. Over one million people in the United States and between four and six million people worldwide suffer from PD.
There is no known cure or disease-modifying treatment currently available for PD. Current medications and treatments only control
the major symptoms of the disease, with most drugs becoming less effective over time as the disease progresses. PD results from
the death of cells that produce dopamine, a neurotransmitter critical for movement. Current drugs and therapies either aim to supplement
dopamine levels in the brain, mimic the effect of dopamine in the brain by stimulating dopamine receptors, referred to as dopamine
agonists, or prevent the enzymatic breakdown of dopamine, prolonging its effect. The standard of care for the treatment of symptoms
of PD remains oral levodopa, a drug approved nearly 50 years ago. While oral levodopa is efficacious, there are significant challenges
for physicians in creating a dosing regimen of oral levodopa that consistently maintains levodopa levels within a patient’s
therapeutic range. Over time, the response to levodopa becomes less reliable and less predictable. As a result, the majority of
PD patients experience OFF episodes despite taking PD medications.



OFF episodes are thought to occur when brain
dopamine levels fall below a critical threshold to sustain relatively normal motor function, or ON. It can be a period of time
when a patient’s PD medication is not working adequately to alleviate the patient’s PD symptoms, when the medication
has a delayed effect or does not work at all. When experiencing an OFF episode, a PD patient is unable to perform simple daily
tasks such as eating, bathing and dressing, thus becoming increasingly dependent on caregivers. OFF episodes are considered one
of the greatest unmet medical needs facing PD patients. We believe the current addressable market for our product candidate, APL-130277,
in the United States alone is approximately 400,000 patients.



- 1 -







There are four main types of OFF episodes;
however, all are the result of insufficient dopamine in the brain. Regardless of OFF type, it has been demonstrated that on average
more than two-thirds of a patient’s OFF time is actually spent waiting to turn ON after having taken levodopa. Current treatment
options, other than apomorphine, consist of increasing the frequency of levodopa dosing or adding adjunctive PD medication, but
these approaches do not address most of the OFF time (waiting to turn ON) and only can alleviate some of the end of dose wearing
OFF. Apomorphine is currently the only approved acute, intermittent treatment to turn patients ON and provide rapid relief from
OFF episodes (Apokyn® in the United States and ApoGo®, ApokinON® or Apomin® outside the United States). Apomorphine
is the most potent and fast-acting of all the dopamine agonists, which are used to stimulate dopamine receptors in place of naturally
released dopamine, with similar efficacy to levodopa. No other dopamine agonist is potent enough to turn a levodopa-requiring patient
from the OFF state to the ON state in which normal motor function is restored. Apomorphine is currently only available in the United
States as a subcutaneous injection. Injectable apomorphine is painful to use, and administration is complex and inconvenient, requiring
in excess of 15 steps. It is difficult for a PD patient to use injectable apomorphine while they are in the OFF state, and often
requires administration by a caregiver. The injection may also cause scarring (nodules), irritation and injection site reactions.
As a result, despite its highly efficacious profile, the adoption of injectable apomorphine has been limited.



APL-130277 is a “turning ON medication”
designed to quickly and easily address all types of OFF episodes in PD patients, including morning OFF episodes, regardless of
the stage of disease. APL-130277 is apomorphine administered orally as a sublingual thin film that the patient inserts under his
or her tongue. It is designed to dissolve over the course of a few minutes, allowing apomorphine to rapidly enter the blood stream.
We have studied APL-130277 in approximately 140 healthy volunteers and patients in six clinical studies. The results from our Phase
2 clinical trial in PD patients met both the primary and secondary endpoints demonstrating a clinically meaningful improvement
in motor function as early as 10 minutes and converting patients to full ON in as quickly as 15 minutes, with a durable effect
lasting through 90 minutes. The study also demonstrated that APL-130277 treatment was safe and well-tolerated and has a safety
profile comparable to all other dopamine agonists and levodopa. The sublingual delivery avoids the injection-related adverse events,
or AEs, and the difficulty of use associated with the approved reference product, Apokyn. Our Phase 3 program is also designed
to allow for a more favorable prescribing label compared to Apokyn’s. The suitability of the sublingual thin film form to
deliver an active pharmaceutical ingredient, or API, to overcome challenges associated with sub-optimum delivery systems (including
painful subcutaneous injections) has been well established with a number of thin film pharmaceutical products already commercialized
in the United States. APL-130277 is designed to be easily administered and useable anywhere, anytime, generally with little or
no assistance required, and is designed to make apomorphine accessible to all PD patients suffering from OFF episodes.



We retain global commercialization rights
to APL-130277. In the United States, we expect to build sales and marketing infrastructure to commercialize APL-130277 ourselves.
We believe that a targeted sales effort of approximately 100 sales representatives will enable us to effectively market APL-130277
to high-prescribing general neurologists and approximately 1,200 movement disorder specialists in the United States. We believe
a sales force of this size can reach these physicians to provide for a robust commercial adoption of APL-130277. In addition, we
intend to invest in education of both doctors and patients to foster widespread adoption of APL-130277.



If APL-130277 is approved by the FDA, we
anticipate broad coverage at a reasonable price by third-party payors. For the main third-party payor channels (i.e., commercial
health insurers and Medicare), we expect a mix of specialty tier coverage, preferred and non-preferred coverage, depending on the
price level of APL-130277. At this time, we do not anticipate any significant utilization restrictions being imposed by third-party
payors in the U.S. beyond ensuring appropriate use of APL-130277 according to the prescribing label. As certain patients could
potentially be exposed to higher co-payments, we are currently exploring possible strategies to reduce the patient out-of-pocket
cost of APL-130277.



Outside the United States, we may choose
to partner with companies that have the necessary expertise to develop and commercialize APL-130277.



- 2 -







We have a substantial patent portfolio,
including issued and pending patent applications in the United States and certain other jurisdictions that cover APL-130277 and
its use in the treatment of PD. We also rely on significant know-how for the creation of an optimal and functional sublingual apomorphine
strip system that combines key mechanical, chemical reaction and pharmacokinetic, or PK, attributes.



Our Vision and Strategy



Our vision is to build a specialty CNS pharmaceutical
company focused on identifying, developing and commercializing therapeutics for CNS diseases, with a current focus on PD.



Key elements of our strategy to achieve
our vision include:



| | • | Obtain regulatory approval for APL-130277. We are pursuing the development and approval of APL-130277 under Section 505(b)(2)
of the FDCA, which allows for an abbreviated approval path with the FDA by relying on the prior approval of Apokyn, which uses
the same API (apomorphine) as APL-130277. Apokyn is the only medication approved by the FDA to rapidly treat OFF episodes. We will
conduct two pivotal Phase 3 clinical trials (an efficacy trial of 12 weeks and an open label safety trial of six months),
and a healthy volunteer bioavailability study comparing a dose of APL-130277 to a dose of apomorphine through a subcutaneous injection.
We initiated our pivotal efficacy study in the second quarter of 2015 and our safety study in the third quarter of 2015. A healthy
human volunteer study was completed in December 2015. We also plan to complete a thorough QT study, if required. If successful,
we intend to file for regulatory approval in the United States near the end of 2016 or in early 2017.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Build the organizational infrastructure to commercialize APL-130277 in the United States. We intend to continue
                                                                      investing in the education of doctors, patients and payors to increase awareness and understanding of the recognition and
                                                                      treatment of OFF episodes, which we believe  may foster significant adoption of APL-130277 upon launch. We plan to
                                                                      commercialize                                                                       APL-130277 initially with approximately
                                                                      100 specialty sales representatives who will promote APL-130277 to high-prescribing
                                                                      general neurologists and approximately 1,200 movement disorder specialists in the United States. We believe a sales force of
                                                                      this size can reach these physicians to provide for a robust commercial adoption of APL-130277. In addition, we are focused
                                                                      on patient advocacy and currently have an established business relationship with The Michael J. Fox Foundation for
                                                                      Parkinson’s Research, or MJFF.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Maximize the value of APL-130277 outside the United States, which could include enlisting partners to help us develop and
commercialize our product candidate. With three to five million PD patients outside the United States, we believe the opportunity
outside the United States for APL-130277 for all PD patients is substantial and we may choose to pursue this opportunity through
partnerships and collaborations with third-parties. We are currently undertaking the necessary steps to secure European regulatory
approval by completing the required clinical studies. Based on advice from European regulators and European experts, we are planning
to run an active comparator study in approximately 100 PD patients who suffer the debilitating effects of OFF episodes. This study
is expected to start in the second half of 2016. The data from this study will be submitted to European regulatory authorities,
in addition to the information submitted in the U.S. NDA.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 3 -







| | • | Optimize and expand manufacturing capabilities. We have outsourced clinical and commercial-scale manufacturing
to ensure that we have flexible large-scale capabilities without a significant investment in infrastructure. APL-130277 is currently
manufactured in the United States by ARx LLC, or ARx, a subsidiary of Adhesives Research in Glenrock, Pennsylvania. ARx is a leader
in thin film formulation development and manufacturing and is a pioneer of this type of dosage form for delivery of APIs. ARx has
the ability and resources to manufacture thin films at commercial scale. We are also qualifying a European-based supplier to manufacture
commercial quantities of thin films as an additional manufacturing partner in both the United States and Europe. We believe that
the current manufacturing capabilities of our partners are sufficient to support the commercial launch of our product candidate.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Leverage our expertise to identify additional opportunities for APL-130277 and other product opportunities. We are evaluating
additional opportunities within the CNS field, including disease modification of PD; Alzheimer’s symptom and disease modification;
and certain other indications.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Background



PDOverview



PD is a chronic, progressive neurodegenerative
disease that results from the death of certain neurons in an area of the brain called the substantia nigra that controls movement.
These neurons are responsible for producing dopamine, an essential brain signaling chemical, or neurotransmitter, that enables
smooth, coordinated movements of both voluntary and involuntary muscles throughout the body. The lack of dopamine in patients with
PD renders them unable to regulate motor control, producing characteristic symptoms including tremor at rest, rigidity (stiffness),
slowness of movement (bradykinesia) and impaired balance and walking, as well as significant non-motor disturbances, including
mood disorders, sleep impairment, fatigue, bowel and bladder dysfunction and dementia. By the time of PD diagnosis, approximately
60% to 80% of the dopamine producing cells have died. The onset of symptoms and speed of progression of disease differs for each
patient afflicted with the disease. Initially, a patient may have little motor impairment; however, as the disease progresses,
motor function and the severity of PD symptoms gradually worsens until a patient is no longer able to perform normal daily tasks
such as eating, bathing and dressing.



The effects of PD have a devastating impact
on the lives of patients and their families, impairing the ability of patients to work or care for themselves, leading to an increased
reliance on caregivers and long-term care in their homes or in specialized facilities. More than one million people in the United
States and an estimated four million to six million people globally suffer from PD with prevalence increasing with the aging of
the population. The debilitating effects of PD result in a significant economic burden for patients, caregivers and the healthcare
system in general.



Current PD Treatment Approaches and Inherent Limitations



There is no cure or disease-modifying treatment
currently available for PD. Current treatment strategies are focused on the management and reduction of the major symptoms of the
disease and related disabilities, with treatment becoming less effective over time as the disease progresses. The standard of care
regimen for the symptomatic treatment of PD is levodopa, which was the first drug approved specifically for PD nearly 50 years
ago. Levodopa is mostly administered orally in combination with a peripheral dopamine decarboxylase inhibitor, usually carbidopa,
in order to increase the amount of levodopa that enters the brain, and to decrease the frequency of dopamine-related side effects
(namely, nausea, dizziness and orthostatic hypotension). Levodopa improves motor function as long as it produces dopamine levels
in the brain that remain within an individual’s therapeutic range. Carbidopa/levodopa is initially given three times a day,
but its frequency of administration increases as the disease progresses. Carbidopa/levodopa must be started at the lowest dose
and titrated slowly with changes on a weekly basis in order to lessen the occurrence of dopamine-related AEs.



- 4 -







Levodopa, however, has several limitations
relating to its half-life, oral delivery and the motor dysfunction in PD patients:



| | • | Levodopa has a short half-life, which decreases as the disease progresses, resulting in the need for higher and more frequent
dosing;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | • | Levodopa must be actively absorbed, or transported, through the gastrointestinal tract into the bloodstream. The ability of
levodopa to reach its specific absorption site is dependent on its ability to move reliably through the gastrointestinal tract.
PD patients have slowed gastric motility and erratic emptying resulting in fluctuating and unpredictable levels of levodopa in
the bloodstream; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Gastrointestinal transport is also frequently slowed by meals, decreasing the amount of levodopa that can be absorbed when
it is given orally near mealtime. Additionally, in the specific portion of the gastrointestinal tract where this transport occurs,
levodopa competes with food (specifically amino acids in food) for active transport.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of these challenges, patients
are unable to predictably and reliably count on existing medications or therapies to keep themselves in their therapeutic range
and to treat their PD symptoms. Despite efforts by physicians to continually optimize and individualize patients’ regimens,
the unreliability of oral levodopa results in episodes of unexpected and often rapid return of PD symptoms. The re-emergence of
PD symptoms is referred to as an OFF episode. OFF episodes are thought to occur when brain dopamine levels fall below a critical
threshold to sustain relatively normal motor function, or ON. It can be a period of time when a patient’s PD medication is
not working adequately to alleviate the patient’s PD symptoms, when the medication has a delayed effect, or does not work
at all. On the other hand, excessive levels of dopamine in the brain can cause dyskinesias, or extra, involuntary movements. As
the graphic below depicts, as the
disease progresses, a PD patient’s therapeutic window narrows and levodopa becomes less effective resulting in increased
severity and duration of OFF episodes and ON time with dyskinesia.









- 5 -







Narrowing
Therapeutic Window Over Time







OFF episodes can be unpredictable or predictable
and in some cases episodes may be preceded by non-motor symptoms such as pain, tingling, sweating, and anxiety, which can alert
patients that motor-impairing symptoms are returning. OFF episodes are generally categorized into the following four main types,
as shown in the below diagram, which illustrates one patient’s response to levodopa over the course of a day.



Unreliable Clinical Response to Levodopa














Source: Based on data and research by Dr. Fabrizio Stocchi.



- 6 -







| | (1) | Morning OFF Episodes. Morning OFF episodes occur after patients take their last dose of dopaminergic drugs late in the
evening prior to retiring for the night. After a full night of sleep, the patient has little or no dopaminergic drug left in the
brain. As a result, the patient is OFF and has only a small reserve of dopaminergic stimulation. This results in a significant
delay in the response to the first morning dose of levodopa or other PD medication, which is also referred to as morning akinesia.
This delayed response is unpredictable, and a PD patient cannot rely on the onset of levodopa in the morning. Impaired gastric
motility and erratic gastric emptying in PD patients generally delay levodopa absorption or cause it to not occur at all. Morning
OFF episodes are considered the most debilitating OFF episodes and the most difficult to treat and to convert to ON.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Delayed ON, Partial ON or Dose Failure.Delayed ON occurs when a patient takes a dose of levodopa, but does not achieve
ON in the usual time frame. To the patient, it appears that the dose has not worked. A partial ON occurs when a patient experiences
some improvement in motor function but not enough to be able to perform their daily activities. A dose failure occurs if the patient
does not experience any response to the dose of levodopa. A delayed ON, partial ON or dose failure may occur for a number of reasons.
Oral delivery of levodopa requires the drug to be actively absorbed through the gastrointestinal tract into the blood stream. The
gut contains dopaminergic neurons that can become depleted of dopamine. When this occurs, the gut fails to function normally, resulting
in delayed, limited or no absorption of the dose. These OFF episodes are also difficult to convert to ON and do not respond to
adjunctive PD medications.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | End of Dose Wearing OFF Episodes. End of dose wearing OFF episodes are the most common type of OFF episodes. With PD
progression, levodopa’s effect decreases in duration. Eventually, levodopa is not fully effective between doses, which causes
a patient to go OFF ahead of the next levodopa dose. These OFF episodes occur in a relatively predictable fashion following each
dose of levodopa.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Unpredictable OFF Episodes. These OFF episodes occur without warning when the patient is in the ON state and at unexpected
times. The goal of levodopa therapy is to maintain a constant blood level of levodopa that is expected to result in a constant
supply of levodopa to the brain and, therefore, a constant level of dopamine and dopaminergic stimulation. However, the brain does
not use dopamine at a constant rate. Changes in activity level or changes in mood such as agitation or anxiety result in an increased
use of dopamine. The brain then depletes the reserves of dopamine, and more time is required to rebuild that dopamine deficit.
As a result, a patient in the ON state can unexpectedly and suddenly turn OFF when their normal PD medications are typically effective.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



OFF episodes can have a tremendous negative
impact on patients’ daily lives. The potential for unexpected loss of motor function or the unpredictable onset of benefit
of one’s PD medications can result in patients’ avoidance of certain social settings and hinder performance of simple
daily tasks such as eating, bathing and dressing. Further, a patient’s varying consumption of dopamine from variable “daily
stresses” as well as the loss of dopaminergic cells, exacerbates the frequency, duration and severity of OFF episodes. As
the disease progresses, patients are often forced to leave the workforce and become increasingly dependent on caregivers. In a
survey by the German Parkinson’s Association, it was found that OFF episodes and specifically, early morning akinesia, or
morning OFF episodes, were the two most significant symptoms suffered by PD patients and the only two symptoms reported as “very
important” by more than half of the patients surveyed. Other studies have shown that all types of OFF episodes have a significant
negative impact on health-related quality of life in PD patients.



- 7 -







Addressing OFF Episodes



The management of OFF episodes and the need
to rapidly and reliably turn patients ON is a significant unmet medical need. The variability associated with oral administration
of levodopa results in nearly all PD patients experiencing OFF episodes, despite being on individually optimized regimens that
are intended to keep patients within their therapeutic range. Patients simply cannot rely on oral levodopa to produce the same
motor improvement at the same time from dose to dose so levodopa is unable to function to rapidly reverse the course of an evolving
OFF episode or to improve or eliminate the symptoms experienced during an OFF episode.



Many attempts have been made to create formulations
of levodopa that can address the unreliability of oral administration and reduce the occurrence of OFF episodes. These approaches,
which include using controlled release formulations, effervescent tablets and chemical modification of levodopa, have been unable
to fully address the challenge of achieving predictable and rapid transport across the gastrointestinal tract. Delivery of levodopa
through the skin, or transdermally, has so far been unsuccessful in part due to poor skin permeability of levodopa thus requiring
large amounts of levodopa to produce therapeutic effect through this route. An additional approach that has been approved in the
United States and European Union for advanced patients who suffer from severe motor fluctuations despite optimized oral treatment
utilizes a continuous administration of levodopa through a tube surgically implanted into the intestine. While this can be effective,
it is very intrusive, requires a surgical procedure and brings with it both short-term and long-term complications related to the
tubing and pump required for administration. Most dopamine agonists, which stimulate the dopamine receptors in place of naturally
released dopamine, are less efficacious than levodopa, and may be limited by side effects related to stimulation of the subset
of dopamine receptors that are more likely to result in impulse control disorders (such as compulsive gambling and compulsive sexual
behavior). Drugs that inhibit the enzymatic breakdown of dopamine, such as catechol-o-methyl-transferase, or COMT, inhibitors,
and monoamine oxidase Type B, or MAO-B, inhibitors are also limited in their effect due to the reduced levels of dopamine in the
brain of the patient. Despite best medical manipulation, patients still suffer six or more hours of OFF time a day, likely representing
multiple daily OFF episodes. Even after invasive, interventional treatments, such as deep brain stimulation or Duodopa/Duopa, patients
still have two to three hours of OFF time daily and still have a need for medications that can convert them quickly to ON to reduce
their OFF episodes. The manipulation of levodopa, as well as the addition of other PD medications only has marginal improvement
on wearing OFF, cannot turn a patient from the OFF state to the ON state and has no effect on morning OFF, delayed ON, dose failure
or sudden OFF. Studies have shown that two-thirds of OFF time is due to waiting to turn ON. Therefore, as these approaches are
limited in efficacy, highly invasive and do not address the majority of OFF (waiting to turn ON), the majority of PD patients experiencing
OFF episodes are still in great need of an easy-to-use and safe solution to rapidly and reliably convert them from the OFF state
to the ON state so they can manage their day-to-day motor fluctuations.



Currently, the only approved on-demand treatment
to rapidly turn a patient ON and relieve OFF episodes is a self-administered, subcutaneous injection of apomorphine, which is sold
in approximately 40 markets worldwide and marketed in the United States under the trade name Apokyn, and outside the United
States as ApoGo, ApokinON or Apomin. Apomorphine is a dopamine agonist that works to mimic the effect of dopamine in the body by
binding to dopamine receptors. Although it is called apomorphine, it is not a narcotic and has no analgesic or addictive properties.
Since the 1960s, apomorphine has been shown to be effective in treating PD symptoms. An injectable form of apomorphine was developed
in the 1990s to treat advanced PD patients suffering from motor fluctuations.



- 8 -







Apomorphine is the most potent of all the
dopamine agonists. Phase 3 data for Apokyn demonstrated a 17 point UPDRS Part III (which is a widely-used scale to evaluate the
efficacy of PD treatments) improvement compared to placebo at 20 minutes for PD patients presenting in a morning OFF state. It
is the fastest acting of all PD medications and the only dopamine agonist that can be used to rapidly turn patients from OFF to
ON. Unlike other dopamine agonists, apomorphine generally acts on dopamine receptors that are less likely to lead to impulse control
disorders. Types and frequency of dopaminergic AEs, such as nausea and orthostatic hypotension, are similar to other dopamine
agonists and levodopa. Apomorphine in the injection form is administered together with an anti-emetic (trimethobenzamide in the
United States and domperidone outside the United States) to decrease the risk of developing nausea. A recent double-blind study
conducted by U.S. WorldMeds, LLC demonstrated that trimethobenzamide is only needed for approximately the first eight weeks of
treatment as patients develop passive adaptation to any potential nausea associated with apomorphine. Apomorphine has been approved
since 2004 and has over 10 years of safety data demonstrating that dopaminergic-related AEs, such as nausea and orthostatic hypotension,
are comparable to every other approved dopamine agonist as well as various levodopa formulations.



However, there are a number of significant
limitations with apomorphine as it is currently delivered. Apomorphine is currently only available as a subcutaneous injection,
which can be very painful. The injection may cause scarring (nodules), irritation and injection site reactions. Furthermore, the
current subcutaneous injection is complex and is inconvenient to administer, requiring in excess of 15 steps, including requiring
patients to manually select their predetermined dosage on the subcutaneous injector. This can be particularly troublesome for a
PD patient who is experiencing an OFF episode and may have limited motor function. Numerous studies have demonstrated that patients
would prefer an oral route of administration compared to an injection.



Since the early 1990s, several groups have
unsuccessfully attempted to reformulate apomorphine to avoid the injection route, including attempts to develop drug products delivered
via nasal, inhaled, sublingual tablet and transdermal routes. Apomorphine cannot be formulated for oral ingestion because swallowing
results in almost complete inaction as a result of liver metabolism.



Our Solution



Our product candidate, APL-130277, is an
easy-to-administer, sublingual thin film formulation of apomorphine. It is a “turning ON” medication designed to rapidly,
safely and reliably convert a patient from the OFF to the ON state and treat all types of OFF episodes, including morning OFF episodes.
Our unique packaging is specifically designed to allow most patients, even while OFF, to open the packaging and self-administer
the thin film. When patients are OFF or begin to experience the onset of an OFF episode, they simply peel open the packaging, remove
the thin film and place it under their tongue, as illustrated in the figure below. The thin film dissolves over the course of a
few minutes, allowing the apomorphine to enter into the blood stream quickly.





- 9 -











The sublingual thin film delivery of apomorphine
avoids the normal gastrointestinal route of delivery used by most PD medications. This route is impaired as a result of the underlying
PD effect on gastric motility. In addition, the oral ingestion of apomorphine is further compromised as 95% to 98% is metabolized
via extensive sulfination in the liver, rendering it completely ineffective at doses required for treating PD. We believe that
the sublingual thin film oral mucosa delivery of apomorphine avoids both of these mitigating barriers.



Further, some data suggests that the oral
mucosal route of delivery for drugs targeting the CNS is more optimal than other routes (such as parenteral), for potentially more
rapid and efficient access to the brain. As a result, we believe that sublingual delivery of apomorphine may reach the brain more
quickly and more efficiently than subcutaneous apomorphine.



We believe APL-130277 has the following
advantages:



| | • | as a “turning ON medication” that has demonstrated a clinically meaningful improvement in motor function as early
as 10 minutes and converted patients to full ON in 15 minutes;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | it has a demonstrated durable effect with improvement in motor function seen 30 to 60 minutes after turning fully ON;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | • | it is designed to address all types of OFF episodes, including morning OFF episodes, at all stages of the disease;
| | - | ------------------------------------------------------------------------------------------------------------------



| | • | it delivers apomorphine, the only approved fast-acting dopamine agonist for the on-demand treatment of OFF episodes for PD
patients;
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | • | as a thin film, it is designed to be easily administered and used anytime and anywhere with little or no assistance;
| | - | --------------------------------------------------------------------------------------------------------------------



| | • | our unique packaging is specifically designed to allow patients, even while OFF, to open the packaging and self-administer
the thin film;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



- 10 -







| | • | our sublingual delivery method provides a plasma concentration profile of apomorphine that reduces the severity and frequency
of dopaminergic AEs seen with injectable delivery of apomorphine, while maintaining efficacy and also avoiding local irritation;
and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | it was demonstrated to be safe and well-tolerated in our trials.
| | - | ----------------------------------------------------------------



According to the National Parkinson’s
Foundation, there are over one million people with PD in the United States and approximately 50,000 to 60,000 new PD patients are
diagnosed annually. The number of PD patients is expected to increase substantially due to the aging of the baby boomer population.



Our target market consists of PD patients
who suffer at least one OFF episode per day. A 2014 paper by A. Rizos, et al. found that approximately 60% of PD patients suffer
morning OFF episodes. We believe that nearly all patients that suffer morning OFF episodes suffer other types of OFF episodes.
However, not all patients that suffer OFF episodes suffer OFF episodes daily. Therefore, we further estimate that two-thirds of
the approximately 600,000 patients that experience OFF episodes suffer at least one OFF episode every day, resulting in an addressable
population of approximately 400,000 patients.



Based on academic research and third-party
surveys conducted on our behalf, we believe that of these 400,000 patients in the United States, approximately 20% are mild (experiencing
one OFF episode per day), approximately 55% are moderate (experiencing two OFF episodes per day), and approximately 25% are advanced
(experiencing three or more OFF episodes per day).



A number of other academic papers and research
cite data that suggests OFF episodes may be significantly more prevalent. A recent MJFF survey of 3,000 patients with PD found
that 90% suffer OFF episodes, 65% suffer at least two hours OFF daily, and 22% experience over four daily hours of OFF time. In
addition, based on academic research conducted by Dorsey (2007), incidence of PD is expected to double by 2030 in Western Europe’s
and the world’s most populous nations.



APL-130277 Preclinical and Clinical Data Overview



We have completed one pre-clinical hamster
cheek pouch irritability study, four PK studies in healthy volunteers, and a Phase 2 study in PD patients. In our Phase 2 study,
APL-130277 provided rapid, clinically meaningful improvement in motor function for PD patients in the OFF state, which was sustained
through 90 minutes (the last point measured). There were robust and clinically meaningful changes in MDS-UPDRS Part III scores.
The most common AEs were mild or moderate and commonly associated with dopaminergic medications. We met with the FDA in an end
of Phase 2 meeting in February 2015, and have received guidance on completing the APL-130277 NDA registration package to be filed
under the Section 505(b)(2) pathway. Based on the FDA’s feedback, we have commenced an efficacy study and a safety study,
and have completed a bioavailability study. We also plan to complete a thorough QT study, if required. We plan to submit an NDA
to the FDA near the end of 2016 or in early 2017, with expected approval in 2017 or early 2018.



CTH-103



CTH-103 was a single-center, Phase 1 study
that evaluated the PK profile, safety and tolerability of two doses of APL-130277 compared to subcutaneous apomorphine in healthy
volunteers. One cohort consisting of 13 volunteers received a single dose of APL-130277 10 mg, followed by a dose of subcutaneous
apomorphine 2 mg the subsequent day. The other cohort consisting of 14 volunteers received a single dose of APL-130277 15 mg
followed by a dose of subcutaneous apomorphine 3 mg on the subsequent day.



- 11 -







The PK results demonstrated that APL-130277
had a comparable PK profile to that of subcutaneous apomorphine. However, APL-130277 demonstrated a more rounded peak, lower maximal
concentration and less steep rise to maximal concentration compared to subcutaneous apomorphine, leading to less dopaminergic AEs.
This was evident as a higher incidence of nausea and vomiting was reported when subjects were given the subcutaneous apomorphine
versus APL-130277. Additionally, there was a higher incidence of related AEs and more severe AEs with subcutaneous apomorphine
compared to APL-130277. The only severe AE, seizure, was seen with subcutaneous apomorphine 3 mg. APL-130277 was demonstrated to
be safe and well-tolerated and no subjects discontinued treatment with APL-130277 due to an AE. The following graph illustrates
mean plasma concentration with subcutaneous versus sublingual apomorphine.



Mean
Plasma Concentration With Subcutaneous Versus Sublingual Apomorphine







CTH-104



CTH-104 was a single-center, Phase 1 study
that evaluated the PK profile, safety and tolerability of a single dose of APL-130277 25 mg in healthy volunteers. Eleven subjects
were dosed with APL-130277 25 mg and two with placebo.



PK results demonstrated dose proportionality
to lower doses and the PK curve remained rounded. The AEs reported were mild to moderate in severity with no serious AEs. Compared
to healthy volunteers, PD patients have impaired dopaminergic function, which will result in a much lower rate of AEs at this
dose compared to healthy volunteers. The following graph illustrates mean apomorphine plasma concentration with APL-130277 25 mg.



- 12 -











CTH-105



In November 2014, we completed the CTH-105
Phase 2 open-label multicenter study in which APL-130277 was assessed in 19 patients with PD who experienced OFF episodes, with
a total duration of at least two hours of OFF episodes daily. All 19 patients in the study were historically responsive to levodopa
and had to have predictable OFF episodes in the morning upon awakening. Patients were not allowed to take their first dose of levodopa
and other PD medications in the morning and presented to the clinic in a morning OFF state, which is one of the most difficult
to convert and maintain in an ON state. Patients confirmed to be in the OFF state were then given escalating doses of APL-130277,
starting at 10 mg and increasing up to 30 mg in 5 mg increments, until a full ON was achieved, as documented by study staff, the
patient and a clinician assessment. Patients could be dosed up to two times a day over three days. The MDS-UPDRS Part III score
was measured pre-dose and at 15, 30, 45, 60 and 90 minutes after APL-130277 administration. The MDS-UPDRS Part III is a widely-used
scale that combines a clinician’s evaluation on a 5-point scale of several motor functions, including movement, speech, tremor,
posture and gait. MDS-UPDRS Part III is commonly used as the primary endpoint in clinical trials evaluating the efficacy of PD
treatments. Those patients who converted from OFF to full ON subsequently received the same dose of APL-130277 to confirm the effect.
All patients were pre-medicated for three days with the anti-emetic trimethobenzamide which was continued for the duration of this
study. The mean age was 61.5 years, the average Hoehn and Yahr score (a commonly used system for describing how PD symptoms
progress) was 2.2 (with a range of 1 to 3), the mean number of daily OFF episodes was 3.9 (with a range of 1 to 7) and the mean
number of classes of PD medications was 3 (with a range of 1 to 5). In addition, the study involved 14 men and 5 women, the mean
daily levodopa dose was 837 mg (with a range of 100 to 1,500) and the mean number of levodopa doses per day was 5.3 (with a range
of 1 to 12).



- 13 -







Efficacy analyses consisted of three populations:
(1) intent to treat, or ITT, population, which included all 19 subjects dosed; (2) per protocol population, which
included the 15 patients with no dosing protocol deviations; and (3) responder population, which included those patients achieving
a full ON response following dosing with APL-130277. The primary efficacy endpoint was the percentage of patients that turned ON
following APL-130277 administration in the intent to treat population. In this population, 15 of 19 patients dosed achieved a clinically
meaningful, full ON following APL-130277 administration. Two of the patients who did not turn ON following APL-130277 administration
were dosed incorrectly (they were mistakenly told to swallow the strip immediately instead of allowing it to dissolve sublingually
which results in first pass metabolism in minimal or no apomorphine being absorbed into the bloodstream), while the other two were
dosed up to the maximum dose of 30 mg, suggesting a higher apomorphine dose may have been needed for such patients. All 15 of the
patients that turned ON did so within 30 minutes of dosing, six of whom turned ON within 15 minutes. The mean time to full ON as
reported by study staff was 24 minutes. Thirteen of the 15 patients that turned ON remained ON for at least 30 minutes, nine of
whom remained ON for at least 60 minutes, with a mean ON of over 50 minutes. All five doses of APL-130277 used in the study (10,
15, 20, 25 and 30 mg) converted patients from the OFF state to a full ON state. Over half of the patients needed the lowest two
doses (10 and 15 mg), while 80% used 20 mg or less. The mean dose required to convert patients to ON was 18.4 mg.



The secondary efficacy endpoint was the
mean change in MDS-UPDRS Part III from pre-dose to 15, 30, 45, 60 and 90 minutes after dosing. The mean baseline MDS-UPDRS Part
III in an OFF state was 41.4. All analysis populations demonstrated a large, clinically meaningful change in MDS-UPDRS Part III
at all time points studied with a maximum mean change at any time-point of 18.9 points for the intent to treat population and 20.5
points for the responder population.



The graph below shows the mean change from
baseline in MDS-UPDRS Part III and demonstrates a large robust statistically significant, clinically-meaningful change in MDS-UPDRS
Part III at all time points studied.



- 14 -







Mean Change in MDS-UPDRS Part III From
Pre-dose Over Study Period







Additionally, the percentage change in MDS-UPDRS
Part III was approximately 30% or greater at all time points measured, with a maximum percentage change at any time point of -45.6%
for the intent to treat population and -51.4% for the responder population. Mean percentage change of approximately 30% is generally
considered a clinically meaningful level at which point patients turn ON. The onset of a clinically meaningful improvement in motor
function was seen in as early as 10 minutes and lasted through 90 minutes, the last time point measured in this study.



- 15 -







The graph below shows the percentage change
from baseline in MDS-UPDRS Part III for three analysis sets.



Percentage change in MDS-UPDRS Part III
score







In the CTH-105 study, a total of 77 doses
of APL-130277 were administered to the 19 patients who completed dosing. Treatment with APL-130277 was safe and well-tolerated
by all of the patients in the study. Nausea was reported by four patients at doses ranging from 10 to 20 mg. One of these patients
also experienced a mild episode of vomiting. There were no reports of nausea at higher doses by any of the patients in the study.
There were no reports of local irritation, and only one patient experienced symptomatic orthostatic hypotension in the study. There
were no related serious AEs, and no subjects discontinued due to an AE. The table below outlines the most common AEs in incidence
(experienced by more than one patient) in the CTH-105 study, including AEs related specifically to the drug.



- 16 -











CTH-200



CTH-200 was a single-dose, crossover comparative
bioavailability and PK study in healthy volunteers. This study was designed to allow us to use the safety and efficacy data for
Apokyn in our NDA submission to the FDA, as well as a submission to European regulatory authorities. This short study compared
a single dose of APL-130277 to a single dose of the subcutaneous apomorphine product, ApoGo. ApoGo is the European approved bioequivalent
of the FDA approved product Apokyn. Results of this study are expected to be submitted to the FDA as part of an NDA submission,
as well as to European regulatory authorities as part of a European submission. This short study was completed during the fourth
quarter of 2015.



Preclinical Data



We conducted a cheek pouch irritation study
in hamsters. Sixteen hamsters in each group were either treated three times a day for 28 days with placebo or APL-130277 2.08 mg
(equivalent to the dose of a 30 mg strip in a human). The right and left cheek pouches were scored for irritation prior to the
first dose and on study days 1, 2, 3, 4, 8, 14, 21 and prior to necropsy on day 29 according to the Draize scoring system (an acute
toxicity test devised by the FDA). Assessment of the hamster cheek pouch revealed no signs of irritation over the 28 days of dosing
either with APL-130277 treatment or placebo. On necropsy, there were no macroscopic or microscopic findings in either group.



APL-130277 Clinical and Regulatory Plan



On February 4, 2015, we held our end
of Phase 2 meeting with the FDA. We will follow Section 505(b)(2) of the FDCA for the development of APL-130277 in the United States.
The drug substance (apomorphine) in APL-130277 is identical to the API in the FDA approved subcutaneous injection, Apokyn, and
APL-130277 is designed for similar usage.



- 17 -







The Section 505(b)(2) regulatory pathway
will require us to provide statistically significant clinical evidence that PD patients experience improvement in their motor
function as a result of delivery of apomorphine via the sublingual thin film route. Based on the end of Phase 2 meeting with the
FDA, we anticipate that our label may have a broader indication to include all PD patients with OFF episodes and have a less rigorous
titration scheme. This would be based on the CTH-301 protocol having a built-in adaptive component potentially allowing the open
label titration procedure to be modified to an at-home titration as is done with other dopamine agonists. This change could be
based upon the safety assessment completed by a drug safety monitoring board (DSMB) in the CTH-300 study. Further, we believe
that our label may allow patients to be on an anti-emetic for a fewer number of weeks. The protocol of the CTH-300 study will
allow the discontinuation of the anti-emetic at the discretion of the principal investigator. However, we can provide no assurance
that such broader label will be approved by the FDA.



To achieve this, we have completed or currently
plan to complete, as applicable, the following clinical studies:



| | • | CTH-300 Efficacy Study. A double-blind, placebo-controlled, parallel-design study with an estimated 126 PD patients
who have at least one OFF episode every 24 hours, with total OFF time of at least two hours per day. The objective is to evaluate
the efficacy and safety of APL-130277 versus placebo in patients with PD. Sites will recruit patients over several months. The
126 patients will each be observed for 12 weeks, with dosing at home and in clinic. Patients will be evaluated every four weeks
in clinic. The primary end point will be measured at week 12 in clinic and will be the mean change in the MDS-UPDRS Part III score
at 30 minutes after dosing. This study commenced in the second quarter of 2015.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | CTH-301 Safety Study.A long-term open-label, single arm safety study in PD patients who have at least one OFF episode
every 24 hours, with total OFF time of at least two hours per day. The objective is to evaluate the safety and tolerability of
APL-130277 in patients with PD. Sites will recruit patients over several months, with each patient being evaluated for six months.
An estimated 226 patients will be enrolled, including up to 126 who had been enrolled in the CTH-300 efficacy study and rolled
over to this study, plus an additional 100 new patients. This study commenced in the third quarter of 2015.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | CTH-201 Thorough QT Study.A Phase 2, randomized,
                                                                   double-blind, placebo-controlled three-period crossover, positive control, QT-evaluation study of APL-130277 in subjects with
                                                                   PD complicated by motor fluctuations (OFF episodes). The primary objective is to evaluate the effect of higher doses of
                                                                   APL-130277 compared to placebo on ECG parameters in subjects with PD complicated by motor fluctuations. The secondary
                                                                   objectives include the evaluation of safety and pharmacokinetics of APL-130277 and the comparison of efficacy of the highest
                                                                   tolerated dose level and the lowest APL-130277 dose resulting in full ON during the dose titration phase. If required by U.S.
                                                                   regulatory authorities, this study is planned to begin in the second half of 2016, subject to FDA review and agreement.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In parallel, we will be performing the necessary
scaled process yield improvements, process validation and stability studies as part of the chemistry, manufacturing and controls,
or CMC, requirements for the filing of the NDA. All development has been performed according to current Good Manufacturing Practices,
or cGMP, methodology. To date, we have successfully scaled up the manufacturing and packaging on a cGMP basis, on commercial scale
equipment and initiated ICH stability studies. The Phase 3 clinical product was produced on this scaled basis as were the required
additional registration batches. This commercial scale equipment and processes (subject to any improvements) will be used to manufacture
the commercial product.





- 18 -







On May 28, 2015, we entered into a master
services agreement with INC Research, LLC pursuant to which INC Research, LLC will provide certain support services relating to
our clinical studies, including, without limitation, the CTH-300 study.



Upon completion of the efficacy and safety
studies, as well as the CMC requirements, we intend to prepare and submit a Section 505(b)(2) NDA to the FDA near the end
of 2016 or in early 2017.



Additionally, we plan to apply for
regulatory approval in Europe. We expect to use a centralized submission after consulting with the European Medicines
Agency, or EMA, in the first half of 2016. By studying the effects of APL-130277 in mild, moderate and advanced PD patients,
we anticipate being able to broaden the indication from the current summary of product characteristics (currently only
indicated in advanced PD patients that have failed other treatment options) in Europe.



For a discussion of the estimated amounts
spent by us on research and development activities during our fiscal years ended December 31, 2015, 2014 and 2013, see “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on
Form 10-K.



Sales and Marketing



We retain worldwide commercial rights to
APL-130277. We expect to build sales and marketing infrastructure in the United States to support a product launch of APL-130277
if it is approved by the FDA. We plan to commercialize APL-130277 initially with approximately 100 specialty sales representatives
who will promote APL-130277 to high-prescribing general neurologists and approximately 1,200 movement disorder specialists in the
United States. We believe a sales force of this size can reach these physicians to provide for a robust commercial adoption of
APL-130277. In addition, we intend to invest in education of both doctors and patients to foster widespread adoption of APL-130277.
We expect to continue to incur significant expenses related to preparing for commercialization of APL-130277.



Our commercial team will also target payors
covering commercial, Medicaid, and Medicare plans. According to our primary market research conducted in January 2015, 88% of surveyed
payors viewed APL-130277 as an improvement over Apokyn. We will continue to work with payors, conduct advisory board meetings,
and hold in-depth interviews to assist in the development of a pricing and rebating strategy to optimize formulary placement and
coverage resulting in patient access and affordability of APL-130277.





- 19 -







In 2016, we are continuing market research
to guide the further development of our marketing strategy and promotional plans and campaigns. This will include ongoing
testing and market research with our target audiences (physician, payor and patient) of all branding, positioning, messaging and
promotion activities.



We may also choose to partner with companies
that have the necessary expertise to develop and commercialize APL-130277 outside the United States.



Technology and CMC Overview



Technology



The suitability of the sublingual thin film
form to deliver API and overcome technical challenges associated with poor oral drug absorption, metabolism inactivation or other
sub-optimum delivery systems (including painful subcutaneous injections) has been well-established with a number of thin film pharmaceutical
products already commercialized in the United States. In addition, thin films are especially appropriate as a delivery system for
geriatric and patient populations experiencing swallowing difficulties and dysphagia as observed with PD patients. We believe sublingual
thin film delivery provides an efficient, consistent and easy-to-administer route of administration of apomorphine to PD patients.



APL-130277 is a patented bilayer thin
film designed to maximize apomorphine drug permeability while optimizing film disintegration properties/residence time, stability
and buccal tissue compatibility. APL-130277 has been developed to include the following attributes:



| | • | the first layer is the apomorphine drug layer designed to provide mechanical properties to facilitate manufacturability, drug
stability, rapid drug diffusion and optimal time under the tongue for desired bioavailability; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the second layer is a separate buffer layer designed to rapidly and completely neutralize acid generation following drug absorption
while providing additional drug permeability.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The apomorphine drug concentration, excipients
selection and composition have been optimized to ensure appropriate manufacturing and process. The drug concentration in the thin
film is optimized to deliver manufacturing efficiency and flexibility as the various dosage strengths are obtained from a single
formulation cut into the different film sizes.



Manufacturing



The ongoing CMC program encompasses a robust
pharmaceutical development dossier with complete pre-formulation and formulation reports, Quality by Design-based process development
activities, Phase 3 clinical and registration batches produced on commercial manufacturing and packaging equipment for APL-130277.
The stability data generated will be submitted in the NDA to support the targeted expiration dating of at least 24 months.



All development and registration activities
have been conducted with our manufacturing partner, ARx, a leader in thin film formulation development and manufacturing and a
pioneer of the dosage form for delivery of APIs. Their U.S. facility has been audited and approved by the FDA as a manufacturing
site for other commercial prescription products. The ARx site has also been approved by foreign regulatory agencies. ARx has the
ability to manufacture APL-130277 at commercial scale as well as manufacture the APL-130277 Phase 3 clinical material, which is
the same formula as the product intended for commercialization. We believe that ARx has sufficient capacity to support launch
and future growth of APL-130277.



- 20 -







We are seeking to qualify a European-based
supplier to manufacture commercial quantities of thin films as an additional manufacturing partner in both the United States and
Europe.



On May 26, 2015, we entered into a
master supply agreement with The Tapemark Company for
the supply of custom packaging for the thin film for our product candidate, APL-130277.



Intellectual Property



The proprietary nature of, and protection
for APL-130277, processes and know-how are important to our business. We have sought patent protection in the United States and
certain other jurisdictions for APL-130277, where available and when appropriate. Our policy is to pursue, maintain and defend
patent rights, whether developed internally or licensed or acquired from third-parties, and to protect the technology, inventions
and improvements that are important to the development and commercialization of our product candidate. We also rely on trade secrets
relating to our technology that may be important to the development of APL-130277.



Our commercial success will depend in part
on obtaining and maintaining patent protection and trade secret protection for our current and future product candidates, the methods
used to develop and manufacture them, as well as successfully defending these patents against third-party challenges. Our ability
to stop third-parties from manufacturing, using, selling, offering to sell, or importing our products depends on the extent to
which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents
will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in
the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be
commercially useful in protecting our product candidate and processes. For this and more comprehensive risks related to our intellectual
property, see “Item 1A. Risk Factors—Risks Related to Our Intellectual Property” in this Annual Report on Form
10-K.



We have registered the domain names cynapsustherapeutics.com
and cynapsus.ca, among various others.



Patents



Our patent portfolio seeks to cover APL-130277
in the United States, Europe, Japan and emerging markets, by way of pending applications and issued patents. Our patent portfolio
consists of three patent families, which provide a range of broad and specific product and method claims.







- 21 -







| | • | A priority application for the first patent family was initially filed in June 2009 and was extended to a Patent Cooperation
Treaty, or PCT, application (PCT Publication No. WO 2010/144817, filed June 11, 2010) and subsequently to corresponding National
Phase applications, including major market jurisdictions. We acquired sole ownership of this patent family with our acquisition
of Adagio in December 2011. The priority application is entitled “Sublingual Apomorphine” and the subsequent national
phase applications contain claims directed to pharmaceutical dosage forms that combine apomorphine particles with a pH neutralizing
agent in a sublingual film. Also claimed are the specific PK performance parameters of the composition and methods for therapeutic
use, including the treatment of PD. Patents in this family have been issued in the United States, Europe, Japan, China, New
Zealand, Indonesia, and South Africa. As of the date of hereof, this patent family included one issued U.S. patent (U.S. Patent
No. 9,044,475, issued June 2015), one allowed U.S. patent application (Application Serial No. 14/684,146, filed
April 10, 2015), one granted patent in the European Patent Office (EP2446560, granted August 26, 2015), one granted patent
in Japan (JP5760295, granted June 19, 2015), one granted patent in China (CN102480958, granted August 19, 2015, with registration
of these granted claims pending in Hong Kong), and one allowed application in Canada (CA2765291, filed June 11, 2010). Corresponding
patent applications in this patent family are currently undergoing examination in the United States, Europe, Japan, Australia,
Brazil, the Eurasian Patent Organization, India, Israel, Mexico, and South Korea. Any U.S. and foreign patents in this patent family
should expire no earlier than June 2030. U.S. patents issued in this family may be eligible for listing in the Orange Book. Filing
for supplemental patent protection upon regulatory approval may be possible in some European jurisdictions.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | A second patent family entitled “Sublingual Films”
claims pharmaceutical films comprising apomorphine and a neutralizing agent in a bilayer strip configuration. The previous co-owner
of this patent family, ARx, has assigned all of its right, title and interest in and to this patent family to us. ARx has a non-exclusive
license to this family in all fields other than generic apomorphine sublingual thin film applications (for further information,
see “ARx Agreement” below). The priority application was extended to a PCT application (PCT Publication No. WO 2012/083269,
filed December 16, 2011). This application describes more extensive formulation developments and the PK data for different
formulations and specific formulation ingredients and performance parameters are claimed. As of the date hereof, this patent family
included two patents issued in the United States (U.S. Patent Nos. 8,414,922 and 8,846,074), one allowed U.S. patent application
(Application Serial No. 14/478,975, filed September 5, 2014, which patent is expected to issue on or about March 15,
2016 as USP No. 9,283,219), one patent issued in Japan (JP5786195, issued August 7, 2015), one allowed application in New Zealand
(NZ612686, filed December 16, 2011), and one allowed application in South Africa (ZA201304740, filed December 16, 2011). Corresponding
patent applications in this patent family are currently undergoing examination in the United States, Australia, Brazil, Canada,
China, Hong Kong, the European Patent Office, the Eurasian Patent Organization, Indonesia, India, Israel, Mexico, and South Korea.
Any U.S. and foreign patents in this patent family should expire no earlier than December 2031. U.S. patents issued in this family
may be eligible for listing in the Orange Book. Filing for supplemental patent protection upon regulatory approval may be possible
in some European jurisdictions.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | A third patent family entitled “Methods of Treating Parkinson’s Disease by Administration of Apomorphine to an
Oral Mucosa” was filed in 2015 in the United States. As of the date hereof, this patent family included one pending U.S.
provisional patent application (Application Serial No. 62/150,624, filed in April 2015).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 22 -







Trade Secrets



In addition to patents, we rely on trade
secrets and know-how to develop and maintain our competitive position. We seek to protect our proprietary data and processes, in
part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors,
and partners. These agreements are designed to protect our proprietary information. We also seek to preserve the integrity and
confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic
security of our information technology systems. Trade secrets and know-how can be difficult to protect. Consequently, we anticipate
that trade secrets and know-how will, over time, be disseminated within the industry through independent development, the publication
of journal articles, and the movement of personnel skilled in the art from academic to industry scientific positions.



Competition



The development and commercialization of
new drug products is highly competitive. Our future success depends on our ability to demonstrate and maintain a competitive advantage
with respect to other treatments for OFF episodes of PD and those treatments currently in development or to be in development in
the future.



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.



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.
APL-130277 would also compete with Apokyn, an injectable formulation of apomorphine, which is a STADA Arzneimittel AG product
distributed by U.S. Worldmeds, LLC in the United States. At this time, Apokyn is the only therapy approved for the acute,
intermittent treatment of OFF episodes for advanced PD patients. Apokyn was approved for this use in the United States in 2004
and in Europe in 1993 (in Europe, the approval is for PD patients who have failed all other treatment options). Although effective,
its use in the United States, Europe and Japan has been limited due to the need for subcutaneous injections as well as the steps
required for a patient to inject the product.





One or more of our competitors may utilize
their expertise in sublingual delivery of drugs to develop and obtain approval for 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 if it is approved. See “Item
1A. Risk Factors” in this Annual Report on Form 10-K.





- 23 -







ARx Agreement



On March 17, 2015, we entered into
an agreement with ARx, whereby ARx agreed to provide us with formulation, CMC and clinical unit production of APL-130277 and certain
related services to support our clinical studies of APL-130277. The agreement provides that ARx is the sole partner for formulation
and process development activities for APL-130277 during the term of the agreement. Under the agreement with ARx, ARx assigned
to us all of its right, title and interest in and to our patent family entitled “Sublingual Films” (including U.S. Patent
Nos. 8,414,922 and 8,846,074 and their U.S. and foreign counterparts) of which ARx was previously a co-owner with us. In turn,
we granted ARx a non-exclusive license to this patent family in all fields other than generic apomorphine sublingual thin film
applications. In addition, under the terms of the agreement with ARx, all APL-130277-related formulation and process know-how and
data generated pursuant to the agreement with ARx, or the Agreement IP, is owned by us. We granted ARx an exclusive, royalty-free,
license to all Agreement IP in all fields, in respect of other products and formulations (not APL-130277). The agreement also provides
that we retain sole ownership of all filings with respect to APL-130277.



Our agreement with ARx will continue for
a period of five years, unless terminated earlier, and will automatically renew for successive one year periods thereafter. Either
party may terminate the agreement (a) for convenience upon one hundred and eighty days’ notice to the other party, (b) for
the uncured material breach of the other party, or (c) for certain bankruptcy and insolvency events of the other party. Upon
termination of the agreement, the provisions as to future commercial supply and intellectual property, among others, expressly
survive.



The parties further agreed that they anticipate
entering into a commercial supply agreement, under which ARx will be the majority supplier of APL-130277 (on certain agreed terms
and conditions), with respect to the United States prior to our filing for FDA approval of APL-130277. In consideration for the
assignment and licenses of intellectual property rights by ARx under the agreement, we agreed to pay ARx a fee based on the invoiced
cost incurred by us (less the costs of the related API and packaging), in the event of the manufacture of APL-130277 by a contingency
supplier in the United States, and other suppliers outside of the United States. For as long as the commercial supply agreement
remains in force, ARx is restricted from manufacturing any apomorphine sublingual thin film generic APL-130277 applications in
the United States.



Business Relationship with the MJFF



We received two funding awards towards the
development of APL-130277 from the MJFF. The first award of US$947,925 was awarded on July 31, 2012, and was used to complete
the CTH-103 comparative study of APL-130277 versus subcutaneous injection. The results of the CTH-103 study were announced on January 13,
2014.



The second award of US$500,000 was awarded
on July 8, 2014, and has been used to fund our CTH-105 Phase 2 clinical trials. This study and future trials of APL-130277
will be listed on Fox Trial Finder, an online tool from the MJFF that matches interested research volunteers with recruiting clinical
studies. As part of the MJFF grant agreement, we are required to support further PD research by making up to US$1 million in contributions
to the MJFF based on future potential sales of APL-130277.



On January 7, 2016, we announced that we’re
working with the MJFF to incorporate wearable device technology into our Phase 3 clinical study of APL-130277. A subset of participants
in our Phase 3 safety study will take part in a data analytics sub-study. Through a wearable device and the Fox Insight smartphone
application (developed jointly by MJFF and Intel), volunteers will contribute data on movement and medication effect. The data
will be securely collected, de-identified and evaluated using advanced analytics, then stored in a cloud platform that will allow
researchers to potentially gain insights into PD, OFF episodes, and the efficacy of APL-130277. The technology platform and algorithms
developed by Intel for the MJFF are intended as a proof of concept, demonstrating that data science technologies can contribute
to the objective measurement of PD in interventional clinical studies.



- 24 -







Government Regulation



Government authorities in the United States,
at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate,
among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising,
promotion, distribution, marketing, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals
in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and
regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.



Review and Approval of Drugs in the United States



In the United States, the FDA regulates
drugs under the FDCA and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance
with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial
resources. Failure to comply with the applicable United States requirements at any time during the product development process,
approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions,
including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance
of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or
distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal
investigations and penalties brought by the FDA and the United States Department of Justice or other governmental entities.



An applicant seeking approval to market
and distribute a new drug product in the United States must typically undertake the following:



| | • | completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s regulations
relating to good laboratory practice, or GLP;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | submission to the FDA of an investigational new drug application, or IND, which must take effect before human clinical trials
may begin;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | • | approval by an independent Institutional Review Board, or IRB, representing each clinical site before each clinical trial may
be initiated;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | • | performance of adequate and well-controlled human clinical trials in accordance with the FDA’s good clinical practices,
or GCP, to establish the safety and efficacy of the proposed drug product for each indication;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | preparation and submission to the FDA of an NDA;
| | - | ------------------------------------------------



| | • | review of the product by an FDA advisory committee, where appropriate or if applicable;
| | - | ---------------------------------------------------------------------------------------



| | • | satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or
components thereof, are produced to assess compliance with good manufacturing practices, or GMP, requirements and to assure that
the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 25 -







| | • | payment of user fees and securing FDA approval of the NDA; and
| | - | --------------------------------------------------------------



| | • | compliance with any post-approval requirements, including a Risk Evaluation and Mitigation Strategy, or REMS, and post-approval
studies required by the FDA.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



Preclinical Studies



Preclinical studies include laboratory evaluation
of product chemistry, toxicity and formulation, as well as animal studies to assess safety of the drug for initial testing in humans
and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements,
including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any
available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an
IND. Some long-term preclinical testing, such as animal tests of reproductive AEs and carcinogenicity, may continue after the IND
is submitted.



Human Clinical Trials in Support of an NDA



Clinical trials involve the administration
of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements,
which include, among other things, the requirement that all research subjects provide their informed consent in writing before
their participation in any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments must be submitted
to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time
the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case,
the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. In addition, an IRB at each
institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at
that institution, and the IRB must conduct continuing review. The IRB must review and approve, among other things, the study protocol
and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information
about certain clinical trials must be submitted within specific timeframes to the United States National Institutes of Health,
or NIH, for public dissemination.



Human clinical trials are typically conducted
in three sequential phases, which may overlap or be combined:



| | • | Phase 1:The drug is initially introduced into healthy human subjects or patients with the target disease (such as PD)
or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain
an early indication of its effectiveness and to determine optimal dosage.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks,
to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal
dosage.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical
trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the
product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the
labeling of the product.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 26 -







Progress reports detailing the results of
the clinical trials must be submitted at least annually to the FDA and, more frequently, if serious AEs occur. The FDA or the sponsor
may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being
exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution,
or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or
if the drug has been associated with unexpected serious harm to patients.



Submission of an NDA to the FDA



Assuming successful completion of required
clinical testing and other requirements, the results of the preclinical and clinical trials, together with detailed information
relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the
FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission
of most NDAs is additionally subject to an application user fee, currently exceeding US$2.0 million.



NDAs for most new drug products are based
on two full clinical trials that must contain substantial evidence of the safety and efficacy of the proposed new product. These
applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative
type of NDA under Section 505(b)(2). Section 505(b)(2) provides an alternate regulatory pathway to FDA approval for new
or improved formulations or new uses of previously approved drug products. Specifically, Section 505(b)(2) permits the filing
of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant
and for which the applicant has not obtained a right of reference. The applicant may rely upon the FDA’s findings of safety
and efficacy for an approved product that acts as the Reference Listed Drug, or RLD. The FDA may also require Section 505(b)(2)
applicants to perform additional studies or measurements to support the change from the RLD. The FDA may then approve the new product
candidate for all or some of the labeled indications for which the referenced product has been approved, as well as for any new
indication sought by the Section 505(b)(2) applicant.



Thus, Section 505(b)(2) authorizes
the FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant. If the Section 505(b)(2)
applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, the applicant may eliminate
the need to conduct certain preclinical or clinical trials of the new product.



The FDA conducts a preliminary review of
an NDA within 60 days of its receipt and informs the sponsor by the 74th day after the FDA’s receipt of the submission whether
the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept
an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application
is also subject to review before the FDA accepts it for filing. Once the submission has been accepted for filing, the FDA begins
an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. For standard and
priority NDAs concerning new molecular entities, the FDA’s performance goal is to review and act on 90% of such NDAs within
10 months or six months of the 60-day filing date, respectively. For standard and priority NDAs that do not concern a new molecular
entity, the FDA’s performance goal is to review and act on 90% of such NDAs within 10 months or six months of receipt, respectively.



- 27 -







Before approving an NDA, the FDA typically
will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines
that the manufacturing processes and facilities are in compliance with GMP requirements and adequate to assure consistent production
of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more
clinical sites to ensure compliance with GCP.



The FDA may also require submission of a
REMS plan to mitigate any identified or suspected serious risks. The REMS plan could include medication guides, physician communication
plans, assessment plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other
risk minimization tools.



If the FDA approves a product, it may limit
the approved indications for use of the product, require that contraindications, warnings, or precautions be included in the product
labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s
safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other
conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect
the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the
results of post-market studies or surveillance programs.



Post-approval Requirements



Drugs manufactured or distributed pursuant
to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating
to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences
with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims,
are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products
and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with
clinical data.



In addition, drug manufacturers and other
entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the
FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance
with GMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before
being implemented. FDA regulations also require investigation and correction of any deviations from GMP and impose reporting and
documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly,
manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain GMP compliance.



Once an approval is granted, the FDA may
withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the
product reaches the market. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity
or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in:



| | • | revisions to the approved labeling to add new safety information;
| | - | -----------------------------------------------------------------



| | • | imposition of post-market studies or clinical trials to assess new safety risks;
| | - | --------------------------------------------------------------------------------



| | • | imposition of distribution or other restrictions under a REMS program;
| | - | ----------------------------------------------------------------------



- 28 -







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



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



| | • | refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license
approvals;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



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



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



The FDA strictly regulates marketing, labeling,
advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and
in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting
the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant
liability.



In addition, the distribution of prescription
pharmaceutical products is subject to the United States Prescription Drug Marketing Act, or PDMA, which regulates the distribution
of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors
by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements
to ensure accountability in distribution.



Abbreviated NDAs for Generic Drugs



In 1984, with the passage of the United
States Drug Price Competition and Patent Term Restoration Act, known as the Hatch-Waxman Act, Congress authorized the FDA to approve
generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval
of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency.



The FDCA provides a period of five years
of non-patent data exclusivity for a new drug containing a new chemical entity. In cases where such exclusivity has been granted,
an ANDA or Section 505(b)(2) application referencing that drug may not be filed with the FDA until the expiration of five
years, unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application
four years following the original product approval. Currently, there is no unexpired non-patent data exclusivity in effect for
apomorphine.



Because apomorphine has been previously
approved by the FDA, APL-130277 will not be eligible for five years new chemical entity exclusivity. However, the FDCA also provides
for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability
or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. APL-130277
may be eligible for three years of exclusivity under the FDCA.



- 29 -







Hatch-Waxman Patent Certification and the 30-month Stay



Upon approval of an NDA or a supplement
thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an
approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA
applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for
the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking
approval. To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product,
the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the
same extent that an ANDA applicant would. Currently, there are no unexpired patents listed in the Orange Book for Apokyn or any
apomorphine product. One or more of our APL-130277 U.S. patents may be eligible for listing in the Orange Book.



Specifically, an ANDA applicant or Section 505(b)(2)
applicant that is relying on studies conducted for an already approved product must certify with respect to each Orange-Book listed
patent that:



| | • | the required patent information has not been filed;
| | - | ---------------------------------------------------



| | • | the listed patent has expired;
| | - | ------------------------------



| | • | the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | the listed patent is invalid, unenforceable or will not be infringed by the new product.
| | - | ----------------------------------------------------------------------------------------



A certification that the new product will
not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a
Paragraph IV certification.



If the ANDA or Section 505(b)(2) applicant
has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to
the NDA and patent holders once the ANDA or Section 505(b)(2) application has been accepted for filing by the FDA. The NDA
and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification.
The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents
the FDA from approving the ANDA or Section 505(b)(2) application until the earlier of 30 months after the receipt of the Paragraph
IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the ANDA applicant.



Review and Approval of Drug Products in the European Union



Whether or not we obtain FDA approval for
our product candidate, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before
we can commence clinical trials or marketing of our product in those countries or jurisdictions. Regulatory approval in one country
or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one
country or jurisdiction may negatively impact the regulatory process in others.



In the European Union, medicinal products
can only be placed on the market after obtaining a Marketing Authorization, or MA. The MA application is based on the results of
pharmaceutical tests, preclinical tests and clinical trials conducted on the medicinal product in question. There are two types
of MA:



- 30 -







| | • | The Centralised MA, which is issued by the European Commission through the Centralised Procedure, based on the opinion of the
Committee for Medicinal Products for Human Use of the EMA and which is valid throughout the entire
territory of the European Union. The Centralised Procedure is mandatory for certain types of drugs, such as biotechnology medicinal
products, orphan medicinal products, and medicinal products containing new active substances indicated for certain diseases. The
Centralised Procedure is optional for other drugs provided eligibility criteria are met.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | National MAs, which are issued by the competent authorities of the Member States of the European Union (for example, the Medicines
and Healthcare Products Regulatory Agency, or MHRA, in the United Kingdom) and only cover their respective territory, are available
for drugs not falling within the mandatory scope of the Centralised Procedure. Where a drug has already been authorized for marketing
in a Member State of the European Union, this National MA can be recognized in other Member States through the Mutual Recognition
Procedure.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the above described procedures, before
granting the MA, the EMA or the competent authorities of the Member States of the European Union make an assessment of the risk-benefit
balance of the drug on the basis of scientific criteria concerning its quality, safety and efficacy.



In the European Union, new chemical
entities qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market
exclusivity. This data exclusivity prevents regulatory authorities in the European Union from referencing the
innovator’s data to assess a generic or biosimilar application for eight years, after which generic marketing
authorization can be submitted, and the innovator’s data may be referenced, but not approved for another two years. The
overall 10-year period will be extended to a maximum of 11 years if, during the first eight of those 10 years, the marketing
authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific
evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing
therapies. We are still currently reviewing our submission options for APL-130277 in Europe.



Pharmaceutical Coverage, Pricing and Reimbursement



United States - If APL-130277 is
approved by the FDA, we anticipate broad coverage by third-party payors, including Medicare Part D and commercial health insurance
plans. We expect such coverage would be a mix of specialty tier, preferred and non-preferred coverage, depending on the price level
of APL-130277. As such, patients would likely be exposed to various levels of co-payments/co-insurance costs, which may range from
approximately $30 per month (covered on preferred tier) up to approximately 20% - 33% of the drug costs (specialty tier coverage).
We are currently exploring possible strategies to reduce the patient out-of-pocket cost of APL-130277, as we’re seeking the
broadest possible patient access for our product candidate.



European Union - The market access
systems and requirements differ significantly among the five largest countries of the European Union. While France and Germany
have centralized systems where the therapeutic evaluation and price negotiation is being conducted by national health authorities,
Spain and Italy rely on centralized price negotiations and regional reimbursement decisions and utilization controls. Market access
in the United Kingdom is heavily dependent on a cost-effectiveness assessment conducted by the National Institute of Clinical Excellence
(NICE). Across such countries, APL-130277 may likely be compared to Apokyn, from clinical and pricing perspectives. In the absence
of a superior clinical performance versus Apokyn, as demonstrated in pivotal clinical trials, we anticipate that the ultimate price
of APL-130277 will likely be lower than the price of Apokyn (in the range of approximately a 10% - 20% discount).



- 31 -







New Legislation and Regulations



From time to time, legislation is drafted,
introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing
and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised
or interpreted by the agency in ways that may significantly affect our business and our product candidate. It is impossible to
predict whether further legislative changes will be enacted, or FDA regulations, guidance, policies or interpretations changed
or what the impact of such changes, if any, may be.



Nonetheless, we do not anticipate changes
in applicable legislation in the United States in 2016/2017. The United States healthcare system, including drug provisions, is
under severe cost pressure. As a result, government and commercial third-party payors are increasingly using various tools to manage
drug usage, including, for example, implementing more restrictions (e.g., strict prior authorizations, step edits, etc.), increasing
patient cost-sharing and specialty tier coverage, and increasing integrated healthcare delivery, among others.



Even if we receive regulatory approval
for commercial sale of our product, the marketability of our product may suffer if the government and third-party payors fail
to provide adequate coverage and reimbursement. In addition, the emphasis on managed care and cost containment in the
United States has increased and we expect will continue to increase the pressure on drug pricing. Coverage policies,
third-party reimbursement rates and drug pricing regulation may change at any time. In particular, the ACA was enacted in the
United States in March 2010 and contains provisions that may reduce the profitability of drug products, including, for
example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care
plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’
share of sales to federal health care programs. The Covered Outpatient Drugs final rule issued in January 2016 made further
changes to the Medicaid Drug Rebate Program under the ACA. These changes take further steps to ensure that federal and
state government will save money in managing Medicaid drug costs, including ensuring that states can collect rebates on
more expensive infused, inhaled, instilled, implanted or injected drugs. Even if favorable coverage and reimbursement status
is attained for our product candidate once we receive regulatory approval, less favorable coverage policies and
reimbursement rates may be implemented in the future.



Health Care Law and Regulation



Health care providers, physicians and third-party
payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements
with providers, third-party payors and customers are subject to broadly applicable fraud and abuse and other health care laws and
regulations. Such restrictions under applicable federal and state healthcare laws and regulations include the following:



- 32 -







| | • | the federal health care Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral
of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole
or in part, under a federal health care program such as Medicare and Medicaid;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the United States False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against
individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that
are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | HIPAA imposes criminal and civil liability for executing a scheme to defraud any health care benefit program or making false
statements 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, imposes 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 federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact
or making any materially false statement in connection with the delivery of or payment for health care benefits, items or services;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the federal physician self-referral law, commonly known as the Stark Law, 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 also prohibits the submission of any claims for reimbursement for designated
health services furnished pursuant to a prohibited referral;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | the federal transparency requirements under the Physician Payments Sunshine Act, passed within the Patient Protection and Affordable
Care Act, or ACA, will require manufacturers of drugs, devices, biologics and medical supplies to report to the United States Department
of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals
and physician ownership and investment interests;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | federal government price reporting laws, changed by the ACA among other things, increases the minimum Medicaid rebates owed
by most manufacturers under the Medicaid Drug Rebate Program, as amended by the Covered Outpatient Drugs final rule, and requires
manufacturers to offer such rebates to additional populations and ensures that federal and state government will save money in
managing Medicaid drug costs, including ensuring that states can collect rebates on more expensive infused, inhaled, instilled,
implanted or injected drugs; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | analogous state and foreign laws and regulations.
| | - | -------------------------------------------------



- 33 -







Efforts to ensure that our business arrangements
with third-parties will comply with applicable health care laws and regulations will involve substantial costs. It is possible
that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations
or case law involving applicable fraud and abuse or other health care laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil,
criminal and administrative penalties, damages, fines, exclusion from government funded health care programs, such as Medicare
and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with
whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or
administrative sanctions, including exclusions from government funded health care programs.



Environmental, Health and Safety Laws and Regulations



We are subject to, directly and indirectly,
numerous 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. Our operations
involve the use of hazardous materials, and the risk of injury, contamination or noncompliance with environmental, health and safety
requirements cannot be eliminated. Although compliance with such laws and regulations has not had a material effect on our capital
expenditures, earnings or competitive position, environmental, health and safety laws and regulations have tended to become increasingly
stringent and, to the extent legal or regulatory changes occur in the future, they could result in, among other things, increased
costs to us.



For a discussion of certain risks relating
to government regulation, see “Item 1A. Risk Factors—Risks Related to Clinical Development and Regulatory Approval
of Our Product Candidate” in this Annual Report on Form 10-K.



Financial Information About Geographic Areas



For each of our last three fiscal
years, all long-lived assets were located in Canada, our country of domicile.



Employees



As of December 31, 2015, we had a total
of 25 employees including executive, clinical, regulatory and administrative staff. None of our personnel are represented by a
labour union and management considers its relations with its staff to be good. We will adjust our staffing complement in response
to the demands and opportunities in the business.



Legal and Corporate Structure



We are a Canadian company incorporated under
the Canada Business Corporations Act. We were initially incorporated on January 16, 2004. Following prior name changes,
our legal and commercial name is now Cynapsus Therapeutics Inc. We have one wholly-owned subsidiary, Cynapsus Therapeutics (USA)
Inc., a Delaware corporation. Adagio, our previously wholly-owned subsidiary incorporated under the Canada Business Corporations
Act, amalgamated with Cynapsus effective as of January 1, 2016. For a discussion of our acquisition of Adagio in December 2011,
see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual
Report on Form 10-K.



Our head and registered office is located
at 828 Richmond Street West, Toronto, Ontario M6J 1C9, Canada.



- 34 -







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 Annual Report on Form 10-K, including our consolidated financial statements and related notes appearing in this
Annual Report on Form 10-K, 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K. 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 Cdn$27.5 million for the year ended December 31, 2015. As of December 31, 2015,
we had a deficit accumulated during the development stage of Cdn$60.0 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:



- 35 -







| | • | 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;
| | - | ---------------------------------------------------------------------------



| | • | 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 Cdn$104.9 million as of
December 31, 2015. 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.



- 36 -







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.
| | - | --------------------------------------------------------------------------------------------



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 candidates, 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.



- 37 -







Fluctuations in exchange rates could result in foreign
currency exchange losses and can affect our financial results, as well as the price of our common shares.



Our functional and presentation currency
is the Canadian dollar and all amounts in our consolidated financial statements are expressed in Canadian dollars, unless otherwise
noted. We fund the majority of our 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. Fluctuations in exchange rates, particularly those involving the U.S. dollar, may affect our costs.
Where our operations conducted in U.S. dollars are reported in Canadian dollars, such fluctuations could result in changes in reported
results that do not reflect changes in the underlying operations. For the year ended December 31, 2015, the effect of exchange
rate changes on our cash was a foreign exchange gain of approximately Cdn$12.8 million as a result of the Canadian dollar weakening
relative to the U.S. dollar. Nonetheless, any potential future appreciation of the Canadian dollar against the U.S. dollar could
reduce any such foreign exchange gain, or result in a foreign exchange loss, and would adversely affect our results of operations.
The fluctuation of foreign exchange rates affects the value of monetary assets and liabilities denominated in U.S. dollars. Generally,
an appreciation of the Canadian dollar against the U.S. dollar results in a foreign exchange loss for monetary assets denominated
in U.S. dollars, and a foreign exchange gain for monetary liabilities denominated in U.S. dollars. On the contrary, a devaluation
of the Canadian dollar against the U.S. dollar results in a foreign exchange gain for monetary assets denominated in U.S. dollars
and a foreign exchange loss for monetary liabilities denominated in U.S. dollars. We have not entered into any hedging transactions
to reduce our exposure to foreign currency exchange risk. Even if we decide to enter into hedging transactions in the future, the
availability and effectiveness of such hedges may be limited and we may not be able to successfully hedge all or part of our exposure
or at all.



Canadian dollars drive our earnings per
share; accordingly, our earnings per share may be translated into U.S. dollars by analysts and others. Given the foregoing, the
value of an investment in our common shares to a U.S. shareholder will fluctuate as the U.S. dollar rises and falls against the
Canadian dollar. As a result, U.S. and other shareholders seeking U.S. dollar total returns, including increases in the share price,
are subject to foreign exchange risk as the U.S. dollar rises and falls against the Canadian dollar.



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.



- 38 -







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. 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.



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;
| | - | ---------------------------------------------------------------------------------------------------------



- 39 -







| | • | 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 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.



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.



- 40 -







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 identified 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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 41 -







| | • | 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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our third-party providers may be unable to demonstrate compliance with 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.



- 42 -













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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 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.



- 43 -







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.
| | - | --------------------------



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.



- 44 -







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 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 (less the costs of the related API and packaging)
if we engage a different supplier for the manufacture of APL-130277, which could make it more costly in certain circumstances for
us to use a contingency supplier 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 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.



- 45 -







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.



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 EMA or any other
relevant regulatory authorities.



- 46 -







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.



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.



- 47 -







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.



- 48 -







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.



- 49 -







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.



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.



- 50 -







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.



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.



- 51 -







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.



- 52 -









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.



- 53 -







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, 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.









- 54 -







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 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 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.



- 55 -







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.



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.



- 56 -







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.



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.





- 57 -







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. The validity of several of such third-party
patents is being challenged either in the U.S. district courts, at the USPTO, or both, by multiple third-parties. We are evaluating
whether any licenses to such third party patents and patent applications are desirable or necessary. If the manufacture, sale or
use of APL-130277 is ultimately found to infringe a valid and enforceable third-party patent claim, one or more of the aforementioned
third-party patents could adversely impact our commercial efforts. A finding of infringement of a valid and enforceable third-party
patent may result in our having to obtain a license from the relevant third-party patent owner in order to continue commercializing
our product candidate, and such licenses may not be available on commercially reasonable terms or at all. If one or more of 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 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.



- 58 -







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.



- 59 -







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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 60 -







| | • | 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;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 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);
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 61 -







| | • | 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.



- 62 -







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;
| | - | -------------------------



- 63 -







| | • | 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.
| | - | -----------------------------



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.



- 64 -







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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 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.



- 65 -







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.



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;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 66 -







| | • | 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 1B.   UNRESOLVED STAFF
COMMENTS.



Not applicable.



ITEM 2.   PROPERTIES.



Our principal executive office is located
at 828 Richmond Street West, Toronto, Ontario, Canada M6J 1C9. We lease 3,200 square feet on the 1st floor and 3,000 square feet
on the lower level, for a combined total useable floor area of 6,200 square feet, together with the shared use of common areas
and parking facilities, pursuant to our lease expiring on January 31, 2019. We believe that the space available to us under our
current lease will meet our needs for the foreseeable future and that additional space would be available to us on commercially
reasonable terms, if required.



ITEM 3.    LEGAL PROCEEDINGS.



In the ordinary course of business, we may
be 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 December 31, 2015, 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 a party adverse to
us or our subsidiary or has a material interest adverse to us or our subsidiary.



ITEM 4.   MINE SAFETY DISCLOSURES.



Not applicable.



- 69 -







PART II



| | ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
| | ------- | -------------------------------------------------------------------------------------------------------------



Our common shares commenced trading on the
TSX in Canada on November 28, 2014 under the symbol “CTH.” Prior thereto, our common shares were listed on the
TSX Venture Exchange, or TSXV, in Canada.



Our common shares commenced trading on the
OTCQX International in the United States on July 18, 2013 under the symbol “CYNAF.” Prior to such date, there
was no market for our common shares in the United States. Our common shares commenced trading on the NASDAQ in the United
States on June 18, 2015 under the symbol “CYNA.”



On May 15, 2015, we effected a 16-to-one
share consolidation. See “General Matters” in this Annual Report on Form 10-K. Our common shares commenced trading
on the TSX and OTCQX International on a post-consolidated basis on May 21, 2015. In connection with the share consolidation,
our symbol on the OTCQX International was temporarily changed to “CYNAD.” All prices reflected in the table below in
the columns labeled “As Adjusted,” for the periods ended on or prior to June 30, 2015, have been adjusted to give effect
to the consolidation, and do not represent the actual high and low sale prices for the shares on the TSX, NASDAQ and OTCQX International,
as applicable, for the periods presented.



NASDAQ and OTCQX International



The following table sets
forth the high and low closing prices (in U.S. dollars) of our common shares on the NASDAQ and OTCQX International, as
applicable, for the periods indicated during our two most recent fiscal years:



|                                 |  | High (US$) Actual |       |  | Low (US$) Actual |   |       | High (US$) As Adjusted(1) |  |   | Low (US$) As Adjusted(1) | 
|-------------------------------- |  | ----------------- | ----- |  | ---------------- | - | ----- | ------------------------- |  | - | ------------------------ | 
|2015                             |  |                   |       |  |                  |   |       |                           |  |   |                          | 
|Quarter ended December 31, 2015  |  | $                 | 16.02 |  |                  | $ | 13.53 |                           |  |   | N/A                      | 
|Quarter ended September 30, 2015 |  | $                 | 17.15 |  |                  | $ | 15.01 |                           |  |   | N/A                      | 
|Quarter ended June 30, 2015      |  |                   | N/A   |  |                  |   | N/A   |                           |  | $ | 18.08                    | 
|Quarter ended March 31, 2015     |  | $                 | 1.18  |  |                  | $ | 0.91  |                           |  | $ | 18.88                    | 
|2014                             |  |                   |       |  |                  |   |       |                           |  |   |                          | 
|Quarter ended December 31, 2014  |  | $                 | 1.11  |  |                  | $ | 0.59  |                           |  | $ | 17.76                    | 
|Quarter ended September 30, 2014 |  | $                 | 0.63  |  |                  | $ | 0.52  |                           |  | $ | 10.03                    | 
|Quarter ended June 30, 2014      |  | $                 | 0.80  |  |                  | $ | 0.44  |                           |  | $ | 12.80                    | 
|Quarter ended March 31, 2014     |  | $                 | 1.26  |  |                  | $ | 0.71  |                           |  | $ | 20.16                    | 










| | (1) | As adjusted figures are adjusted to reflect the aggregate 16-to-one share consolidation effected on May 15, 2015. Our common
shares commenced trading on a post-consolidated basis on May 21, 2015.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 70 -







TSX and TSXV



The following table sets forth the high
and low closing prices (in Canadian dollars) of our common shares on the TSX and TSXV (as reported by such exchanges), as applicable,
for the periods indicated during our two most recent fiscal years:



|                                 |  | High (Cdn$) Actual |       |  | Low (Cdn$) Actual |   |       | High (Cdn$) As Adjusted(1) |  |   | Low (Cdn$) As Adjusted(1) | 
|-------------------------------- |  | ------------------ | ----- |  | ----------------- | - | ----- | -------------------------- |  | - | ------------------------- | 
|2015                             |  |                    |       |  |                   |   |       |                            |  |   |                           | 
|Quarter ended December 31, 2015  |  | $                  | 21.68 |  |                   | $ | 17.67 |                            |  |   | N/A                       | 
|Quarter ended September 30, 2015 |  | $                  | 22.90 |  |                   | $ | 19.50 |                            |  |   | N/A                       | 
|Quarter ended June 30, 2015      |  |                    | N/A   |  |                   |   | N/A   |                            |  | $ | 22.40                     | 
|Quarter ended March 31, 2015     |  | $                  | 1.44  |  |                   | $ | 1.13  |                            |  | $ | 23.04                     | 
|2014                             |  |                    |       |  |                   |   |       |                            |  |   |                           | 
|Quarter ended December 31, 2014  |  | $                  | 1.25  |  |                   | $ | 0.65  |                            |  | $ | 20.00                     | 
|Quarter ended September 30, 2014 |  | $                  | 0.68  |  |                   | $ | 0.57  |                            |  | $ | 10.88                     | 
|Quarter ended June 30, 2014      |  | $                  | 0.89  |  |                   | $ | 0.47  |                            |  | $ | 14.24                     | 
|Quarter ended March 31, 2014     |  | $                  | 1.40  |  |                   | $ | 0.75  |                            |  | $ | 22.40                     | 










| | (1) | As adjusted figures are adjusted to reflect the aggregate 16-to-one share consolidation effected on May 15, 2015. Our common
shares commenced trading on a post-consolidated basis on May 21, 2015.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Shareholders



As of March 8, 2016, there were
approximately 113 record holders of our common shares (as registered shareholders), based on information provided by our
transfer agent, TMX Equity Transfer Services.



Dividends



We have never declared or paid any cash
dividends on our common shares. We do not anticipate paying any dividends in the foreseeable future. We currently intend to retain
future earnings, if any, to finance operations and expand our business. Our board of directors has sole discretion whether to pay
dividends. If our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations
and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our
directors may deem relevant. See “Item 1A. Risk Factors—Risks Related to Our Common Shares—We do not expect to
pay any cash dividends for the foreseeable future” in this Annual Report on Form 10-K.



- 71 -







Securities Authorized for Issuance under Equity Compensation
Plans



The following table presents information
as of December 31, 2015, with respect to equity compensation plans under which our common shares are authorized for issuance.



|Plan category                                             |  | Number of securities to be issued upon exercise of outstanding options(1) |           |  | Weighted- average exercise price ofoutstandingoptions |      |       | Number of securitiesremaining available for future issuance under equity compensation plans(2) | 
|--------------------------------------------------------- |  | ------------------------------------------------------------------------- | --------- |  | ----------------------------------------------------- | ---- | ----- | ---------------------------------------------------------------------------------------------- | 
|Equity compensation plans approved by shareholders        |  |                                                                           | 1,007,765 |  |                                                       | Cdn$ | 18.47 |                                                                                                | 
|                                                          |  |                                                                           |           |  |                                                       |      |       |                                                                                                | 
|Equity
compensation plans not approved by shareholders(3) |  |                                                                           | Nil       |  |                                                       |      | Nil   |                                                                                                | 
|Total                                                     |  |                                                                           | 1,007,765 |  |                                                       | Cdn$ | 18.47 |                                                                                                | 










| | (1) | Includes common shares issuable upon exercise of options granted under our 2014 Amended and Restated Stock Option Plan, or
the Stock Option Plan.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Excludes common shares issuable upon exercise of outstanding options granted under our Stock Option Plan. The aggregate number
of common shares that may be available for issuance, from time to time, under our Stock Option Plan may not exceed 10% of our issued
and outstanding common shares.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | We do not have equity compensation plans that have not been approved by our shareholders.
| | --- | -----------------------------------------------------------------------------------------



Certain Canadian Federal Income Tax Considerations



The following is, as of the date hereof,
a summary of the principal Canadian federal income tax considerations generally applicable under the Income Tax Act(Canada)
and the regulations promulgated thereunder, or the Tax Act, to a holder who acquires, as beneficial owner, our common shares, and
who, for purposes of the Tax Act and at all relevant times: (i) holds the common shares as capital property; (ii) deals
at arm’s length with, and is not affiliated with, us; (iii) is not, and is not deemed to be resident in Canada; and
(iv) does not use or hold and will not be deemed to use or hold, our common shares in a business carried on in Canada, or
a Non-Resident Holder. Generally, our common shares will be considered to be capital property to a Non-Resident Holder provided
the Non-Resident Holder does not hold our common shares in the course of carrying on a business of trading or dealing in securities
and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade. Special
rules, which are not discussed in this summary, may apply to a Non-Resident Holder that is an insurer that carries on an insurance
business in Canada and elsewhere. Such Non-Resident Holders should seek advice from their own tax advisors.



- 72 -







This summary is based upon the provisions
of the Tax Act in force as of the date hereof, all specific proposals, or the Proposed Amendments, to amend the Tax Act that have
been publicly and officially announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and management’s
understanding of the current administrative policies and practices of the Canada Revenue Agency, or the CRA, published in writing
by it prior to the date hereof. This summary assumes the Proposed Amendments will be enacted in the form proposed. However, no
assurance can be given that the Proposed Amendments will be enacted in their current form, or at all. This summary is not exhaustive
of all possible Canadian federal income tax considerations and, except for the Proposed Amendments, does not take into account
or anticipate any changes in the law or any changes in the CRA’s administrative policies or practices, whether by legislative,
governmental or judicial action or decision, nor does it take into account or anticipate any other federal or any provincial, territorial
or foreign tax considerations, which may differ significantly from those discussed herein.



Non-Resident Holders should consult their
own tax advisors with respect to an investment in our common shares. This summary is of a general nature only and is not intended
to be, nor should it be construed to be, legal or tax advice to any prospective purchaser or holder of our common shares, and no
representations with respect to the income tax consequences to any prospective purchaser or holder are made. Consequently, prospective
purchasers or holders of our common shares should consult their own tax advisors with respect to their particular circumstances.



Currency Conversion



Generally, for purposes of the Tax Act,
all amounts relating to the acquisition, holding or disposition of our common shares must be converted into Canadian dollars based
on the exchange rates as determined in accordance with the Tax Act. The amounts subject to withholding tax and any capital gains
or capital losses realized by a Non-Resident Holder may be affected by fluctuations in the Canadian-U.S. dollar exchange rate.



Disposition of Common Shares



A Non-Resident Holder will not generally
be subject to tax under the Tax Act on a disposition of a common share, unless the common share constitutes “taxable Canadian
property” (as defined in the Tax Act) of the Non-Resident Holder at the time of disposition and the Non-Resident Holder is
not entitled to relief under an applicable income tax treaty or convention.



Provided the common shares are listed on
a “designated stock exchange”, as defined in the Tax Act (which currently includes the TSX and NASDAQ) at the time
of disposition, the common shares will generally not constitute taxable Canadian property of a Non-Resident Holder at that time,
unless at any time during the 60-month period immediately preceding the disposition the following two conditions are satisfied
concurrently: (i) (a) the Non-Resident Holder; (b) persons with whom the Non-Resident Holder did not deal at arm’s
length; (c) partnerships in which the Non-Resident Holder or a person described in (b) holds a membership interest directly
or indirectly through one or more partnerships; or (d) any combination of the persons and partnerships described in (a) through
(c), owned 25% or more of the issued shares of any class or series of our shares; and (ii) more than 50% of the fair market
value of our shares was derived directly or indirectly from one or any combination of: real or immovable property situated in Canada,
“Canadian resource properties”, “timber resource properties” (each as defined in the Tax Act), and options
in respect of, or interests in or for civil law rights in, such properties. Notwithstanding the foregoing, in certain circumstances
set out in the Tax Act, the common shares could be deemed to be taxable Canadian property. Even if the common shares are taxable
Canadian property to a Non-Resident Holder, such Non-Resident Holder may be exempt from tax under the Tax Act on the disposition
of such common shares by virtue of an applicable income tax treaty or convention. A Non-Resident Holder contemplating a disposition
of common shares that may constitute taxable Canadian property should consult a tax advisor prior to such disposition.





Receipt of Dividends



Dividends received or deemed to be received
by a Non-Resident Holder on our common shares will be subject to Canadian withholding tax under the Tax Act. The general rate
of withholding tax is 25%, although such rate may be reduced under the provisions of an applicable income tax convention between
Canada and the Non-Resident Holder’s country of residence. For example, under the Canada-United States Income Tax Convention
(1980)as amended, or the Treaty, the rate is generally reduced to 15% where the Non-Resident Holder is a resident of
the United States for the purposes of, and is entitled to the benefits of, the Treaty.



- 73 -







Performance Graph



The information provided under the heading
“Performance Graph” shall not be considered “filed” for purposes of Section 18 of the Exchange Act
or incorporated by reference in any filing under the United States Securities Act of 1933, as amended (or the Securities Act),
or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any
such filing.



The following graph compares
the cumulative total return attained by shareholders on Cynapsus’s common shares on the NASDAQ relative to the
cumulative total returns of each of the NASDAQ Composite Index and the NASDAQ Biotechnology Index. Investments of US$100 are
assumed to have been made in our common shares on the NASDAQ on June 18, 2015 (i.e., the date when our common shares began
trading on NASDAQ following registration of our common shares under the Exchange Act), and on the NASDAQ Composite Index and
the  NASDAQ Biotechnology Index on May 31, 2015, and their relative performances are tracked through December 31, 2015.









|                                         |  | May 31, 2015 or 
June 18, 2015, 
as applicable |     |  | December 31, 2015 |  
|---------------------------------------- |  | ---------------------------------------------- | --- |  | ----------------- | -
|NASDAQ Composite Index (US$)             |  | $                                              | 100 |  |                   | $
|NASDAQ Biotechnology Index (US$)         |  | $                                              | 100 |  |                   | $
|Cynapsus Therapeutics Inc. (NASDAQ, US$) |  | $                                              | 100 |  |                   | $







- 74 -







Sales of Unregistered Securities



Set forth below are certain sales of our
securities sold by us during the quarter ended December 31, 2015, which were not registered under the Securities Act.



From December 16, 2015 to December 31, 2015,
we issued an aggregate of 10,375 common shares pursuant to the exercise of warrants, for aggregate cash consideration of Cdn$95,450.
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.



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 US$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
US$66.4 million after deducting underwriting discounts and commissions of approximately US$5.1 million and other offering expenses
of approximately US$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.



There has been no material change in the
planned use of proceeds from our initial public offering as 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. As of December 31, 2015, we held
all of the funds received in cash.



Issuer Purchases of Equity Securities



Not applicable.



- 75 -







ITEM 6.     SELECTED FINANCIAL DATA.



The following tables set forth our selected
consolidated financial data for the periods and as of the dates indicated. You should read the following selected consolidated
financial data in conjunction with, and it is qualified in its entirety by reference to, our historical financial information and
other information provided in this Annual Report on Form 10-K, including “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing
elsewhere in this Annual Report on Form 10-K.



The selected consolidated statements of
operations data for the years ended December 31, 2015, 2014 and 2013, and the selected consolidated statements of financial position
data as of December 31, 2015 and 2014, are derived from our audited consolidated financial statements appearing elsewhere in this
Annual Report on Form 10-K. The selected consolidated statement of financial position data as of December 31, 2013 is derived from
our audited consolidated financial statements that are not included in this Annual Report on Form 10-K. The historical results
set forth below are not necessarily indicative of the results to be expected in future periods. Our consolidated financial statements
have been prepared in accordance with IFRS, as issued by the IASB.



No dividends have been paid in any of the
fiscal years ended December 31, 2015, 2014 or 2013.



|                                                            |  | Years Ended December 31,                     |            
|----------------------------------------------------------- |  | -------------------------------------------- | -----------
|                                                            |  | 2015                                         |            
|                                                            |  | (in Canadian dollars, except per share data) |            
|                                                            |  |                                              |            
|Consolidated Statements of Loss and Comprehensive Loss Data |  |                                              |            
|Loss and comprehensive loss for the year                    |  | $                                            | 27,470,147 
|Loss per share – basic and diluted                          |  | $                                            | 2.97       
|                                                            |  |                                              |            
|Consolidated Statements of Financial Position Data          |  |                                              |            
|Total assets                                                |  | $                                            | 106,874,604



- 76 -







| | ITEM 7. | 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
of Cynapsus for the years ended December 31, 2015 and 2014 and its results of operations for the years ended December 31, 2015,
2014 and 2013 and should be read in conjunction with the audited consolidated financial statements and related notes for such years.
Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.



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



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 Annual Report on Form 10-K,
particularly in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” The forward-looking
statements included in this Annual Report on Form 10-K are made only as of the date hereof.



Overview



Cynapsus is a specialty 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 a 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 the issuance of secured debentures. From inception, we have received
net proceeds of approximately Cdn$149.0 million from such transactions. As of December 31, 2015, we had cash in the amount of Cdn$104.9
million.



- 77 -







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 December 31, 2015, we had a deficit accumulated of Cdn$60 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 February 4, 2015, we held our end
of Phase 2 meeting with the FDA. We will follow Section 505(b)(2) of the FDCA for the development of APL-130277 in the U.S. The
drug substance (apomorphine) in APL-130277 is identical to the API in the FDA approved subcutaneous injection, Apokyn, and APL-130277
is designed for similar usage but potentially for a broader range of PD patients. The Section 505(b)(2) regulatory pathway will
require us to provide statistically significant clinical evidence that PD patients experience improvement in their motor function
as a result of delivery of apomorphine via the sublingual thin film route compared to placebo.



On March 11, 2015, following the End-of-Phase
2 meeting with the FDA, we announced that an agreement was reached on the design, duration and size for the Phase 3 program clinical
studies, as well as for primary and key secondary endpoints. As a result, we have initiated a pivotal Phase 3 program evaluating
the safety and efficacy of APL-130277 in PD patients.





- 78 -







On March 12, 2015, Tamar Howson was
appointed to our board of directors. Ms. Howson is a seasoned business development executive within the pharmaceutical industry,
having formerly served as Senior Vice President at both Bristol-Myers Squibb and SmithKline Beecham. Ms. Howson currently serves
as a business development and strategy consultant to biopharmaceutical companies and she also serves as a director at Oxigene,
Inc., Organovo Holdings Inc. and Enzymotic Ltd. She has formerly served as a director at several biotechnology companies, including
Actavis plc, Ariad Pharmaceuticals, Inc., Cardax, Inc., Idenix Pharmaceuticals Inc., NPS Pharmaceuticals Inc., SkyePharma PLC and
Warner Chilcott plc.



On March 31, 2015, we announced the completion
of a private placement of 1,377,467 common shares for gross proceeds of approximately Cdn$21.0 million (approximately US$17 million).
The financing was led by funds associated with OrbiMed, Aisling Capital and Venrock, with participation from various other institutional
investors, including existing shareholders Broadfin Capital, Sphera Funds Management, Pura Vida Investments, DAFNA Capital Management
and Dexxon Holdings Ltd.



On April 22, 2015, we presented data at
the American Academy of Neurology annual meeting that demonstrated that a minimum efficacious plasma threshold of apomorphine was
required to convert a patient from the OFF state to the ON state. APL-130277 reached this threshold in as early as 10 minutes and
levels were maintained over this threshold through 90 minutes after dosing. This translated to clinically meaningful improvement
in motor function as assessed by the Movement Disorders Society UPDRS Part III (a newer version of the UPDRS Part III scale), or
MDS-UPDRS Part III, score.



On May 15, 2015, we announced the filing
of a registration statement with the SEC relating to our initial public offering in the United States of our common shares and
the filing of an application to list our common shares on The NASDAQ Stock Market LLC. We also announced an amendment to our articles
to consolidate our issued and outstanding common shares on the basis of one post-consolidation common share for 16 pre-consolidation
common shares to facilitate the proposed listing on The NASDAQ Stock Market LLC.



On June 4, 2015, we announced the
issuance of a U.S. Patent No. 9,044,475 providing broad coverage for sublingual apomorphine.  This patent is solely owned
by Cynapsus and granted with claims that provide us with protection of pharmaceutical dosage forms that combine apomorphine hydrochloride
particles with an organic pH neutralizing agent and a permeation enhancer in a sublingual film. This patent is scheduled to expire
in June of 2030 and covers APL-130277 and related formulations. The issued patent is the third to issue as a U.S. patent from our
patent application filings directed to sublingual apomorphine therapies.



On June 18, 2015, following the pricing
of our initial public offering in the United States, our common shares commenced trading on the NASDAQ Global Market under the
symbol “CYNA”.  Our common shares also continue to be listed on the TSX under the symbol “CTH.” 
On June 23, 2015, we announced the completion of our initial public offering in the United States of 5,175,000 common shares for
total gross proceeds of approximately Cdn$89.3 million (approximately US$72.5 million), including the exercise in full of the underwriters’
option to purchase additional common shares.



On June 25, 2015, we announced that we presented
data from clinical trials of APL-130277 at the 19th International Congress of Parkinson’s Disease and Movement
Disorders (MDS) in San Diego, California, showing APL-130277 significantly improved PD symptoms (as measured by MDS-UPDRS Part
III), rapidly turning patients from the OFF to ON state and was generally safe and well-tolerated.



- 79 -







On June 29, 2015, we announced enrollment
of the first patient in the CTH-300 clinical trial, a pivotal Phase 3 study to examine the efficacy, safety and tolerability of
APL-130277 for the acute treatment of OFF episodes in patients with PD. The CTH-300 trial is a double-blind, placebo-controlled,
parallel-design study with an estimated enrollment of 126 PD patients in 35 centers who have at least one OFF episode every 24
hours, with total OFF time of at least two hours per day. The study objective is to evaluate the efficacy and safety of APL-130277
versus placebo in patients with PD. The 126 patients will each be observed for 12 weeks, with dosing at home and in clinic. The
primary endpoint will be measured at week 12 in clinic and will be the mean change in the MDS-UPDRS Part III score at 30 minutes
after dosing. The key secondary endpoint will be the percentage of patients who convert from the OFF to the ON state at or before
30 minutes of dosing with APL-130277 in clinic at the week 12 visit.



On September 2, 2015, we announced enrollment
of the first patient in the CTH-301 clinical trial, a pivotal Phase 3 study to examine the safety and tolerability of APL-130277
for the acute treatment of OFF episodes in patients with PD. The CTH-301 trial is a 6-month, open-label, single arm safety study
in PD patients who have at least one OFF episode every 24 hours, with total OFF time of at least two hours per day. The primary
endpoint for the study is the safety and tolerability of APL-130277 in patients with PD. The secondary endpoints examine efficacy
variables, including the change in the MDS-UPDRS Part III scores over the 6-months of treatment. Sites will recruit patients over
several months, with each patient being evaluated for six months. An estimated 226 patients will be enrolled, including up to 126
who had been enrolled in the CTH-300 efficacy study and rolled over to this study, plus an additional 100 new patients.



On December 10, 2015, we announced that
we have successfully completed the CTH-200 bridging study comparing APL-130277 to subcutaneous apomorphine. In addition, we provided
an update on our European clinical plans. The CTH-200 study was a single-dose, crossover comparative bioavailability and PK study
in healthy volunteers. CTH-200 is a bioavailability study required for the Section 505(b)(2) NDA to confirm the PK characteristics
and comparability of APL-130277 to the reference listed drug. This short study was completed in December 2015 comparing a single
dose of APL-130277 to a single dose of the subcutaneous apomorphine product ApoGo. ApoGo is the European approved bioequivalent
of the FDA approved product Apokyn. Results of this study are expected to be submitted to the FDA as part of an NDA submission,
as well as to European regulatory authorities as part of a European submission. Based on advice from European regulators and European
experts, we are also planning to run an active comparator study in approximately 150 PD patients who suffer the debilitating effects
of OFF episodes. This study is expected to start in the second half of 2016.



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 have 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 have been cancelled and the assets and
liabilities of Adagio have been 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 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.



- 80 -







On February 2, 2016, we formed our wholly-owned subsidiary,
Cynapsus Therapeutics (USA) Inc., a Delaware corporation.



Results of Operations – Comparison of the year ended
December 31, 2015 and the year ended December 31, 2014



Loss
and Loss Per Share



For the year ended December 31,



|                                 |  | 2015 (Cdn$) |            |  | 2014 (Cdn$) |  |            | Cdn$ change in 2015 |  |  | % change in 2015 |  
|-------------------------------- |  | ----------- | ---------- |  | ----------- |  | ---------- | ------------------- |  |  | ---------------- | -
|Loss                             |  |             | 27,470,147 |  |             |  | 10,818,587 |                     |  |  | 16,651,560       |  
|Basic and diluted loss per share |  |             | 2.97       |  |             |  | 2.56       |                     |  |  | (0.41            | )



Net loss for the year ended December
31, 2015 exceeded the loss for the year ended December 31, 2014 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 25 people, higher
professional and consulting fees, investor relations and shareholder relations costs, and higher share-based compensation expenses.
Net loss for the year ended December 31, 2015 also included a Cdn$1,500,000 acquisition milestone share-based payment. Higher expenditures
in the year ended December 31, 2015 were partially offset by large unrealized foreign exchange gains upon currency translation.



Total share-based payments expense for the
year ended December 31, 2015 increased to Cdn$4,827,307 from Cdn$975,627 in the year ended December 31, 2014 due to the higher
Black Scholes fair value recognized for options vested during the current year. During the year ended December 31, 2015 704,693
options were granted, compared to 223,812 granted in the year ended December 31, 2014. 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 year. As a result of losses in the respective years, there
is no dilutive loss per share calculation.



The weighted average number of common shares
outstanding for the year ended December 31, 2015 was 9,246,242 (December 31, 2014 – 4,231,885). The weighted average number
of common shares outstanding increased primarily as a result of 1,377,467 common shares issued in a private placement on March
31, 2015, and 5,175,000 common shares issued in our initial public offering in the United States on June 23, 2015.



Research and Development (R&D)



For the years ended December 31,



|                                                                   |  | 2015 (Cdn$) |            |   | 2014 (Cdn$) |  |           | Cdn$ change in 2015 |  |  | % change in 2015 |  
|------------------------------------------------------------------ |  | ----------- | ---------- | - | ----------- |  | --------- | ------------------- |  |  | ---------------- | -
|APL-130277 research and development, excluding the following items |  |             | 23,631,302 |   |             |  | 5,507,680 |                     |  |  | 18,123,622       |  
|Salaries, benefits and bonuses                                     |  |             | 2,078,986  |   |             |  | 685,487   |                     |  |  | 1,393,499        |  
|Share-based payments                                               |  |             | 1,921,196  |   |             |  | 237,043   |                     |  |  | 1,684,153        |  
|Amortization of intangible assets                                  |  |             | 47,877     |   |             |  | 58,986    |                     |  |  | (11,109          | )
|Depreciation of property, plant and equipment                      |  |             | 930        |   |             |  | -         |                     |  |  | 930              |  
|Recovery on scientific research                                    |  |             | (150,924   | ) |             |  | (91,717   | )                   |  |  | (59,207          | )
|Research grant                                                     |  |             | (127,710   | ) |             |  | (694,628  | )                   |  |  | 566,918          |  
|Total R&D                                                          |  |             | 27,401,657 |   |             |  | 5,702,851 |                     |  |  | 21,698,806       |  





- 81 -







Research and development expenses
for the year ended December 31, 2015 were substantially higher than for the year ended December 31, 2014 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 CMC work for APL-130277.
Salaries and benefits increased during the year ended December 31, 2015 due to an increase in the number of R&D employees from
7 to 12. Share-based payments expense increased due to the higher Black Scholes fair value recognized for options vested during
the current year.



Research grants for
the year ended December 31, 2015 represent the final installment of the second MJFF grant received, while research grants recognized
in the year ended December 31, 2014 relate to amounts previously deferred from the first MJFF grant, as well as from the first
installment of the second MJFF grant. MJFF grants were awarded to support clinical research activities and have been recognized
in accordance with IFRS.



Operating, General and Administrative (OG&A)



For the years
ended December 31,



|                                                                    |  | 2015 (Cdn$) |            |  | 2014 (Cdn$) |  |           | Cdn$ change in 2015 |  |  | % change in 2015 | 
|------------------------------------------------------------------- |  | ----------- | ---------- |  | ----------- |  | --------- | ------------------- |  |  | ---------------- | 
|Operating, general and administrative excluding the following items |  |             | 5,853,061  |  |             |  | 3,298,863 |                     |  |  | 2,554,198        | 
|Salaries, benefits, bonuses and board fees                          |  |             | 2,494,178  |  |             |  | 1,707,238 |                     |  |  | 786,940          | 
|Share-based payments                                                |  |             | 2,906,111  |  |             |  | 738,584   |                     |  |  | 2,167,527        | 
|Depreciation of property, plant and equipment                       |  |             | 122,946    |  |             |  | 16,131    |                     |  |  | 106,815          | 
|Total OG&A                                                          |  |             | 11,376,296 |  |             |  | 5,760,816 |                     |  |  | 5,615,480        | 



OG&A costs for the
year ended December 31, 2015 were higher than the year ended December 31, 2014 due mainly to increases in investor and public relations
activities, professional and consulting fees, commercialization activities, 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 year.



Other Expenses (Recoveries)



For the years
ended December 31,



|                                                            |  | 2015 (Cdn$) |             |   | 2014 (Cdn$) |  |          | Cdn$ change in 2015 |  |  | % change in 2015 |  
|----------------------------------------------------------- |  | ----------- | ----------- | - | ----------- |  | -------- | ------------------- |  |  | ---------------- | -
|Unrealized foreign exchange gain                            |  |             | (12,788,721 | ) |             |  | (691,578 | )                   |  |  | (12,097,143      | )
|Acquisition milestone share-based payment                   |  |             | 1,500,000   |   |             |  | -        |                     |  |  | 1,500,000        |  
|Loss on impairment of intangible assets                     |  |             | -           |   |             |  | 94,449   |                     |  |  | (94,449          | )
|Interest income net of interest expense and related charges |  |             | (19,085     | ) |             |  | (47,951  | )                   |  |  | 28,866           |  





- 82 -







Unrealized foreign exchange gains for year
ended December 31, 2015 were Cdn$12,788,721 compared to Cdn$691,578 in the year ended December 31, 2014 due to significantly higher
U.S. dollar cash balances on hand at December 31, 2015, combined with a significant strengthening of the U.S. dollar, as compared
to December 31, 2014. As at December 31, 2015, we had cash of US$75,525,191 denominated in U.S. dollars, compared to US$10,663,238
as at December 31, 2014.



During the year ended December 31, 2014,
we recognized an impairment loss on an intangible asset. We had previously licensed to another research and development company
patented technologies associated with our previous product candidate. On December 31, 2014, due to the lack of any progress on
the licensed project, we reviewed the carrying value of the intangible asset for potential impairment. We determined that there
were no expected future cash flows attributable to this asset and recorded an impairment charge of Cdn$94,449 to write down the
carrying value of the intangible asset to zero.



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 Cdn$1,500,000, was recorded as an expense during the
year ended December 31, 2015.



Results of Operations – Comparison of the year ended
December 31, 2014 and the year ended December 31, 2013



Loss and Loss Per Share



For the years ended December 31,



|                                 |  | 2014 (Cdn$) |            |  | 2013 (Cdn$) |  |           | Cdn$ change in 2014 |  |  | % change in 2014 |  
|-------------------------------- |  | ----------- | ---------- |  | ----------- |  | --------- | ------------------- |  |  | ---------------- | -
|Loss                             |  |             | 10,818,587 |  |             |  | 4,433,287 |                     |  |  | 6,385,300        |  
|Basic and diluted loss per share |  |             | 2.56       |  |             |  | 2.05      |                     |  |  | (0.51            | )



Net loss for the year ended December 31,
2014 exceeded the loss for the year ended December 31, 2013 due mainly to higher research and development program costs related
to the APL-130277 program, higher personnel costs with the number of staff increasing from 8 to 17 people, higher professional
fees, investor relations and shareholder relations costs, and higher share-based compensation expenses.



Basic loss per share is calculated using
the weighted average number of shares outstanding during the year. There were no dilutive shares due to the losses incurred.



The weighted average number of common shares
outstanding for the year ended December 31, 2014 was 4,231,885 (2013 – 2,167,054). The weighted average number of common
shares outstanding increased primarily as a result of 2,403,846 common shares issued in a short form prospectus offering in Canada
on April 15, 2014.



Total share-based payments expense for the
year ended December 31, 2014 increased to Cdn$975,627 from Cdn$516,274 in the year ended December 31, 2013 due to the higher Black
Scholes fair value recognized for options vested during the year ended December 31, 2014. During the year ended December 31, 2014,
223,812 options were granted, compared to 111,894 granted in the year ended December 31, 2013. 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.



- 83 -







Research and Development (R&D)



For the year ended December 31,



|                                                                   |  | 2014 (Cdn$) |           |   | 2013 (Cdn$) |  |           | Cdn$ change in 2014 |  |  | % change in 2014 |  
|------------------------------------------------------------------ |  | ----------- | --------- | - | ----------- |  | --------- | ------------------- |  |  | ---------------- | -
|APL-130277 research and development, excluding the following items |  |             | 5,507,680 |   |             |  | 1,578,314 |                     |  |  | 3,929,366        |  
|Salaries, benefits and bonuses                                     |  |             | 685,487   |   |             |  | 83,509    |                     |  |  | 601,978          |  
|Share-based payments                                               |  |             | 237,043   |   |             |  | 161,644   |                     |  |  | 75,399           |  
|Amortization of intangible assets                                  |  |             | 58,986    |   |             |  | 58,986    |                     |  |  | -                |  
|Recovery on scientific research                                    |  |             | (91,717   | ) |             |  | (44,232   | )                   |  |  | (47,485          | )
|Research grant                                                     |  |             | (694,628  | ) |             |  | (424,187  | )                   |  |  | (270,441         | )
|Total R&D                                                          |  |             | 5,702,851 |   |             |  | 1,414,034 |                     |  |  | 4,288,817        |  



The increase in R&D expense for
the year ended December 31, 2014 compared to December 31, 2013 was primarily attributed to higher costs associated with the APL-130277
program. Following the closing of the Cdn$25 million financing in April 2014, increases included expenditures on hiring new staff,
consulting, formulation development, analytics, toxicology, and API related to clinical studies and scale-up CMC work for APL-130277.
Share-based payments expense increased due to the higher Black Scholes fair value recognized for options vested during the year
ended December 31, 2014.



Research grants for
the year ended December 31, 2014 consist of amounts relating to previously deferred receipts from the first MJFF grant in addition
to amounts received in 2014 relating to the second MJFF grant. MJFF grants were awarded to support clinical research activities
and have been recognized in accordance with IFRS.



Operating, General and Administrative (OG&A)



For the years
ended December 31,



|                                                                    |  | 2014 (Cdn$) |           |  | 2013 (Cdn$) |  |           | Cdn$ change in 2014 |  |  | % change in 2014 | 
|------------------------------------------------------------------- |  | ----------- | --------- |  | ----------- |  | --------- | ------------------- |  |  | ---------------- | 
|Operating, general and administrative excluding the following items |  |             | 3,298,863 |  |             |  | 1,553,949 |                     |  |  | 1,744,914        | 
|Salaries, benefits, bonuses and board fees                          |  |             | 1,707,238 |  |             |  | 1,266,111 |                     |  |  | 441,127          | 
|Share-based payments                                                |  |             | 738,584   |  |             |  | 354,630   |                     |  |  | 383,954          | 
|Depreciation of property, plant and equipment                       |  |             | 16,131    |  |             |  | 2,050     |                     |  |  | 14,081           | 
|Total OG&A                                                          |  |             | 5,760,816 |  |             |  | 3,176,740 |                     |  |  | 2,584,076        | 



OG&A costs for the year ended
December 31, 2014 were higher than the prior year due mainly to increases in salaries and benefits associated with the hiring of
new staff, investor and public relations activities, professional, legal and listing fees incurred in connection with the Company’s
uplisting to the TSX, increases in employee base salaries, and travel costs. In addition, there were consulting fees associated
with commercial assessments and studies of APL-130277 during the year ended December 31, 2014. Share-based payments expense increased
due to the higher Black Scholes fair value recognized for options vested during the year ended December 31, 2014.





- 84 -







Other Expenses (Recoveries)



For the years
ended December 31,



|                                                            |  | 2014 (Cdn$) |          |   | 2013 (Cdn$) |  |            | Cdn$ change in 2014 |  |  | % change in 2014 |  
|----------------------------------------------------------- |  | ----------- | -------- | - | ----------- |  | ---------- | ------------------- |  |  | ---------------- | -
|Unrealized foreign exchange (gain) loss                     |  |             | (691,578 | ) |             |  | 44,520     |                     |  |  | (736,098         | )
|Loss on impairment of intangible assets                     |  |             | 94,449   |   |             |  | -          |                     |  |  | 94,449           |  
|Severance and prior years’ bonuses                          |  |             | -        |   |             |  | 762,103    |                     |  |  | (762,103         | )
|Debenture accretion and interest costs                      |  |             | -        |   |             |  | 187,975    |                     |  |  | (187,975         | )
|Gain on debenture exchange                                  |  |             | -        |   |             |  | (1,153,000 | )                   |  |  | 1,153,000        |  
|Interest income net of interest expense and related charges |  |             | (47,951  | ) |             |  | 915        |                     |  |  | (48,866          | )



There were several one-time transactions
that occurred during the year ended December 31, 2013, which did not recur during the year ended December 31, 2014. Primarily,
on March 1, 2013, debentures were exchanged for common shares and warrants, resulting in a gain of Cdn$1,153,000, and the elimination
of further accretion and interest expenses associated with the debentures. The gain on the exchange of debentures for common shares
and warrants was recorded due to the Cdn$4,030,244 carrying value of debt instruments extinguished exceeding the fair value of
the common shares and warrants issued in exchange. In addition, specific severance and bonus accruals that were triggered upon
completion of the March 2013 short form prospectus offering did not recur in 2014.



Unrealized foreign exchange gains for the
year ended December 31, 2014 were higher than the loss for the year ended December 31, 2013 due to unrealized gains on significantly
higher U.S. dollar cash balances on hand at December 31, 2014, combined with a strengthening of the U.S. dollar, compared to December
31, 2013. As at December 31, 2014, we had cash of US$10,663,238 denominated in U.S. dollars, compared to US$237,964 at December
31, 2013.



During the year ended December 31, 2014,
we recognized an impairment loss on an intangible asset. We had previously licensed to another research and development company
patented technologies associated with our previous product candidate. On December 31, 2014, due to the lack of any progress on
the licensed project, the Company reviewed the carrying value of the intangible asset for potential impairment. The Company determined
that there were no expected future cash flows attributable to this asset and recorded an impairment charge of Cdn$94,449 to write
down the carrying value of the intangible asset to zero.





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.



- 85 -







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)





|                                                            |  | Q4 2015 (Cdn$) |             |   | Q3 2015 (Cdn$) |  |             | Q2 2015 (Cdn$) |  |  | Q1 2015 (Cdn$) |  
|----------------------------------------------------------- |  | -------------- | ----------- | - | -------------- |  | ----------- | -------------- |  |  | -------------- | -
|Total assets                                                |  |                | 106,875,000 |   |                |  | 111,724,000 |                |  |  | 112,957,000    |  
|R&D                                                         |  |                | 8,639,000   |   |                |  | 7,447,000   |                |  |  | 8,397,000      |  
|OG&A                                                        |  |                | 3,675,000   |   |                |  | 2,704,000   |                |  |  | 3,130,000      |  
|Other operating expenses (recoveries)                       |  |                | (3,782,000  | ) |                |  | (7,262,000  | )              |  |  | (562,000       | )
|Interest income net of interest expense and related charges |  |                | (2,000      | ) |                |  | (2,000      | )              |  |  | (6,000         | )
|Loss and comprehensive loss                                 |  |                | 8,530,000   |   |                |  | 2,887,000   |                |  |  | 10,959,000     |  
|Loss per share (basic and diluted)                          |  |                | 0.70        |   |                |  | 0.24        |                |  |  | 1.50           |  







|                                                            |  | Q4 2014 
(Cdn$) |            |   | Q3 2014
 (Cdn$) |  |            | Q2 2014 
(Cdn$) |  |  | Q1 2014
 (Cdn$) |  
|----------------------------------------------------------- |  | --------------- | ---------- | - | --------------- |  | ---------- | --------------- |  |  | --------------- | -
|Total assets                                                |  |                 | 18,551,000 |   |                 |  | 20,397,000 |                 |  |  | 21,540,000      |  
|R&D                                                         |  |                 | 3,094,000  |   |                 |  | 1,167,000  |                 |  |  | 1,246,000       |  
|OG&A                                                        |  |                 | 2,365,000  |   |                 |  | 1,182,000  |                 |  |  | 1,220,000       |  
|Other operating expenses (recoveries)                       |  |                 | (343,000   | ) |                 |  | (644,000   | )               |  |  | 367,000         |  
|Interest income net of interest expense and related charges |  |                 | (16,000    | ) |                 |  | (13,000    | )               |  |  | (17,000         | )
|Loss and comprehensive loss                                 |  |                 | 5,100,000  |   |                 |  | 1,692,000  |                 |  |  | 2,816,000       |  
|Loss per share (basic and diluted)                          |  |                 | 1.03       |   |                 |  | 0.34       |                 |  |  | 0.62            |  







Other operating expenses (recoveries) consist
of unrealized foreign exchange gain or loss, 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.



- 86 -







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 Cdn$104,911,307 at
December 31, 2015 compared to Cdn$17,448,497 at December 31, 2014. Such increase was substantially due to our underwritten
public offering in the United States that closed on June 23, 2015 and our private placement that closed on March 31, 2015. Accounts
payable and accrued liabilities as at December 31, 2015 was Cdn$5,240,617 compared to Cdn$3,080,631 at December 31, 2014.
Such increase was primarily due to increased 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 December 31,
2015, we had 766,867 warrants outstanding with an exercise price of Cdn$9.20, which, if exercised as of December 31, 2015, would
have resulted in gross proceeds to us of approximately Cdn$7,055,176. Also, as at December 31, 2015, we had 2,322,159 warrants
outstanding with an exercise price of Cdn$12.96, which, if exercised as of December 31, 2015, would have resulted in gross proceeds
to us of approximately Cdn$30,095,181. 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.





- 87 -







Operating Activities





For the year ended December 31, 2015,
our operating activities used cash of Cdn$32,200,061 compared to Cdn$9,990,841 in the year ended December 31, 2014 and
Cdn$4,138,319 in the year ended December 31, 2013. 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 year ended December 31, 2015 reflects the net loss of Cdn$27,470,147 for the year ended December 31, 2015, 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), acquisition milestone share-based payment and unrealized gains on foreign exchange.





Investing Activities



For the year ended December 31, 2015, we
purchased Cdn$432,680 of property, plant and equipment, compared to Cdn$260,224 in the year ended December 31, 2014 and Cdn$11,442
in the year ended December 31, 2013.



Financing Activities



For the year ended December 31, 2015, our
net financing activities generated cash of Cdn$107,306,830 compared to Cdn$24,718,938 for the year ended December 31, 2014 and
Cdn$6,432,926 for the year ended December 31, 2013.



During the year ended December 31, 2015,
we raised net proceeds of Cdn$19,551,377 through a private placement of common shares, and completed an underwritten public offering
in the United States of 5,175,000 common shares for net proceeds of Cdn$81,175,277 (approximately US$66.4 million). During the
year ended December 31, 2014, we generated Cdn$22,840,236 from the completion of a short form prospectus offering in Canada with
a concurrent private placement in the U.S. During the year ended December 31, 2013, we generated Cdn$6,650,350 from prospectus
offerings in Canada. During the year ended December 31, 2015, we generated Cdn$6,454,478 in proceeds from the exercise of warrants,
compared to Cdn$1,758,584 during the year ended December 31, 2014. In addition, during the year ended December 31, 2015, we generated
Cdn$125,698 in proceeds from the exercise of stock options, compared to Cdn$120,118 during the year ended December 31, 2014. During
the year ended December 31, 2013, we repaid debentures of Cdn$217,424.



Effect of Exchange Rate Changes



For the year ended December 31, 2015, the
effect of exchange rate changes on cash was Cdn$12,788,721 as result of the Canadian dollar weakening relative to the U.S. dollar,
compared to Cdn$691,578 in the year ended December 31, 2014 and (Cdn$44,520) in the year ended December 31, 2013.



As at December 31, 2015, we had cash of
Cdn$104,526,864 and accounts payable of Cdn$1,470,185 denominated in U.S. dollars (December 31, 2014 – Cdn$12,370,423 and
Cdn$1,539,496, respectively, and December 31, 2013 – Cdn$253,050 and Cdn$474,868, respectively).



See “Item 1A. Risk Factors –
Risks Related to Our Financial Position and Need for Additional Capital.”





- 88 -











Off-Balance Sheet Arrangements



We do not have any off-balance sheet arrangements.



Related Party Transactions



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



|                                                      |  | 2015 |            |  | 2014 |  |           | 2013 | 
|----------------------------------------------------- |  | ---- | ---------- |  | ---- |  | --------- | ---- | 
|                                                      |  | Cdn$ |            |  | Cdn$ |  |           | Cdn$ | 
|Short-term salaries, benefits and bonuses to officers |  |      | 1,790,297  |  |      |  | 1,333,789 |      | 
|Prior years’ bonuses to executives                    |  |      | -          |  |      |  | -         |      | 
|Director fees                                         |  |      | 623,620    |  |      |  | 281,438   |      | 
|Share-based payments                                  |  |      | 8,643,428  |  |      |  | 1,373,900 |      | 
|                                                      |  |      | 11,057,345 |  |      |  | 2,989,127 |      | 



Prior years’ bonuses recognized in 2013
represent bonuses awarded for performance in 2010 to 2012, but which were contingent on the raising of additional capital and were
at the discretion of our board of directors. During 2013, we completed two closings of a short-form prospectus offering in Canada
for gross proceeds of Cdn$7,317,160 and as a result, these bonuses became payable.



Share-based payments presented above represent
the grant date fair value of options issued during the year to key management.



As at December 31, 2015, included in accounts
payable and accrued liabilities was Cdn$254,932(December 31, 2014 - Cdn$128,713) due to officers
and directors. These amounts are unsecured and non-interest bearing with no fixed terms of repayment. As at December 31, 2015,
there were accrued bonuses to related parties of Cdn$533,000(December 31, 2014 - Cdn$508,710).



Employment agreements with our executive officers
provide for additional payments in the event of termination without cause. See “Item 11. Executive Compensation – Employment
Agreements” in this Annual Report on Form 10-K.



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 Cynapsus. 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.





As part of the April 15, 2014 offering,
Dexcel Pharma Technologies Ltd. subscribed for 384,615 units comprised of common shares and warrants having an aggregate subscription
price of Cdn$4,000,000. Dexcel Pharma Technologies Ltd. is an affiliate of Dexxon Holdings Ltd., which is a strategic pharmaceutical
investor and significant shareholder of Cynapsus, and which also has two directors on our board of directors.



As part of the March 31, 2015 private placement,
Dexxon Holdings Ltd. subscribed for 271,381 common shares having an aggregate subscription price of Cdn$4,133,684.



As part of the June 23, 2015 public offering
in the United States, Dexxon Holdings Ltd. subscribed for 733,500 common shares having an aggregate subscription price of Cdn$12,658,596
(US$10,269,000).



- 89 -







During the year ended December 31, 2015, fees
of Cdn$52,726 were paid or payable to one of our directors as compensation for consulting services rendered.



Commitments and Contingent Liabilities



As at December 31, 2015, 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 | 
|----------------------------- |  | ---------------- | ---------- |  | ----------- |  | --------- | ----- | 
|                              |  | Cdn$             |            |  | Cdn$        |  |           | Cdn$  | 
|Purchase Obligations          |  |                  | 18,284,000 |  |             |  | 4,778,000 |       | 
|Operating Leases              |  |                  | 172,000    |  |             |  | 362,000   |       | 
|Total Contractual Obligations |  |                  | 18,456,000 |  |             |  | 5,140,000 |       | 



Of the total purchase obligations, one consulting
contract contains a change of control clause in which, subject to certain conditions, we have agreed to pay the consultant 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 our financial statements for the year ended December 31, 2015. 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 December 31, 2015, the maximum amount of any contingent liability, based on a remaining term of five months, was Cdn$343,453,
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 Cdn$3,629,431 and would be payable within one year, but are not included in the table of purchase
obligations above.



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



Under the terms of the amended Adagio Share
Purchase Agreement, we are required to pay the former Adagio shareholders contingent consideration of Cdn$2,500,000 upon the 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 price immediately prior to the first public announcement of the results of such study. This study had not been started
as at December 31, 2015, and the amount has not been included in the table of purchase obligations above.



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.
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 are also described below.





- 90 -







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 financial statements were the same as those applied to our consolidated financial statements
as at and for the years ended December 31, 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.



Share Capital



Since the year ended December 31, 2015,
the following changes have occurred to common shares, stock options and warrants of Cynapsus:



|                           |  | As at March 8, 2016 |           
|-------------------------- |  | ------------------- | ----------
|                           |  | Number of shares    |           
|                           |  | #                   |           
|As at December 31, 2015    |  |                     | 12,278,133
|Warrants exercised in 2016 |  |                     | 22,433    
|As at March 8, 2016        |  |                     | 12,300,566





Exercised Warrants



Summary of warrants exercised since the year
ended December 31, 2015 are as follows:



|Number of Warrants |        |  | Cash Proceeds |  |         | Exercise Price |  |  | Expiry Date | 
|------------------ | ------ |  | ------------- |  | ------- | -------------- |  |  | ----------- | 
|#                  |        |  | Cdn$          |  |         | Cdn$           |  |  |             | 
|                   | 12,858 |  |               |  | 118,294 |                |  |  | 9.20        | 
|                   | 5,200  |  |               |  | 52,000  |                |  |  | 10.00       | 
|                   | 4,375  |  |               |  | 56,700  |                |  |  | 12.96       | 
|                   | 22,433 |  |               |  | 226,994 |                |  |  |             | 



- 91 -







ITEM 7A. 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 year ended December 31, 2015.



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 December 31, 2015, we had cash of Cdn$104,911,307
and prepaid expenses and other current assets of Cdn$870,018 (December 31, 2014 - Cdn$17,448,497 and Cdn$269,779, respectively)
to settle current liabilities of Cdn$5,240,617 (December 31, 2014 - Cdn$3,080,631). 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 Cdn$104,911,307 as at December 31, 2015 (December 31, 2014 - Cdn$17,448,497). 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 Canadian dollar and all amounts in the condensed interim consolidated financial statements are expressed
        in Canadian 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.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The following table summarizes accounts denominated in U.S. dollars, reported in Canadian dollar equivalents, and the effective US$/Cdn$ exchange rate applied as at:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             





- 92 -











|                       |  | December 31, 
2015 |             |   | December 31, 
2014 |  |            | December 31, 
2013 | 
|---------------------- |  | ------------------ | ----------- | - | ------------------ |  | ---------- | ------------------ | 
|                       |  | $                  |             |   | $                  |  |            | $                  | 
|Cash                   |  |                    | 104,526,864 |   |                    |  | 12,370,423 |                    | 
|Accounts payable       |  |                    | (1,470,185  | ) |                    |  | (1,539,496 | )                  | 
|Net exposure           |  |                    | 103,056,679 |   |                    |  | 10,830,927 |                    | 
|                       |  |                    |             |   |                    |  |            |                    | 
|US$/Cdn$ exchange rate |  |                    | 1.384       |   |                    |  | 1.160      |                    | 









| |  | Based on
    our foreign currency exposures noted above, a 10% strengthening of the U.S. dollar against the Canadian dollar as at December
    31, 2015 would have decreased the net loss by approximately Cdn$10,300,000 (December 31, 2014 - Cdn$1,070,000 and December
    31, 2013 – increase by Cdn$28,000), assuming all other variables remained constant. A 10% weakening of the U.S. dollar
    would have an opposite effect, assuming that all other variables remained constant.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | See “Item 1A.
    Risk Factors – Risks Related to Our Financial Position and Need for Additional Capital” in this Annual Report on
    Form 10-K. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    –     Effect of Exchange Rate Changes” in this Annual Report on Form 10-K, which information is incorporated
    herein by     reference.                                                                                          





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



| |  | We are exposed to price risk with respect to the 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.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 93 -







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 year ended December 31, 2015. We and our subsidiary are not subject to externally imposed capital requirements.



| | ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
| | ------- | --------------------------------------------



The financial
statements required by this Item 8 are contained on pages F-1 through F-42 of this Annual Report on Form 10-K and are incorporated
herein by reference.



Certain supplementary
financial information required by this Item 8 is contained under “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Summary of Quarterly Results” of this Annual Report on Form 10-K and is incorporated
herein by reference.



| | ITEM 9. | CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
| | ------- | -------------------------------------------------------------------------------------



Effective September 18, 2014, our audit committee
recommended and approved, and our board of directors approved, the resignation of our auditor, McGovern, Hurley, Cunningham, LLP,
or McGovern Hurley, and retained Ernst & Young LLP as our new independent registered public accounting firm effective September
19, 2014. McGovern Hurley audited and provided an opinion on our consolidated financial statements for the years ended December
31, 2013 and 2012 on April 8, 2014. McGovern Hurley did not provide an audit opinion on our consolidated financial statements
for any period subsequent to the year ended December 31, 2013.



- 94 -







McGovern Hurley has not issued any report on
our consolidated financial statements for the two most recent fiscal years ended prior to McGovern Hurley’s resignation,
December 31, 2013 and 2012, that contained an adverse opinion or a disclaimer of opinion, nor that was qualified or modified as
to uncertainty, audit scope or accounting principles. In addition, during the two most recent fiscal years ended prior to McGovern
Hurley’s resignation, December 31, 2013 and 2012, and the subsequent interim period through September 18, 2014, there were
no (i) disagreements with McGovern Hurley on any matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure that, if not resolved to the satisfaction of McGovern Hurley, would have caused them to make reference
thereto in their report on our financial statements for such years, and (ii) there were no reportable events (as defined in
Item 304(a)(1)(v) of Regulation S-K).



During our two most recent fiscal years ended
prior to McGovern Hurley’s resignation, December 31, 2013 and 2012, and in the subsequent interim period through September
18, 2014, we did not consult Ernst & Young LLP regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to our financial statements,
and neither where a written report or oral advice was provided to us that Ernst & Young LLP concluded was an important factor
considered by us in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was
the subject of a disagreement (as defined in Item 304(a)(1)(iv) and the related instructions of Regulation S-K) or a reportable
event (as defined in Item 304(a)(1)(v) of Regulation S-K).



We furnished a copy of the above disclosures
to McGovern Hurley and requested that McGovern Hurley provide a letter addressed to the SEC stating whether or not it agrees with
the statements made herein. A copy of the letter from McGovern Hurley dated March 9, 2016 is filed as Exhibit 16.1 to
this Annual Report on Form 10-K.



ITEM
9A.	 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 December 31, 2015. Based on such evaluation, our CEO and CFO concluded that as of December 31,
2015, 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.





- 95 -







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.



Management’s
Annual Report on Internal Control over Financial Reporting



This Annual Report on Form 10-K does not include
a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered
public accounting firm due to a transition period established by rules of the SEC for newly public companies.



Changes in Internal Control over
Financial Reporting



There were no changes in our internal control
over financial reporting during the quarter ended December 31, 2015 that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.



ITEM 9B.	OTHER INFORMATION.



Not applicable.





- 96 -







PART III



ITEM
10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.



Executive Officers and Directors



The following table sets forth the name, age
and position of each of our executive officers and directors as of the date of this Annual Report on Form 10-K. The business address
of our executive officers and directors is our office address at 828 Richmond Street West, Toronto, Ontario, M6J 1C9, Canada.



|Name                    |  | Age |  | Position                                                                                    
|----------------------- |  | --- |  | --------------------------------------------------------------------------------------------
|Executive officers      |  |     |  |                                                                                             
|Anthony Giovinazzo      |  | 59  |  | President, Chief Executive Officer and a Director                                           
|Dr. Albert Agro         |  | 51  |  | Chief Medical Officer                                                                       
|Dr. Thierry Bilbault    |  | 57  |  | Chief Scientific Officer and Executive Vice President, Chemistry, Manufacturing and Controls
|Andrew Williams         |  | 45  |  | Chief Operating Officer and Chief Financial Officer                                         
|                        |  |     |  |                                                                                             
|Directors               |  |     |  |                                                                                             
|Rochelle Stenzler(1)(2) |  | 62  |  | Chairperson of the Board                                                                    
|Tomer Gold(2)           |  | 44  |  | Director                                                                                    
|Ronald Hosking(1)(2)    |  | 71  |  | Director                                                                                    
|Dr. Perry Molinoff(2)   |  | 75  |  | Director                                                                                    
|Ilan Oren(1)            |  | 31  |  | Director                                                                                    
|Nan Hutchinson(3)       |  | 54  |  | Director                                                                                    
|Tamar Howson(1)         |  | 67  |  | Director                                                                                    








| | (1) | Member of the audit committee
| | --- | -----------------------------

| | (2) | Member of the corporate governance, nominating and compensation committee
| | --- | -------------------------------------------------------------------------

| | (3) | Previously served as a member of the corporate governance, nominating
and compensation committee from May 7, 2014 to March 8, 2016.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



- 97 -







Executive Officers



Anthony Giovinazzo has served as our
President and Chief Executive Officer since November 2009 and as a member of our board of directors since May 2012. He is one of
the inventors of the original APL-130277 intellectual property that was acquired by us. Mr. Giovinazzo has been involved in the
CNS field (relating to PD, Alzheimer’s, pain and anxiety) for over 20 years, with experience in clinical development, intellectual
property protection and licensing. From April 2006 to November 2009, Mr. Giovinazzo served as the Chief Executive Officer
of Cervelo Pharmaceuticals Inc., a biopharmaceutical company. From 2002 to 2006, he served as Chief Executive Officer of Cita NeuroPharmaceuticals
Inc., a biopharmaceutical company. Mr. Giovinazzo obtained a Chartered Director (C.Dir.) and Audit Committee Certification
(A.C.C.) from The Director’s College (where he was also a faculty member) in 2006 and 2011, respectively. He attended the
Harvard Business School Executive Program: Leadership and Strategy in Pharmaceuticals and Biotech in 2006. Mr. Giovinazzo
completed his M.B.A. at IMD Geneva, Switzerland; Graduate Certificate Studies in Canadian Law (Taxation) Osgoode Hall Law School,
York University; and a B.A. in Economics and Accounting, at McMaster University. He was also a business advisory board member of
the National Research Council of Canada’s Genomics funding program, for two terms from 2007 to 2012.



Albert Agrohas served as our Chief Medical
Officer since August 2010. Since September 2008, Dr. Agro has also served as President and Chief Executive Officer of HNZ
Strategic Holdings, Inc., a pharmaceutical and biotech consulting firm developing treatments for serious diseases. Prior to this
role, Dr. Agro was Senior Vice President, Drug Development of TransTech Pharma, a pharmaceutical company, from September 2007
to December 2009. Dr. Agro completed his Ph.D. from the Department of Medicine at McMaster University. Dr. Agro has been
an assistant professor, Department of Pathology and Molecular Medicine at McMaster University since September 1996.



Thierry Bilbault has served as our Chief
Scientific Officer and Executive Vice President of Chemistry, Manufacturing and Controls since October 2014. Dr. Bilbault
joined our company from Galderma Pharma S.A. (part of Nestle Skin Health S.A.), a dermatology company, where he was the Technical
and Industrial Development Director from September 2009 to October 2014. He served as Vice President New Technology and Product
Innovation at Novartis, a pharmaceutical company, from May 2006 to August 2009. Dr. Bilbault completed an M.S. in Biological
Engineering from CUST Engineering (Clermont-Ferrand, France), and was granted a Ph.D. in Molecular and Cellular Biology from Clermont-Ferrand
II (Clermont-Ferrand, France).



Andrew Williams is one of our co-founders
and has served as our Chief Operating Officer since March 2006 and as our Chief Financial Officer since June 2007. Mr. Williams
joined our company from Global Mentoring Solutions (GMS), an information and technology services company, where he was the Vice
President of Strategic Planning from 2003 to 2004. Previous to his work at GMS, Mr. Williams was the Director of Business Development
at CDI Education (CDI) from 2001 to 2002. Prior to joining CDI, Mr. Williams spent five years as a consultant at Williams &
Goffin Consulting from 1995 to 2000 where he had engagements for clients in the retail, energy, and financial services industries.
Mr. Williams earned an M.B.A. from the Richard Ivey School of Business at the University of Western Ontario, and a B.A. (Honours)
in Economics from Queen’s University.



- 98 -







Directors



Rochelle Stenzler has served as the Chairperson
of our board of directors since March 2011 and has been a member of our board of directors since March 2006. Ms. Stenzler has been
the Principal of Rochelle Stenzler Consulting since 2004. Ms. Stenzler previously served as the President and General Manager of
Pharma Plus Drugmarts Ltd., a retail drugstore company, from 1992 to 1997; the President of Revlon Canada Inc. from 1997 to 1998;
the President, International Operations of TLC Laser Eye Centers Inc., an operator of refractive centers throughout North America
and the world’s largest provider of laser vision correction, from 1999 to 2000; and the President and Chief Executive Officer
of TouchLogic Corporation, a company that develops and markets on an outsourced basis interactive voice response solutions and
services to North American businesses, from 2000 to 2003. Ms. Stenzler currently serves as a director and audit committee member
at Humber River Hospital and a director at WPO (World Presidents Organization), Ontario and was previously a board advisor to PCAS
(Patient Care Automation Services). Ms. Stenzler is a graduate of the University of Toronto with a BSc.Phm. and the Rotman School
of Management, Institute of Corporate Directors, with an ICD.D.



Tomer Gold has served as a member of
our board of directors since May 2013. Mr. Gold has been the Vice President, Research and Development of Dexcel Pharma Technologies
Ltd., an international pharmaceutical company involved in the development, manufacture and commercialization of pharmaceuticals,
since 2011. From 1999 to 2011, Mr. Gold was employed by Teva Pharmaceutical Ltd., a pharmaceutical company, and at his last
position led the Pharmaceutical Development - European Union team of the Global Generic Research and Development branch. Mr. Gold
holds a B.Sc. in Chemical Engineering and was granted a M.Sc. in Biomedical Engineering from the Technion—Israel Institute
of Technology in Haifa, Israel.



Ronald Hosking has served as a member
of our board of directors since January 2010. Mr. Hosking has been the Chief Financial Officer at PlantForm Corporation, a
biopharmaceutical company, since December 2008. From 1997 to 2008, Mr. Hosking was Vice President Finance and Chief Financial
Officer of PreMD Inc., a developer of point of care medical devices. Mr. Hosking is a C.P.A., C.A. and a graduate of the University
of Toronto with a B.Com. (Finance).



Perry Molinoff has served as a member
of our board of directors since May 2012. Dr. Molinoff has been a member of the faculty at the University of Pennsylvania
since 1981, where he was the Vice Provost for Research from 2003 to 2006. He is an Emeritus Professor in the Department of Pharmacology
at the University of Pennsylvania and has been an Adjunct Professor of Physiology and Neuroscience at the Medical University of
South Carolina, or MUSC, Charleston, South Carolina since 2001. He has been the Chairman of Foundation for Research Development
at MUSC since April 2014. Dr. Molinoff has been the Chairman of the Innovation Support Center, part of the Harrington Discovery
Institute operating out of University Hospitals and Case Western Reserve University since 2012. He has previously been a member
of the board of directors of both publicly traded and private companies including Palatin Technologies, Cypress Biosciences, Aegera
Therapeutics and Cita Neuropharma. Dr. Molinoff received his M.D. from Harvard University.



Ilan Oren has served as a member of our
board of directors since May 2013. Mr. Oren has served as the Vice President, Business Development at Dexcel Pharma Technologies
Ltd., an international pharmaceutical company involved in the development, manufacture and commercialization of pharmaceuticals,
since 2011. Mr. Oren has served on the board of two pharmaceutical companies, Roivant Sciences Ltd. and Axovant Sciences Ltd.,
since May 2014 and March 2015, respectively. He previously worked at L.E.K. Consulting, a life sciences advisory firm, from 2007
to 2011. Mr. Oren holds a B.A. in Economics from Harvard University.



Nan Hutchinson has served as a member
of our board of directors since February 2014. Ms. Hutchinson was the Senior Vice President of Marketing and Sales for URL
Pharma, a privately held pharmaceutical company, from November 2009 to October 2010. From April 2001 to November 2003, Ms. Hutchinson
was a Vice President of Marketing at Bristol Myers Squibb, a biopharmaceutical company. She managed certain business units for
Johnson & Johnson from 1986 to 2001. Ms. Hutchinson holds a B.Com. from Mount Allison University and a M.B.A. degree
from Boston University.



- 99 -







Tamar Howson has served as a member of
our board of directors since March 2015. Ms. Howson previously served as Senior Vice President at Bristol-Myers Squibb, a
pharmaceutical company, from 2001 to 2007 and SmithKline Beecham, a pharmaceutical company, from 1996 to 2000. Ms. Howson
currently serves as a business development and strategy consultant to biopharmaceutical companies and she also serves as a director
at Enzymotec Ltd., Oxigene, Inc. and Organovo Holdings Inc. Ms. Howson has served as a member of the audit committees of Oxigene,
Inc. since 2012 and Organovo Holdings Inc. since 2014. She has formerly served as a director at several biotechnology companies,
including Actavis plc, Ariad Pharmaceuticals, Inc., Cardax, Inc., Idenix Pharmaceuticals Inc., NPS Pharmaceuticals Inc., SkyePharma
PLC and Warner Chilcott plc. Ms. Howson holds an M.B.A from Columbia University, a M.S. from City University of New York,
and a B.S. in Chemical Engineering from the Technion-Israel Institute of Technology.



Corporate Governance



Election of Officers; Arrangements Concerning Election of
Directors; Family Relationships



Our executive officers are appointed by, and
serve at the discretion of, our board of directors. We are not a party to, and are not aware of, any voting agreements among our
shareholders. There are no family relationships among our executive officers and directors.



We entered into an agreement in March 2013
with Dexxon Holdings Ltd., or Dexxon, pursuant to which Dexxon previously had the right to nominate two individuals
for appointment to our board of directors, subject to approval of the TSXV. Pursuant to such agreement, Dexxon nominated
Tomer Gold and Ilan Oren and such individuals were appointed to our board of directors in May 2013. Subsequent thereto,
Messrs. Gold and Oren have been elected or re-elected, as applicable, by our shareholders as directors of Cynapsus; however,
Messrs. Gold and Oren are no longer being appointed to our board of directors by Dexxon pursuant to such
agreement. As of December 31, 2015, Dexxon Holdings Ltd./Dexcel Pharma Technologies Ltd. beneficially owned
approximately 20.7% of our common shares. Mr. Gold is the Vice President – Research & Development of Dexcel Pharma
Technologies Ltd. and Mr. Oren is the Vice President – Business Development of Dexcel Pharma Technologies Ltd.



Composition of our Board of Directors



Our board of directors is currently comprised
of eight members. Our directors are elected at each annual general meeting of our shareholders and serve until the next annual
meeting of shareholders or until their successors are elected or appointed, unless their positions are earlier vacated. Our articles
provide that the number of directors may be between three and 15. Under the Canada Business Corporations Act, at least 25%
of our directors must be resident Canadians (unless we have less than four directors, in which case, at least one director must
be a resident Canadian).



Ms. Stenzler is currently the Chairman of our
board of directors. No lead director has been appointed by our board of directors.



- 100 -







Director Independence



Our board of directors has determined that six
of the eight members of our board of directors are “independent,” as defined under the NASDAQ rules and for purposes
of Canadian securities laws and therefore, a majority of the directors on our board of directors is independent. For purposes of
the NASDAQ rules, an independent director means a person other than an executive officer or employee of the company or any other
individual having a relationship which, in the opinion of our board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director, subject to certain additional limitations. A director is considered
to be independent for the purposes of Canadian securities laws if the director has no direct or indirect material relationship
to the company. A material relationship is a relationship that could, in the view of the board of directors, be reasonably expected
to interfere with the exercise of a director’s independent judgment. Certain individuals, such as our employees and executive
officers, are deemed by Canadian securities laws to have material relationships with us.



Mr. Giovinazzo is not independent because he
is our President and Chief Executive Officer. Ms. Hutchinson is not independent as we have paid and are paying fees to Ms. Hutchinson
for certain consulting services that she provides to us. See “Item 13. Certain Relationships and Related Transactions, and
Director Independence – Consulting Agreement” in this Annual Report on Form 10-K, which information is incorporated
herein by reference.



Board of Directors’ Charter



The fundamental responsibility of our board
of directors is to appoint a competent executive team and to oversee the management of our business, with a view to maximizing
shareholder value and ensuring corporate conduct in an ethical and legal manner through an appropriate system of corporate governance
and internal control. Our board of directors has adopted a charter to assist it in supervising the management of our business and
affairs.



Orientation and Continuing Education



Director orientation and continuing education
is conducted by our corporate governance, nominating and compensation committee. All newly elected directors will be provided with
a comprehensive orientation on all aspects of our business and operations by our senior management. This will include familiarization
with our reporting structure, strategic plans, significant financial, accounting and risk issues, compliance programs, policies
and management and the external auditor. Existing directors will be periodically updated in respect of these matters.



For the purposes of orientation, new directors
will be given the opportunity to meet with our President and Chief Executive Officer and select members of our board of directors
to discuss our business and activities. The orientation program will be designed to assist the directors in fully understanding
the nature and operation of our business, the role of the board and its committees, and the contributions that individual directors
are expected to make.



Ethical Business Conduct



Our board of directors has adopted a code of
business conduct and ethics, or Code of Ethics, that applies to all of our directors, officers and employees. Copies of our Code
of Ethics may be obtained upon request from our Chief Operating Officer at 828 Richmond Street West, Toronto, Ontario M6J 1C9,
telephone 416-703-2449.



A copy of our Code of Ethics has been provided
to each of our directors, officers and employees, and all of our agents and representatives, including consultants. Each of our
officers and directors is required to acknowledge that he or she has read such code and annually disclose any transactions or matters
of potential conflict, and our other employees may be required to make similar disclosures from time to time. A copy of our Code
of Ethics will be provided to each new director, officer and employee, and each such person will be required to acknowledge that
he or she has read such code before commencing activities as a director, officer, or employee, as the case may be.



- 101 -







Our board of directors is responsible for determining
appropriate actions to be taken in the event of violations of our Code of Ethics. Such actions will be reasonably designed to deter
wrongdoing and to promote accountability for adherence to our Code of Ethics.



The full text of our Code of Ethics is posted
on the Investor Relations/Corporate Governance section of our website at www.cynapsus.ca. The reference to our website address
in this Annual Report on Form 10-K does not include or incorporate by reference the information on our website into this Annual
Report. We intend to disclose future amendments to our Code of Ethics, or waivers of these provisions, that are required to be
disclosed under the rules of the SEC or NASDAQ on our website or in public filings.



We also have adopted Securities Trading and
Reporting Guidelines regarding insider trading and confidentiality that prohibits our personnel from, without limitation, trading
in our securities while in possession of material nonpublic information regarding our company or tipping or disclosing material
nonpublic information to outsiders.



Committees of our Board of Directors



Our board of directors has established two committees:
the audit committee and the corporate governance, nominating and compensation committee. All of our committee members are “independent,”
as defined under the NASDAQ rules and for purposes of Canadian securities laws.



Audit Committee



Our audit committee is currently comprised of
four members, including Mr. Hosking (Chairman), Mr. Oren, Ms. Stenzler and Ms. Howson. Each member of our audit committee
is a non-employee member of our board of directors. We have designated Mr. Hosking as our “audit committee financial expert,”
as defined under Item 407 of Regulation S-K. In addition, each member of our audit committee is financially literate, as required
by the NASDAQ rules and Canadian securities laws. All of the members of our audit committee are “independent” members
of our board of directors, as required by the NASDAQ rules and Canadian securities laws.



Our audit committee is responsible for overseeing
our financial reporting processes on behalf of our board of directors. Our independent auditors report directly to our audit committee.
Specific responsibilities of our audit committee include, without limitation:



| | • | meeting with management and the independent auditor to review and discuss and to recommend to our board of directors for approval
prior to public disclosure, the audited annual consolidated financial statements and unaudited quarterly consolidated financial
statements, including reviewing the specific disclosures in management’s discussion and analysis of financial condition and
results of operations and the quarterly interim reports;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reviewing with management and the independent auditor major issues regarding accounting principles and financial statement
presentations, including any significant changes in our selection or application of accounting principles and major issues as to
the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 102 -







| | • | discussing with management our material financial risk exposures and the steps management has taken to monitor and control
these exposures, including our financial risk assessment and financial risk management policies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | recommending to the board of directors the appointment of the independent auditor, and overseeing and reviewing the independent
auditor engaged, for the purpose of preparing or issuing any audit report or performing other audit, review or attest services
for us;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reviewing and approving the audit plans, scope and proposed audit fees to be paid to the independent auditor for audit services
and pre-approving the retention of the independent auditor for any permitted non-audit service;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reviewing with an appropriate officer our compliance policies, legal matters and any reports or inquiries received from regulators
or governmental agencies that could have a material effect upon our financial position and that are not subject to the oversight
of another committee of our board of directors; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | administering procedures (as set forth in our audit committee charter) for the receipt, retention and follow-up of complaints
received by us regarding accounting, internal control over financial reporting, disclosure controls and procedures or auditing
matters and the confidential, anonymous submission of concerns by our employees regarding any of these matters.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Each member of the audit committee has experience
reviewing financial statements and dealing with related accounting and auditing issues.



The audit committee has the sole authority to
pre-approve all audit and permitted non-audit services provided by the independent auditor.



Corporate Governance, Nominating and Compensation
Committee



Our corporate governance, nominating and
compensation committee is currently comprised of four members, including Dr. Molinoff (Chairman), Mr. Gold, Mr. Hosking
and Ms. Stenzler. Ms. Hutchinson was previously a member of our corporate governance, nominating and compensation
committee from May 7, 2014 to March 8, 2016. All of the members of our corporate governance, nominating and compensation
committee are “independent” directors, as defined under the NASDAQ rules and for purposes of Canadian securities
laws.



The principal responsibilities of our corporate
governance, nominating and compensation committee include: (a) reviewing the compensation of the executive officers and directors
of our company and providing recommendations to our board of directors; (b) developing a corporate governance structure, reviewing
the corporate governance practices of our company and assessing the functioning of our board of directors, its committees and its
individual members; and (c) reviewing and assessing the skills and competencies required and exhibited by the members of our
board of directors and providing recommendations concerning individuals qualified to serve as members, and as members of committees,
of our board of directors.



With respect to the compensation function, the
committee acts on behalf of our board of directors in all matters pertaining to the appointment, compensation, benefits and termination
of members of our executive officers. The committee reviews our goals and objectives relevant to the compensation of our senior
management team, as well as any annual salary, bonus, pension, severance and termination arrangements and other benefits, direct
and indirect, of our executive officers, and makes recommendations to our board of directors and/or management, as appropriate.



- 103 -







Specific responsibilities of the committee relating
to the compensation function include, without limitation:



| | • | reviewing management succession plans and processes of the Chief Executive Officer and President, the Chief Financial Officer
and Chief Operating Officer, and any other senior employees designated for this purpose by the committee from time to time, our
executive officers, and making recommendations to our board of directors and/or management, as appropriate;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reviewing any annual salary, bonus, pension, severance and termination arrangements and other benefits, direct and indirect,
of our executive officers and making recommendations to our board of directors and/or management, as appropriate;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reviewing and making recommendations to our board of directors concerning the adoption, amendment or termination of employee
compensation plans; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reviewing any proposed disclosure relating to executive compensation.
| | - | ---------------------------------------------------------------------



The corporate governance, nominating and compensation
committee also assists our board of directors in carrying out its responsibilities by reviewing corporate governance and nomination
issues and making recommendations to our board of directors, as appropriate. The committee is responsible for identifying individuals
qualified to become directors, recommending to our board of directors proposed nominees for election to the board and overseeing
the board’s overall approach to governance, board processes and leadership. In identifying potential board members, the corporate
governance, nominating and compensation committee considers, among other things, the competencies and skills the board as a whole
should possess, criteria for candidates after considering the competencies and skills of existing directors, and the competencies
and skills of each potential new nominee.



Specific responsibilities of the committee relating
to the corporate governance and nominating function include, without limitation:



| | • | acting in an advisory capacity to our board of directors on corporate governance and director succession issues;
| | - | ----------------------------------------------------------------------------------------------------------------



| | • | recommending suitable candidates for nomination for election as directors; and
| | - | ------------------------------------------------------------------------------



| | • | developing, maintaining, monitoring and updating corporate governance principles and policies as may be determined by our board
of directors or the committee to be appropriate for us.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



NASDAQ Quorum Requirement



NASDAQ Rule 5615(a)(3) permits a foreign private
issuer to follow its home country practice in lieu of certain of the requirements of the Rule 5600 Series. However, a foreign
private issuer that follows a home country practice in lieu of one or more provisions of the NASDAQ listing rules is required
to disclose in its annual reports filed with the SEC each such requirement that it does not follow and describe the home country
practice followed by the issuer in lieu of those requirements.



We do not follow Rule 5620(c), but instead follow
our home country practice. The NASDAQ minimum quorum requirement under Rule 5620(c) for a meeting of shareholders is 33.33% of
the outstanding common shares. In addition, Rule 5620(c) requires that an issuer listed on NASDAQ state its quorum requirement
in its bylaws. Our bylaws indicate that at any meeting of our shareholders, two persons present in person, each being a shareholder
entitled to vote at the meeting or a duly appointed proxyholder or representative for a shareholder so entitled, would constitute
a quorum for the transaction of any business of the company. The foregoing is consistent with the laws, customs, and practices
in Canada.



- 104 -







ITEM 11.	EXECUTIVE COMPENSATION.



As an emerging growth company, we have opted
to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term
is defined in the rules promulgated under the Securities Act. For the year ended December 31, 2015, our named executive officers
are:



| | · | Anthony Giovinazzo, our President, Chief Executive Officer, or CEO, and a director;
| | - | -----------------------------------------------------------------------------------

| | · | Albert Agro, our Chief Medical Officer, or CMO;
| | - | -----------------------------------------------

| | · | Thierry Bilbault, our Chief Scientific Officer, or CSO, and Executive Vice President, Chemistry, Manufacturing and Controls,
or EVP; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | · | Andrew Williams, our Chief Operating Officer, or COO, and Chief Financial Officer, or CFO.
| | - | ------------------------------------------------------------------------------------------



Summary Compensation Table



The following table sets forth a summary of
all compensation that was awarded to, earned by or paid to, as applicable, each of our named executive officers for the year ended
December 31, 2015.



|Name
    and principal position    |  | Salary
    (Cdn$) |         |  | Bonus(Cdn$)(1) |  |         | Stock
    awards (Cdn$) |  |  | Optionawards(Cdn$)(2)(3) |  |  | Nonequity
    incentive plan compensation (Cdn$) |           |  | Nonqualified
    deferred compensation earnings (Cdn$) |  |   | All
    Other Compensation (Cdn$) |  |  | Total
    (Cdn$) | 
|---------------------------------- |  | ----------------- | ------- |  | -------------- |  | ------- | ----------------------- |  |  | ------------------------ |  |  | ------------------------------------------------ | --------- |  | ------------------------------------------------------ |  | - | --------------------------------- |  |  | ---------------- | 
|Anthony Giovinazzo, President, CEO |  |                   | 374,556 |  |                |  | 258,824 |                         |  |  | -                        |  |  |                                                  | 2,668,784 |  |                                                        |  | - |                                   |  |  | -                | 
|Albert Agro, CMO                   |  |                   | 298,494 |  |                |  | 95,867  |                         |  |  | -                        |  |  |                                                  | 1,443,996 |  |                                                        |  | - |                                   |  |  | -                | 
|Thierry Bilbault, CSO, EVP         |  |                   | 299,501 |  |                |  | 110,869 |                         |  |  | -                        |  |  |                                                  | 1,144,748 |  |                                                        |  | - |                                   |  |  | -                | 
|Andrew Williams, COO, CFO          |  |                   | 250,618 |  |                |  | 104,277 |                         |  |  | -                        |  |  |                                                  | 1,443,996 |  |                                                        |  | - |                                   |  |  | -                | 










| | (1) | Represents cash bonuses awarded pursuant to our annual incentive plan, as set forth
in the applicable employment agreements with our named executive officers.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The amounts reported in the Option Awards column represent the grant date fair value
of the stock options granted to our named executive officers during 2015, computed in accordance with IFRS 2 – Share-based
Payment. The assumptions used in calculating the grant date fair value of the stock options reported in the Option Awards column
are set forth in Note 11 to our consolidated financial statements included in this Annual Report on Form 10-K and “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies
and Estimates — Share-based payments.” Note that the amounts reported in this column reflect the accounting cost for
these stock options and do not correspond to the actual economic value that may be received by the named executive officers upon
exercise of the options.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 105 -







| | (3) | During the fiscal year ended December 31, 2015, (i) Mr. Giovinazzo was awarded options exercisable for an aggregate of 170,000
of our common shares with a weighted average exercise price of Cdn$21.54 per share in connection with his employment as our President,
Chief Executive Officer and a director; (ii) Dr. Agro was awarded options exercisable for an aggregate of 93,750 of our common
shares with a weighted average exercise price of Cdn$21.57 per share in connection with his employment as our Chief Medical Officer;
(iii) Dr. Bilbault was awarded options exercisable for an aggregate of 71,875 of our common shares with a weighted average exercise
price of Cdn$21.51 per share in connection with his employment as our Chief Scientific Officer and Executive Vice President, Chemistry,
Manufacturing and Controls.; and (iv) Mr. Williams was awarded options exercisable for an aggregate of 93,750 of our common shares
with a weighted average exercise price of Cdn$21.57 per share in connection with his employment as our Chief Operating Officer
and Chief Financial Officer.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Elements of Compensation



We seek to achieve our compensation objectives
through different elements of compensation, including salary and both short-term and long-term incentive plans, with the incentives
having both equity and non-equity components. We believe that these various elements are important to effectively achieve the objectives
of our executive compensation philosophy.



These elements of our named executive officers’
compensation are:

| | · | base salaries;
| | - | --------------

| | · | annual performance bonuses; and
| | - | -------------------------------

| | · | participation in our Stock Option Plan.
| | - | ---------------------------------------



We also have a health, dental and disability insurance benefits
program for our employees. If the circumstances require, our corporate governance, nominating and compensation committee may, in
its sole discretion, recommend employment conditions that are different from the policies in effect.



Employment Agreements



We have entered into employment agreements
with each of our named executive officers, which may be terminated at any time by the named executive officer or us for any
reason. The agreements provide for the principal terms and conditions of our named executive officers’ employment,
including, without limitation, their base salary; an annual discretionary bonus, as determined by our board of directors,
based on the achievement of agreed-upon corporate objectives; participation in our Stock Option Plan, group insurance and
benefit plan; vacation time; and reimbursement of reasonable business expenses. Mr. Giovinazzo’s employment agreement
also provides for certain additional benefits, including certain life insurance coverage, a car allowance in the amount of
Cdn$1,000 per month and reimbursement for related expenses, including gas and insurance. The employment agreements of Messrs.
Giovinazzo, Agro, Bilbault and Williams also provide for a certain number of personal days, with pay. During the year ended
December 31, 2015, our corporate governance, nominating and compensation committee engaged the services of an internationally
recognized compensation consulting firm to provide independent advice on our executive and director compensation
program.



Pursuant to the employment agreements, as amended
effective October 1, 2015, the base salary and discretionary bonus amounts for each of our named executive officers is as follows:



- 106 -







|Named Executive Officer |  | Base Salary (Cdn$) |         |  | Bonus (% of Base Salary) |  |    | Target Bonus Amount (Cdn$) | 
|----------------------- |  | ------------------ | ------- |  | ------------------------ |  | -- | -------------------------- | 
|Anthony Giovinazzo      |  | $                  | 455,396 |  |                          |  | 50 | %(1)                       | 
|President, CEO          |  |                    |         |  |                          |  |    |                            | 
|Albert Agro             |  | $                  | 421,911 |  |                          |  | 30 | %(2)                       | 
|CMO                     |  |                    |         |  |                          |  |    |                            | 
|Thierry Bilbault        |  | $                  | 401,820 |  |                          |  | 30 | %(3)                       | 
|CSO, EVP                |  |                    |         |  |                          |  |    |                            | 
|Andrew Williams         |  | $                  | 334,850 |  |                          |  | 30 | %(4)                       | 
|COO, CFO                |  |                    |         |  |                          |  |    |                            | 










(1)    Mr. Giovinazzo’s annual bonus may be
increased to up to 75% of his base salary, as determined by our board of directors, based on an overachievement of goals.



(2)    Dr. Agro’s annual bonus may be increased
to up to 40% of his base salary, as determined by our board of directors, based on an overachievement of goals.



(3)    Dr. Bilbault’s annual bonus may be increased
to up to 40% of his base salary, as determined by our board of directors, based on an overachievement of goals.



(4)    Mr. Williams’s annual bonus may be increased
to up to 40% of his base salary, as determined by our board of directors, based on an overachievement of goals.



The annual bonus is based on criteria approved
by our board of directors, and relayed to the named executive officer, which criteria reflect our annual corporate goals and the
role of the named executive officer in attaining such goals. The named executive officer is entitled to annual reviews
of his base salary and annual bonus or any changes to the bonus plan or other forms of compensation paid or granted to the named
executive officer by us as may be determined from time to time by our board of directors. The base salary takes into account the
prevailing market conditions and comparative base salaries as well as changes in our financial condition, market capitalization,
growth and corporate size, among other factors.



The employment agreements with our named executive
officers also provide for certain payments to our named executive officers in connection with certain termination and change of
control events, as discussed below.



Termination by Us With Cause -
We are entitled, in our sole discretion, to terminate the employment of our named executive officers, without notice or payment
in lieu of notice, for cause (as defined in the employment agreements with our named executive officers). We have no obligation
to our named executive officers after the effective date of such termination except for payment of any base salary accrued to the
date of termination and any other amounts that have accrued but not yet been paid in accordance with any benefit plan prior to
the date of termination. Our named executive officers are not entitled to receive any bonus in the event of termination with cause.



Termination by Us Without Cause



We are entitled in our sole discretion to terminate
Mr. Giovinazzo’s employment agreement at any time without cause upon 18 months’ notice to Mr. Giovinazzo, or payment
in lieu of notice. Upon such termination by us, we must provide Mr. Giovinazzo with written notice or payment in lieu thereof and
an amount equal to the average of the annual bonus paid to Mr. Giovinazzo in each of the three most recent completed financial
years, divided by 12 and multiplied by 18 (Mr. Giovinazzo’s “Deemed Annual Bonus”), together with all amounts
which Mr. Giovinazzo would have been entitled to during such period and a continuation of (a) benefits coverage during such period
in respect of the elements which are permitted to be continued in accordance with the terms of the benefit plan then in place and
applicable laws; and (b) the additional benefits set out in Schedule “A” to Mr. Giovinazzo’s employment agreement
for a period of 18 months. We must pay the amount equal to the 18 months of base salary on our regular payroll dates or in a lump
sum as of the effective date of termination.



- 107 -







We are entitled in our sole discretion to terminate
Mr. Agro’s employment agreement at any time without cause upon four months’ notice plus one additional month’s
notice to Mr. Agro for every full year of employment (starting from June 1, 2013), to a maximum of 12 months, or payment in lieu
of notice. Upon such termination by us, we must provide Mr. Agro with written notice or payment in lieu thereof and an amount equal
to the average of the annual bonus paid to Mr. Agro in each of the three most recent completed financial years, pro-rated to the
effective date of termination (Mr. Agro’s “Deemed Annual Bonus”), together with all amounts which Mr. Agro would
have been entitled to during such period and a continuation of benefits coverage during such period in respect of the elements
which are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable laws. We have
the option to pay the amount equal to the base salary on our regular payroll dates or in a lump sum as of the effective date of
termination.



We are entitled in our sole discretion to terminate
Mr. Bilbault’s employment agreement at any time without cause upon six months’ notice plus one additional month’s
notice to Mr. Bilbault for every full year of employment (starting from October 6, 2014), to a maximum of 12 months, or payment
in lieu of notice. Upon such termination by us, we must provide Mr. Bilbault with written notice or payment in lieu thereof and
an amount equal to the average of the annual bonus paid to Mr. Bilbault in each of the three most recent completed financial years,
pro-rated to the effective date of termination (Mr. Bilbault’s “Deemed Annual Bonus”), together with all amounts
which Mr. Bilbault would have been entitled to during such period and a continuation of benefits coverage during such period in
respect of the elements which are permitted to be continued in accordance with the terms of the benefit plan then in place and
applicable laws. We have the option to pay the amount equal to the base salary on our regular payroll dates or in a lump sum as
of the effective date of termination.



We are entitled in our sole discretion to terminate
Mr. William’s employment agreement at any time without cause upon four months’ notice plus one additional month’s
notice to Mr. Williams for every full year of employment (starting from January 1, 2006), to a maximum of 14 months, or payment
in lieu of notice. Upon such termination by us, we must provide Mr. Williams with written notice or payment in lieu thereof and
an amount equal to the average of the annual bonus paid to Mr. Williams in each of the three most recent completed financial years,
divided by 12 and multiplied by 14 (Mr. Williams’s “Deemed Annual Bonus”), together with all amounts which Mr.
Williams would have been entitled to during such period and a continuation of benefits coverage during such period in respect of
the elements which are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable
laws. We have the option to pay the amount equal to the 14 months of base salary on our regular payroll dates or in a lump sum
as of the effective date of termination.



Termination by the Named Executive Officer
- Each of our named executive officers is entitled in his sole discretion to terminate his employment agreement for any reason
at any time upon 60 days’ prior written notice to us. Upon such termination, we have no obligation to the named executive
officer after the effective date of termination except for payment of any base salary accrued to the date of termination, the applicable
Deemed Annual Bonus and any other amounts that have accrued but not yet been paid prior to the date of termination, including any
amounts owing in accordance with any benefit plan (and, in the case of Mr. Giovinazzo, additional benefits as set out in Schedule
“A” of Mr. Giovinazzo’s employment agreement).



- 108 -







Termination by Either Party –Eitherparty is entitled to terminate the employment agreement: (i) if the other party breaches a term of the employment
agreement and such breach is not cured within 10 days after the date of written notice; or (ii) in certain circumstances relating
to bankruptcy of the other party.



In the event of termination by Mr. Giovinazzo
in accordance with paragraph (i) or (ii) above, we must pay to Mr. Giovinazzo a lump sum equal to 18 months of base salary and
the applicable Deemed Annual Bonus, together with all amounts which Mr. Giovinazzo would have been entitled to during such period
and a continuation of: (a) benefits coverage during such period in respect of the elements which are permitted to be continued
in accordance with the terms of the benefit plan then in place and applicable laws; and (b) the benefits set out in Schedule “A”
of Mr. Giovinazzo’s employment agreement for a period of 18 months.



In the event of termination by Dr. Agro in accordance
with paragraph (i) or (ii) above, we must pay to Mr. Agro a lump sum equal to four months plus one additional month for every full
year of employment (starting from April 8, 2013) of base salary, to a maximum of 12 months, and the applicable Deemed Annual Bonus,
together with all amounts which Dr. Agro would have been entitled to during such period and a continuation of benefits coverage
during such period in respect of the elements that are permitted to be continued in accordance with the terms of the benefit plan
then in place and applicable laws.



In the event of termination by Dr. Bilbault
in accordance with paragraph (i) or (ii) above, we must pay to Dr. Bilbault a lump sum equal to six months plus one additional
month for every full year of employment (starting from October 6, 2014) of base salary, to a maximum of 12 months, and the applicable
Deemed Annual Bonus, together with all amounts which Dr. Bilbault would have been entitled to during such period and a continuation
of benefits coverage during such period in respect of the elements that are permitted to be continued in accordance with the terms
of the benefit plan then in place and applicable laws.



In the event of termination by Mr. Williams
in accordance with paragraph (i) or (ii) above, we must pay to Mr. Williams a lump sum equal to four months plus one additional
month for every full year of employment (starting from January 1, 2006) of base salary, to a maximum of 14 months, and the applicable
Deemed Annual Bonus, together with all amounts which Mr. Williams would have been entitled to during such period and a continuation
of benefits coverage during such period in respect of the elements that are permitted to be continued in accordance with the terms
of the benefit plan then in place and applicable laws.



In the event of termination by us in accordance
with paragraph (i) or (ii) above, we have no obligation to the named executive officer after the effective date of termination
except for payment of any base salary accrued to the date of termination and any other amounts which have accrued but not yet been
paid prior to the date of termination, including any amounts owing in accordance with any benefit plan. The named executive officer
is not entitled to receive any bonus in the event of termination by us pursuant to paragraphs (i) or (ii) above.



Change of Control



Upon a change of control (as defined in the
employment agreement) and for a period of nine months thereafter, in the event of termination of the employment agreement by us,
or the purchaser or other third party, as the case may be, other than for cause (as defined in the employment agreement), or by
Mr. Giovinazzo for good reason (as defined in the employment agreement), we, or the purchaser or other third party, as the case
may be, must pay to Mr. Giovinazzo a lump sum equal to 18 months of base salary and the applicable Deemed Annual Bonus, together
with all amounts which Mr. Giovinazzo would have been entitled to during such period and a continuation during such period of:
(a) benefits coverage in respect of the elements that are permitted to be continued in accordance with the terms of the benefit
plan then in place and applicable laws; and (b) the benefits set out in Schedule “A” of Mr. Giovinazzo’s employment
agreement in accordance with the terms of any applicable benefit plan then in place and applicable laws.



- 109 -







Upon a change of control (as defined in the
employment agreement) and for a period of nine months thereafter, in the event of termination of the employment agreement by us,
or the purchaser or other third party, as the case may be, other than for cause (as defined in the employment agreement), or by
Dr. Agro, Dr. Bilbault or Mr. Williams, as applicable, for good reason (as defined in the employment agreement), we, or the purchaser
or other third party, as the case may be, must pay to the applicable named executive officer (a) a lump sum equal to 12 months
of base salary (in the case of to Dr. Agro or Dr. Bilbault) or a lump sum equal to 14 months of base salary (in the case of Mr.
Williams), and (b) the applicable Deemed Annual Bonus, together with all amounts to which Dr. Agro, Dr. Bilbault or Mr. Williams,
as applicable, would have been entitled to during such period and a continuation of benefits coverage during such period in respect
of the elements that are permitted to be continued in accordance with the terms of the benefit plan then in place and applicable
laws.



Termination for Death or Disability
- In the event of the death or disability (as defined in the employment agreements) of the named executive officer, we must pay
to the named executive officer an amount equal to the base salary accrued to the date of termination and the applicable Deemed
Annual Bonus, together with all amounts which have accrued but not yet been paid prior to the date of termination, including any
amounts owing in accordance with any benefit plan.



We have also entered into non-disclosure, non-solicitation
and non-competition agreements (the “NDA Agreements”) with our named executive officers prohibiting them from competing
with us and soliciting our clients for a period of one year following termination and also prohibiting soliciting our employees
for a period of two years following termination.



We have also entered into indemnification agreements
with our executive officers and directors providing for indemnification against certain risks arising in connection with their
service as executive officers and directors, as applicable, of Cynapsus.



The foregoing is a summary description of certain
terms of the employment agreements, NDA Agreements and indemnification agreements with our executive officers and directors, as
applicable, and is qualified in its entirety by reference to such agreements, copies of which are filed as exhibits to this Annual
Report on Form 10-K.



Outstanding Equity Awards at Fiscal Year-End



The following table presents, for each of our
named executive officers, information regarding outstanding stock options held as of December 31, 2015.



- 110 -









|Name               |  | Grant Date         |  | Number of Securities Underlying Unexercised Options Exercisable (Shares) |        |      | Number of Securities Underlying Unexercised Options Unexercisable (Shares) |  |        | Option Exercise Price |  |   | Option Expiration Date
|------------------ |  | ------------------ |  | ------------------------------------------------------------------------ | ------ | ---- | -------------------------------------------------------------------------- |  | ------ | --------------------- |  | - | ----------------------
|Anthony Giovinazzo |  | March 4, 2011      |  |                                                                          | 1,250  | (1)  |                                                                            |  | -      |                       |  | $ | 16.00                 
|President, CEO     |  | March 1, 2013      |  |                                                                          | 23,332 | (2)  |                                                                            |  | -      |                       |  | $ | 7.36                  
|                   |  | May 20, 2014       |  |                                                                          | 55,250 | (3)  |                                                                            |  | -      |                       |  | $ | 10.40                 
|                   |  | December 5, 2014   |  |                                                                          | 3,125  | (4)  |                                                                            |  | -      |                       |  | $ | 19.84                 
|                   |  | April 2, 2015      |  |                                                                          | 15,938 | (5)  |                                                                            |  | 47,812 |                       |  | $ | 21.76                 
|                   |  | September 18, 2015 |  |                                                                          | 21,250 | (6)  |                                                                            |  | 85,000 |                       |  | $ | 21.40                 
|Albert Agro        |  | March 23, 2012     |  |                                                                          | 4,375  | (7)  |                                                                            |  | -      |                       |  | $ | 16.00                 
|CMO                |  | May 1, 2013        |  |                                                                          | 13,562 | (8)  |                                                                            |  | -      |                       |  | $ | 5.76                  
|                   |  | May 20, 2014       |  |                                                                          | 21,875 | (9)  |                                                                            |  | -      |                       |  | $ | 10.40                 
|                   |  | April 2, 2015      |  |                                                                          | 10,938 | (10) |                                                                            |  | 32,812 |                       |  | $ | 21.76                 
|                   |  | September 18, 2015 |  |                                                                          | 10,000 | (11) |                                                                            |  | 40,000 |                       |  | $ | 21.40                 
|Thierry Bilbault   |  | December 5, 2014   |  |                                                                          | 15,234 | (12) |                                                                            |  | 25,391 |                       |  | $ | 19.84                 
|CSO, EVP           |  | April 2, 2015      |  |                                                                          | 5,469  | (13) |                                                                            |  | 16,406 |                       |  | $ | 21.76                 
|                   |  | September 18, 2015 |  |                                                                          | 10,000 | (14) |                                                                            |  | 40,000 |                       |  | $ | 21.40                 
|Andrew Williams    |  | March 4, 2011      |  |                                                                          | 1,250  | (15) |                                                                            |  | -      |                       |  | $ | 16.00                 
|COO, CFO           |  | August 19, 2011    |  |                                                                          | 2,500  | (16) |                                                                            |  | -      |                       |  | $ | 16.00                 
|                   |  | March 23, 2012     |  |                                                                          | 5,937  | (17) |                                                                            |  | -      |                       |  | $ | 16.00                 
|                   |  | August 29, 2012    |  |                                                                          | 312    | (18) |                                                                            |  | -      |                       |  | $ | 16.00                 
|                   |  | May 1, 2013        |  |                                                                          | 21,250 | (19) |                                                                            |  | -      |                       |  | $ | 5.76                  
|                   |  | May 20, 2014       |  |                                                                          | 22,187 | (20) |                                                                            |  | -      |                       |  | $ | 10.40                 
|                   |  | December 5, 2014   |  |                                                                          | 625    | (21) |                                                                            |  | -      |                       |  | $ | 19.84                 
|                   |  | April 2, 2015      |  |                                                                          | 10,938 | (22) |                                                                            |  | 32,812 |                       |  | $ | 21.76                 
|                   |  | September 18, 2015 |  |                                                                          | 10,000 | (23) |                                                                            |  | 40,000 |                       |  | $ | 21.40                 












| | (1) | Options vested 33.3% on each of March 4, 2011, September 4, 2011, and March 4, 2012.
| | --- | ------------------------------------------------------------------------------------



|(2) | Options vested 33.3% on each of September 1, 2013, March 1, 2014 and September 1, 2014.
|--- | ---------------------------------------------------------------------------------------



|(3) | Options vested 33.3% on each of May 20, 2014, November 20, 2014, and May 20, 2015.
|--- | ----------------------------------------------------------------------------------



|(4) | Options vested December 5, 2014.
|--- | --------------------------------



|(5) | Options vested or will vest, as applicable, 25% on each of April 2, 2015, April 2,
2016, April 2, 2017 and April 2, 2018.
|--- | -------------------------------------------------------------------------------------------------------------------------



|(6) | Options vested or will vest, as applicable, 20% on each of September 18, 2015, September
18, 2016, September 18, 2017, September 18, 2018 and September 18, 2019.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Options vested 33.3% on each of March 23, 2012, September 23, 2012, and March 23,
2013.
|--- | ---------------------------------------------------------------------------------------



|(8) | Options vested 33.3% on each of May 1, 2013, November 1, 2013, and May 1, 2014.
|--- | -------------------------------------------------------------------------------



|(9) | Options vested 33.3% on each of May 20, 2014, November 20, 2014, and May 20, 2015.
|--- | ----------------------------------------------------------------------------------



|(10) | Options vested or will vest, as applicable, 25% on each of April 2, 2015, April 2,
2016, April 2, 2017 and April 2, 2018.
|---- | -------------------------------------------------------------------------------------------------------------------------



- 111 -







|(11) | Options vested or will vest, as applicable, 20% on each of September 18, 2015, September
18, 2016, September 18, 2017, September 18, 2018 and September 18, 2019.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(12) | Options vested or will vest, as applicable, 12.5% on each of December 5, 2014, June
5, 2015, December 5, 2015, June 5, 2016, December 5, 2016, June 5, 2017,  December 5, 2017, and June 5, 2018.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(13) | Options vested or will vest, as applicable, 25% on each of April 2, 2015, April 2,
2016, April 2, 2017 and April 2, 2018.
|---- | -------------------------------------------------------------------------------------------------------------------------



|(14) | Options vested or will vest, as applicable, 20% on each of September 18, 2015, September
18, 2016, September 18, 2017, September 18, 2018 and September 18, 2019.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(15) | Options vested 33.3% on each of March 4, 2011, September 4, 2011, and March 4, 2012.
|---- | ------------------------------------------------------------------------------------



|(16) | Options vested August 19, 2011.
|---- | -------------------------------



|(17) | Options vested 33.3% on each of March 23, 2012, September 23, 2012, and March 23,
2013.
|---- | ---------------------------------------------------------------------------------------



|(18) | Options vested August 29, 2012.
|---- | -------------------------------



|(19) | Options vested 33.3% on each of May 1, 2013, November 1, 2013, and May 1, 2014.
|---- | -------------------------------------------------------------------------------



|(20) | Options vested 33.3% on each of May 20, 2014, November 20, 2014, and May 20, 2015.
|---- | ----------------------------------------------------------------------------------



|(21) | Options vested December 5, 2014.
|---- | --------------------------------



|(22) | Options vested or will vest, as applicable, 25% on each of April 2, 2015, April 2,
2016, April 2, 2017 and April 2, 2018.
|---- | -------------------------------------------------------------------------------------------------------------------------



|(23) | Options vested or will vest, as applicable, 20% on each of September 18, 2015, September
18, 2016, September 18, 2017, September 18, 2018 and September 18, 2019.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



Employee Benefit Plans



Our named executive officers are eligible to
participate in our employee benefit plans, including our Stock Option Plan and annual incentive plan, as set forth in the employment
agreements with our named executive officers (as discussed above), as well as our executive health, dental and disability insurance
benefits program.



Stock Option Plan



Our Stock Option Plan is a 10% “rolling”
plan. Our Stock Option Plan was established to provide an incentive to our directors, officers, employees and consultants to achieve
our longer-term objectives, to give suitable recognition to the ability and skill of such persons who contribute materially to
our success, and to attract and retain persons of experience and ability by providing them with the opportunity to acquire an increased
proprietary interest in our company.



The Stock Option Plan is administered by our
board of directors. In administering the Stock Option Plan, our board of directors may select participants to whom options are
granted, determine the terms relating to options, including the number of our common shares subject to option, the exercise price
and the expiration date of each option, and any vesting limitations.



- 112 -







The Stock Option Plan provides that the aggregate
number of common shares available for issuance, from time to time, under the plan may not exceed 10% of our issued and outstanding
common shares. In addition, the aggregate number of common shares available for issuance under the plan to (i) any one person may
not exceed 5% of our issued and outstanding common shares, (ii) to our insiders may not exceed 10% of our issued and outstanding
common shares, (iii) to any eligible consultant may not exceed 2% of our issued and outstanding common shares, and (iv) to persons
employed in investor relations activities may not exceed 2% of our issued and outstanding common shares, each on (on a non-diluted
basis) in any 12 month period (including the common shares that are subject to such option).



Our Stock Option Plan provides for the immediate
vesting of all unvested options in the event of a takeover bid resulting in a change of control.



The foregoing is a summary description of certain
terms of our Stock Option Plan and is qualified in its entirety by reference to the Stock Option Plan, a copy of which is filed
as an exhibit to this Annual Report on Form 10-K.



Director Compensation



The following table shows information regarding
the compensation earned by our non-employee directors for the year ended December 31, 2015. Mr. Giovinazzo, our President and Chief
Executive Officer, receives no compensation for his service as a director. The compensation received by Mr. Giovinazzo as an employee
is described in “Executive Compensation — Summary Compensation Table” herein.



|Name               |  | Fees Earned or Paid in Cash (Cdn$)(1) |         |     | Option Awards (Cdn$)(2) |   |         | All Other Compensation |  |   | Total | 
|------------------ |  | ------------------------------------- | ------- | --- | ----------------------- | - | ------- | ---------------------- |  | - | ----- | 
|Rochelle Stenzler  |  | $                                     | 175,364 |     |                         | $ | 391,900 | (3)                    |  | $ | -     | 
|Ron Hosking        |  | $                                     | 128,330 |     |                         | $ | 296,994 | (4)                    |  | $ | -     | 
|Dr. Perry Molinoff |  | $                                     | 74,318  |     |                         | $ | 279,250 | (5)                    |  | $ | -     | 
|Nan Hutchinson     |  | $                                     | 125,283 | (6) |                         | $ | 226,944 | (7)                    |  | $ | -     | 
|Tamar Howson       |  | $                                     | 89,687  |     |                         | $ | 195,000 | (8)                    |  | $ | -     | 
|Ilan Oren          |  | $                                     | 12,577  |     |                         | $ | 324,870 | (9)                    |  | $ | -     | 
|Tomer Gold         |  | $                                     | 70,807  |     |                         | $ | 226,944 | (10)                   |  | $ | -     | 










| | (1) | Represents retainer and meeting fees for service as a director, which is paid in quarterly installments.
| | --- | --------------------------------------------------------------------------------------------------------



| | (2) | The amounts reported in the Option Awards column represent the grant date fair value of the stock options granted to the directors
during 2015, computed in accordance with IFRS 2. The assumptions used in calculating the grant date fair value of the stock options
reported in the Option Awards column are set forth in Note 11 to our consolidated financial statements included in this Annual
Report on Form 10-K and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Critical Accounting Policies and Estimates — Share-based payments.” Note that the amounts reported in this
column reflect the accounting cost for these stock options and do not correspond to the actual economic value that may be received
by the directors upon exercise of the options.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- 113 -







| | (3) | As of December 31, 2015, Ms. Stenzler beneficially owned options exercisable for an aggregate of 45,124 of our common shares
with a weighted average exercise price of Cdn$17.24 per share.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | As of December 31, 2015, Mr. Hosking beneficially owned options exercisable for an aggregate of 29,937 of our common shares
with a weighted average exercise price of Cdn$17.51 per share.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | As of December 31, 2015, Dr. Molinoff beneficially owned options exercisable for an aggregate of 26,875 of our common shares
with a weighted average exercise price of Cdn$17.84 per share.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Includes Cdn$52,726 that Ms. Hutchinson received for certain consulting services provided to us pursuant to the Consulting
and Advisory Agreement effective July 1, 2015 between us and Hutchinson and Associates LLC.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | As of December 31, 2015, Ms. Hutchinson beneficially owned options exercisable for an aggregate of 16,874 of our common shares
with a weighted average exercise price of Cdn$20.50 per share.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | As of December 31, 2015, Ms. Howson beneficially owned options exercisable for an aggregate of 12,500 of our common shares
with a weighted average exercise price of Cdn$21.47 per share.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | As of December 31, 2015, Mr. Oren beneficially owned options exercisable for an aggregate of 19,500 of our common shares with
a weighted average exercise price of Cdn$21.40 per share.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | As of December 31, 2015, Mr. Gold beneficially owned options exercisable for an aggregate of 19,499 of our common shares with
a weighted average exercise price of Cdn$18.70 per share.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Compensation of our directors in the fiscal
year ended December 31, 2015 was based on annual retainer fees, attendance, and board of directors and Committee meeting fee rates
recommended by our corporate governance, nominating and compensation committee and approved by our board of directors. All retainer
and meeting fees are paid on a quarterly basis. The following information details compensation paid to our directors in the fiscal
year ended December 31, 2015.



Between January 1, 2015 and September
30, 2015, our annual retainer fees were as follows. The Chair of our board of directors received a retainer of Cdn$60,000
per year, and each non-Chair member of our board of directors received a retainer of Cdn$30,000 per year. For our
audit committee, the Chair of such committee received a retainer of Cdn$10,000 per year, and each non-Chair member received
a retainer of Cdn$5,000 per year. For the corporate governance, nominating and compensation committee, the Chair of
such committee received a retainer of Cdn$8,000 per year, and each non-Chair member received a retainer of Cdn$5,000 per
year. In addition, each director was paid attendance fees of Cdn$1,500 for each regular board of directors meeting attended
in person and Cdn$750 per meeting attended by conference call. For the Committees, each member was paid Cdn$1,000 for each
Committee meeting attended in person and Cdn$500 per Committee meeting attended by conference call. In connection with our
public offering in the United States that was completed on June 23, 2015 and other related matters, our board of
directors established a Special Committee consisting of Rochelle Stenzler (chair), Ronald Hosking and Tamar Howson. For the
Special Committee, the Chair of such committee received a retainer of Cdn$50,000, and each non-Chair member received a
retainer of Cdn$30,000. In addition, each Special Committee member was paid meeting fees at the same rate paid for board of
director meetings.



- 114 -







Effective October 1, 2015, based on the competitive
study prepared by compensation consultants engaged by the corporate governance, nominating and compensation committee, we revised
the compensation approach to include only fixed retainer fees and to eliminate meeting fees. In particular, the Chair of our board
of directors currently receives a retainer of US$60,000 per year, and each non-Chair member of our board of directors receives
a retainer of US$30,000 per year. For our audit committee, the Chair of such committee receives a retainer of US$15,000 per year,
and each non-Chair member receives a retainer of US$7,500 per year. For the corporate governance, nominating and compensation
committee, the Chair of such committee receives a retainer of US$15,000 per year, and each non-Chair member receives a retainer
of US$7,500 per year.



There are no special arrangements between us
and any of the members of our board of directors with respect to fees.



Directors are entitled to participate in
the Stock Option Plan, which is designed to give each option holder an interest in preserving and maximizing shareholder
value in the long term. Individual grants are determined on an annual basis by the recommendation of our corporate
governance, nominating and compensation committee and approval of our board of directors. New directors are typically granted
15,000 stock options upon their initial appointment to our board of directors. In addition, each director is typically
granted stock options annually to purchase a minimum of 10,000 shares at fair market value, with the total number of stock
options granted each year based on our corporate governance, nominating and compensation committee’s annual assessment
of individual director contribution.



Executive officers who also serve as members
of our board of directors do not receive any additional compensation for services rendered in their capacity as directors. In addition,
between January 1, 2015 and September 30, 2015, director Ilan Oren did not receive any annual retainer or meeting
fees for services in his capacity as a director; however, effective as of October 1, 2015, Mr. Oren has begun receiving such annual
retainer fees.





Compensation Committee Interlocks and Insider Participation



None of our executive officers serves as
a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, that
has one or more of its executive officers serving as a director or member of our corporate governance, nominating and compensation
committee. None of the individuals who were members of our corporate governance, nominating and compensation committee during the
fiscal year ended December 31, 2015 were, during such fiscal year or formerly, officers of Cynapsus.



The information set forth under “Item
10. Directors, Executive Officers and Corporate Governance –Committees of our Board of Directors—Corporate Governance,
Nominating and Compensation Committee” and “—Director Independence;” and the information set forth under
“Item 13. Certain Relationships and Related Transactions, and Director Independence – Transactions with Related Persons
– Consulting Agreement,” “—Financing Transactions” and “—Other Agreements with Certain
Significant Shareholders, Executive Officers and Directors;” of this Annual Report on Form 10-K is incorporated herein by
reference.





- 115 -







| | ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
| | -------- | -----------------------------------------------------------------------------------------------



The following table sets forth information regarding
the beneficial ownership of our common shares as of December 31, 2015 (unless otherwise indicated) by:



| | · | each person known to us to beneficially own more than 5% of our outstanding common shares;
| | - | ------------------------------------------------------------------------------------------

| | · | each of our directors and named executive officers individually; and
| | - | --------------------------------------------------------------------

| | · | all of our directors and executive officers as a group.
| | - | -------------------------------------------------------



Information with respect to beneficial ownership
is based upon information supplied by our officers, directors and principal shareholders and/or a review of Schedules 13D and 13G,
if any, and other documents filed with the SEC. These rules generally attribute beneficial ownership of securities to persons who
possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include common
shares issuable pursuant to the exercise of stock options or warrants that were either immediately exercisable as of December 31,
2015 or exercisable within 60 days thereafter. These common shares are deemed to be outstanding and beneficially owned by the person
holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated
as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons
or entities identified in this table have sole voting and investment power with respect to all common shares shown as beneficially
owned by them, subject to applicable community property laws.



The percentage ownership information under the
column entitled “Percentage of Common Shares Beneficially Owned” is based on 12,278,133 common shares outstanding as
of December 31, 2015. Except as otherwise noted below, the address for each person or entity listed in the table is c/o Cynapsus
Therapeutics Inc., 828 Richmond Street West, Toronto, Ontario M6J 1C9, Canada.



|Name of beneficial owner                                         |  | Number ofcommon sharesbeneficiallyowned |           |  | Percentage of common shares beneficially owned | 
|---------------------------------------------------------------- |  | --------------------------------------- | --------- |  | ---------------------------------------------- | 
|Greater than 5% Shareholders                                     |  |                                         |           |  |                                                | 
|Adage Capital Partners, L.P.(1)                                  |  |                                         | 650,000   |  |                                                | 
|Aisling Capital III, LP(2)                                       |  |                                         | 1,021,381 |  |                                                | 
|Dexcel Pharma Technologies Ltd./Dexxon Holdings Ltd.(3)          |  |                                         | 2,725,200 |  |                                                | 
|Franklin Advisers, Inc.(4)                                       |  |                                         | 1,476,565 |  |                                                | 
|OrbiMed Private Investments V, LP(5)                             |  |                                         | 1,227,353 |  |                                                | 
|Visium Balanced Master Fund, Ltd.(6)                             |  |                                         | 750,000   |  |                                                | 
|                                                                 |  |                                         |           |  |                                                | 
|Named Executive Officers and Directors                           |  |                                         |           |  |                                                | 
|Anthony Giovinazzo(7)                                            |  |                                         | 210,077   |  |                                                | 
|Dr. Thierry Bilbault(8)                                          |  |                                         | 30,703    |  |                                                | 
|Dr. Albert Agro(9)                                               |  |                                         | 60,750    |  |                                                | 
|Andrew Williams(10)                                              |  |                                         | 82,389    |  |                                                | 
|Tomer Gold(11)                                                   |  |                                         | 19,499    |  |                                                | 
|Ronald Hosking(12)                                               |  |                                         | 31,343    |  |                                                | 
|Tamar Howson(13)                                                 |  |                                         | 12,500    |  |                                                | 
|Nan Hutchinson(14)                                               |  |                                         | 16,874    |  |                                                | 
|Dr. Perry Molinoff(15)                                           |  |                                         | 26,875    |  |                                                | 
|Ilan Oren(16)                                                    |  |                                         | 19,500    |  |                                                | 
|Rochelle Stenzler(17)                                            |  |                                         | 46,248    |  |                                                | 
|                                                                 |  |                                         |           |  |                                                | 
|All directors and executive officers as a group(18) (11 persons) |  |                                         | 556,758   |  |                                                | 










* Represents less than 1%.



- 116 -
















| | (1) | Based on a Schedule 13G filed with the SEC on August 28, 2015, includes 650,000 common shares held directly by Adage Capital
Partners, L.P., a Delaware limited partnership (“ACP”), which shares voting and investment power over such common shares
with the following beneficial holders: (i) Adage Capital Partners GP, L.L.C., a Delaware limited liability company (“ACPGP”),
the general partner of ACP; (ii) Adage Capital Advisors, L.L.C., a Delaware limited liability company (“ACA”), the
managing member of ACPGP, the general partner of ACP; (iii) Robert Atchinson, a managing member of ACA, the managing member of
ACPGP, the general partner of ACP; and (iv) Phillip Gross, a managing member of ACA, the managing member of ACPGP, the general
partner of ACP. The address of such beneficial holders is 200 Clarendon Street, 52nd floor, Boston, Massachusetts 02116.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Based on Amendment No. 1 to a Schedule 13G/A filed with the SEC
on February 5, 2016, Aisling Capital III, LP, a Delaware limited partnership (“Aisling”), has sole voting and investment
power over such common shares. The following beneficial holders also have sole voting and investment power over such common shares:
(i) Aisling Capital Partners III, LP, a Delaware limited partnership (“Aisling Partners”), a general partner of Aisling;
and (ii) Aisling Capital Partners III LLC, a Delaware limited liability company (“Aisling Partners GP”), a general
partner of Aisling Partners. The following beneficial holders also have shared voting and investment power over such common shares:
Steve Elms, Dennis Purcell and Andrew Schiff, each a managing member of Aisling Partners GP. The address of such beneficial holders
is 888 Seventh Avenue, 12th Floor, New York, New York 10106.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Includes (i) 384,615 common shares held by Dexcel
                                                            Pharma                                                             Technologies
                                                            Ltd.                                                                                      (“Dexcel”);
                                                            (ii)                                                             1,480,426
                                                            common                                                                                        shares held by Dexxon Holdings
                                                            Ltd.                                                             (“Dexxon”);
                                                            (iii)                                                             384,615 common shares issuable upon exercise of
                                                            warrants held by Dexcel; and (iv) 475,544 common shares issuable upon exercise of warrants held by Dexxon. Dan Oren, as
                                                            President and CEO of Dexcel and as sole director of Dexxon, has voting
                                                            and                                                             investment power over such common shares. The address of
                                                            such                                                             beneficial
                                                            holders                                                             is 1 Dexcel Street, Or Akiva, Israel 3060000.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Based on Amendment No. 1 to a Schedule 13G/A filed with the SEC on February 4, 2016, Franklin Advisers, Inc. has sole voting
and investment power over such common shares. The following persons may also be deemed to have beneficial ownership over such common
shares: (i) Franklin Resources, Inc. (“FRI”); and (ii) Charles B. Johnson and Rupert H. Johnson, Jr., each a greater
than 10% stockholder of FRI; however, each of FRI and Messrs. Johnson and Johnson, Jr. disclaim beneficial ownership over such
common shares of Cynapsus. The address of such beneficial holder is One Franklin Parkway, San Mateo, California 94403-1906.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Based on Amendment No. 1 to a Schedule 13G/A filed with the SEC on February 16, 2016, includes (i) 1,140,325 common shares
and (ii) 87,028 common shares issuable upon exercise of warrants, which are held by OrbiMed Private Investments V, LP (“OPI
V”). Such warrants contain an issuance limitation that prohibits the holder from exercising the warrants to
the extent that after giving effect to such issuance after exercise, the holder (together with the holder’s affiliates, and
any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in
excess of 9.99% of the common shares outstanding immediately after giving effect to the issuance of the common shares issuable
upon exercise of the warrants (the “Blocker”). As a result of the Blocker, as of February 16, 2016, 87,028 common shares
were issuable upon exercise of the warrants. The following beneficial holders also have shared voting and investment power over
such common shares: (i) OrbiMed Capital GP V LLC (“GP V”), the sole general partner of OPI V; (ii) OrbiMed Advisors
LLC (“Advisors”), an investment advisor and the managing member of GP V; and (iii) Samuel D. Isaly, the managing member
of Advisors. The address of such beneficial holders is 601 Lexington Avenue, 54th Floor, New York, New York 10022.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Based on a Schedule 13G filed with the SEC on February 22, 2016, Visium Balanced Master Fund, Ltd. a Cayman Islands corporation
(“VBMF”), has shared voting and investment power over such common shares. The following persons may also be deemed
to have beneficial ownership (including shared voting and investment power) over such common shares: (i) Visium Asset Management,
LP, a Delaware limited partnership (“VAM”), an investment manager to pooled investment vehicles; (ii) JG Asset, LLC,
a Delaware limited liability company (“JG Asset”), the general partner of VAM; and (iii) Jacob Gottlieb, the managing
member of JG Asset; however, each of VAM, JG Asset and Mr. Gottlieb disclaim beneficial ownership of such common shares of Cynapsus,
except to the extent of its or his pecuniary interests therein. The address of such beneficial holders is c/o Visium Asset Management,
LP, 888 Seventh Avenue, New York, New York 10019.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Includes (i) 120,145 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter; (ii) 250 common shares issuable upon exercise of warrants; and (iii) 499 common shares held by a relative of
Mr. Giovinazzo, over which Mr. Giovinazzo disclaims beneficial ownership.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | Includes 30,703 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (9) | Includes 60,750 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (10) | Includes (i) 74,999 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter; and (ii) 187 common shares issuable upon exercise of warrants.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (11) | Includes 19,499 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (12) | Includes 29,937 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (13) | Includes 12,500 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (14) | Includes 16,874 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (15) | Includes 26,875 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (16) | Includes 19,500 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (17) | Includes 45,124 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | (18) | Includes (i) 456,906 common shares issuable upon exercise of options, which options had vested as of December 31, 2015 or within
60 days thereafter; and (ii) 437 common shares issuable upon exercise of warrants.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Certain information
required by this Item 12 is contained under “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities — Securities Authorized for Issuance under Equity Compensation Plans” of
this Annual Report on Form 10-K and is incorporated herein by reference.



- 117 -







| | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
| | -------- | --------------------------------------------------------------------------



Transactions with Related Persons



Our policy is to enter into transactions with
related parties on terms that, on the whole, are no more favorable, or no less favorable, than those available from unaffiliated
third parties. Based on our experience in the business sectors in which we operate and the terms of our transactions with unaffiliated
third parties, we believe that all of the transactions described below met this policy standard at the time they occurred. In general,
any proposed related party transaction in which our any of our directors, officers or significant shareholders have a direct or
indirect material interest are subject to review and approval of our board of directors, including the transactions discussed below.



Our Code of Ethics is designed to promote integrity
and deter wrongdoing and addresses, without limitation, conflicts of interest, including transactions and agreements in respect
of which a director or executive officer of Cynapsus has a material interest. Pursuant to our Code of Ethics, Company personnel
must act honestly and in good faith, with a view to the best interests of Cynapsus. Company personnel must avoid situations involving
a conflict or the potential for a conflict between their personal interests and the interests of Cynapsus. Each of our officers
and directors is required to acknowledge that he or she has read our Code of Ethics and annually disclose any transactions or matters
of potential conflict.



The following is a description of certain of
our transactions with related parties since January 1, 2015.



Acquisition of Adagio Pharmaceuticals Ltd.



On December 22, 2011, we 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 Cynapsus 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, 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 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 our Phase 2 CTH-105 study in PD 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 us to pursue approval for a new drug application pursuant to Section 505(b)(2) of the FDCA, 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 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. This study had not been started as at December 31, 2015.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



Anthony Giovinazzo, the President, Chief Executive
Officer and a director of Cynapsus, was also a director, officer and majority shareholder of Adagio. To satisfy our board of director’s
fiduciary duties and to appropriately manage the related party transaction, our board of directors appointed an independent Special
Committee of our board of directors with independent legal counsel. In addition, the Special Committee of our board of directors
retained an independent U.S. FINRA/SIPC registered financial advisor to provide a fairness opinion. We also obtained minority shareholder
approval.







- 118 -







On March 11, 2015, we 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 those common shares, in the amount of
Cdn$1,500,000, was recorded as an expense. Of the total, 37,652 common shares were issued to Mr. Giovinazzo.



Financing Transactions



On March 31, 2015, we announced the
completion of a private placement of 1,377,467 common shares at a price of Cdn$15.23 per share for gross proceeds of
Cdn$20,981,579 (US$16,750,000). As part of such offering,  Dexxon Holdings Ltd., a strategic pharmaceutical
investor and significant shareholder of Cynapsus, which also has two directors on our board of directors, subscribed for
271,381 common shares having an aggregate subscription price of Cdn$4,133,684.



On June 23, 2015, we completed an
underwritten public offering in the United States of 5,175,000 common shares at a price to the public of US$14.00 per share,
for gross proceeds of Cdn$89,309,115 (US$72,450,000), including the exercise in full of the underwriters’ option to
purchase additional common shares. As part of such offering,  Dexxon Holdings Ltd. subscribed for
733,500 common shares having an aggregate subscription price of Cdn$12,658,596 (US$10,269,000).



Consulting Agreement



On July 1, 2015, we entered into a consulting
and advisory agreement with Hutchinson and Associates LLC, of which Nan Hutchinson, a director of Cynapsus, is the sole member,
or the Consulting Agreement, pursuant to which Ms. Hutchinson provides certain consulting services to us relating to PD. During
the year ended December 31, 2015, fees of Cdn$52,726 were paid or payable to Ms. Hutchinson on account of consulting services
rendered.



The foregoing is a summary description of certain
terms of the Consulting Agreement and is qualified in its entirety by reference to the Consulting Agreement, a copy of which is
filed as an exhibit to this Annual Report on Form 10-K.



Other Agreements with Certain Significant Shareholders, Executive
Officers and Directors



See “Item 10. Directors, Executive Officers
and Corporate Governance – Corporate Governance – Election of Officers; Arrangements Concerning Election of Directors;
Family Relationships” in this Annual Report on Form 10-K, which information is incorporated herein by reference.



For a description of certain other agreements
entered into, and compensation arrangements, with our executive officers and directors, see “Item 11. Executive Compensation”
in this Annual Report on Form 10-K.



Director Independence



For disclosure regarding the independence of
our directors, see “Item 10. Directors, Executive Officers and Corporate Governance – Corporate Governance –
Director Independence” and “—Committees of our Board of Directors” in this Annual Report on Form 10-K,
which information is incorporated herein by reference.



- 119 -









| | ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES.
| | -------- | ---------------------------------------

Aggregate fees billed to us for the fiscal
years ended December 31, 2015 and 2014, by our principal accounting firm, Ernst & Young LLP, are shown in the following
table:





|(in Canadian dollars)              |  | Fiscal
Year Ended
December 31, |        
|---------------------------------- |  | ------------------------------ | -------
|                                   |  | 2015                           |        
|Audit Fees                         |  | $                              | 558,973
|Audit-related Fees                 |  |                                | -      
|Total Audit and Audit-related Fees |  | $                              | 558,973
|Tax Fees                           |  | $                              | 43,169 
|All Other Fees                     |  |                                | -      
|Total Fees                         |  | $                              | 602,142





Audit Fees. Audit fees include professional
services rendered by Ernst & Young LLP for the audit of our annual financial statements and the reviews of the financial statements
included in our quarterly reports on Form 10-Q. This category also includes fees for assistance with complex accounting and transactions,
fees for audits provided in connection with statutory and regulatory filings or services that generally only the principal auditor
can reasonably provide to a client, and consents and assistance with and review of documents filed with the SEC, including services
related to our June 2015 initial public offering.



Audit-Related Fees. Audit-related fees
consist of amounts for assurance and related services by Ernst & Young LLP that are reasonably related to the performance
of the audit or review of our financial statements that are not reported under “Audit Fees.”



Tax Fees. Tax fees include fees billed
for professional services rendered by Ernst & Young LLP for tax compliance, tax advice and tax planning. Ernst & Young
LLP provided tax services including preparation of U.S. and Canadian corporate tax returns, international payroll tax advice,
and other general tax advice.





All Other Fees. All other fees are fees
for products and services provided by the principal accountant, other than those in the above three categories. In fiscal years
2015 and 2014, Ernst & Young LLP did not provide any services other than those described above.



Pre-Approval Policies and Procedures.
The audit committee has the sole authority to pre-approve all audit and permitted non-audit services provided by the independent
auditor. Pre-approval of non-audit services may be granted by any one member of our audit committee, provided that such pre-approvals
are presented to the full audit committee at its next regularly scheduled meeting.



In addition, we have adopted an audit and
non-audit services pre-approval policy which sets forth the procedures and conditions pursuant to which services proposed to be
performed by our independent auditor must be pre-approved. The policy provides that before our independent auditor may be engaged
to render a service, the proposed services may be either pre-approved without consideration of specific case-by-case services
by the audit committee; or require specific pre-approval of the committee. For both types of pre-approval, the audit committee
will consider whether such services are consistent with any applicable rules on auditor independence. The audit committee will
also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons
such as its understanding and knowledge of our business, people, culture, accounting systems, risk profile and other factors,
and whether the service might enhance our ability to manage or control risk or improve audit quality.



The audit committee will annually review and
pre-approve the services that may be provided by the independent auditor pursuant to the audit and non-audit services pre-approval
policy. The audit committee may add to or delete from the list of pre-approved services from time to time, based on subsequent
determinations.



Of the total aggregate fees paid by us to Ernst
& Young LLP during the fiscal year ended December 31, 2015, Cdn$0, or 0% of the aggregate fees, were approved by our audit
committee under Section (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, which addresses certain de minimis services that may be approved
by the audit committee after they have been performed.



- 120 -







PART IV



ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES.



|(a) | (1) | The following consolidated financial statements of Cynapsus are included in
Part II, Item 8 of this Annual Report on Form 10-K:
|--- | --- | -------------------------------------------------------------------------------------------------------------------------------



Independent auditors’ report of registered public
accounting firm of Ernst & Young LLP;



Independent Auditors’ Report of registered accounting
firm of McGovern, Hurley, Cunningham, LLP;



Consolidated Statements of Financial Position as at December
31, 2015 and 2014;



Consolidated Statements of Loss and Comprehensive Loss for
the years ended December 31, 2015, 2014 and 2013;



Consolidated Statements of Changes in Shareholders’
Equity for the years ended December 31, 2015, 2014 and 2013;



Consolidated Statements of Changes in Cash Flows for the
years ended December 31, 2015, 2014 and 2013; and



Notes to the Consolidated Financial Statements.



| | (2) | All financial statement schedules have been omitted because either the required information is not applicable or the information
required is included in the consolidated financial statements and notes thereto included in this Annual Report on Form 10-K.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The exhibits are listed in the Exhibit Index to this Annual Report on Form 10-K.
| | --- | --------------------------------------------------------------------------------



| | (b) | Exhibits
| | --- | --------



The response
to this portion of Item 15 is submitted as a separate section to this Annual Report on Form 10-K. See Exhibit Index.



| | (c) | Financial Statement Schedules
| | --- | -----------------------------



The response
to Item 15(a)(2) of this Annual Report on Form 10-K is incorporated herein by reference.



- 121 -







SIGNATURES



Pursuant to the requirements of Section 13 or
15(d) 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.
| | --------------------------
| |                           
| | By:                       
| |                           
| |                           
| |                           
| | Date: March 9, 2016       



Powers
of attorney



KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints Anthony Giovinazzo and Andrew Williams, or any of them, with full
power to act alone, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all capacities, to sign this Annual Report on Form 10-K, and
any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and all other documents
in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing necessary to be done in connection therewith, as fully for all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of
them or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.



This Power of Attorney may be executed in multiple
counterparts, each of which shall be deemed an original, but which taken together shall constitute one instrument.



Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities indicated
on March 9, 2016:



|Signatures                                                             |  | Title                                                                                                             
|---------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------
|                                                                       |  |                                                                                                                   
|/s/ Anthony Giovinazzo
        Anthony Giovinazzo                      |  | President, Chief Executive Officer and Director
(Principal Executive Officer)                                     
|                                                                       |  |                                                                                                                   
|/s/ Andrew Williams
                                   Andrew Williams |  | Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
|                                                                       |  |                                                                                                                   
|/s/ Rochelle Stenzler                                                  |  | Director                                                                                                          
|Rochelle Stenzler                                                      |  |                                                                                                                   



- 122 -









|                           | Director
|-------------------------- | --------
|Tomer
    Gold             |         
|                           |         
|/s/
    Ronald Hosking     | Director
|Ronald
    Hosking         |         
|                           |         
|/s/
    Dr. Perry Molinoff | Director
|Dr.
    Perry Molinoff     |         
|                           |         
|/s/
    Ilan Oren          | Director
|Ilan
    Oren              |         
|                           |         
|/s/
    Nan Hutchinson     | Director
|Nan
    Hutchinson         |         
|                           |         
|/s/
    Tamar Howson       | Director
|Tamar
    Howson           |         





- 123 -







INDEX TO FINANCIAL STATEMENTS





|                                                                                                                | Page
|--------------------------------------------------------------------------------------------------------------- | ----
|Audited Consolidated Financial Statements:                                                                      |     
|Independent auditors’ report of registered public accounting firm of Ernst & Young LLP                          | F-4 
|Independent auditors’ report of registered public accounting firm of McGovern, Hurley, Cunningham, LLP          | F-5 
|Consolidated Statements of Financial Position as at December 31, 2015 and 2014                                  | F-6 
|Consolidated Statements of Loss and Comprehensive Loss for the years ended December 31, 2015, 2014 and 2013     | F-7 
|Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2015, 2014 and 2013 | F-8 
|Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013                      | F-9 
|Notes to the Consolidated Financial Statements                                                                  | F-10



F-1







CYNAPSUS THERAPEUTICS INC.



CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015, 2014 and 2013



(Expressed in Canadian Dollars)



F-2







CYNAPSUS THERAPEUTICS INC.

December
31, 2015, 2014 and 2013



TABLE OF CONTENTS



|                                                                                                           | Page       
|---------------------------------------------------------------------------------------------------------- | -----------
|                                                                                                           |            
|Independent Auditors’ Report of registered public accounting firm of Ernst & Young
    LLP                 | F-4        
|                                                                                                           |            
|Independent Auditors’ Report of registered public accounting firm of McGovern, Hurley,
    Cunningham, LLP | F-5        
|                                                                                                           |            
|Consolidated Statements of Financial Position                                                              | F-6        
|                                                                                                           |            
|Consolidated Statements of Loss and Comprehensive Loss                                                     | F-7        
|                                                                                                           |            
|Consolidated Statements of Changes in Shareholders’ Equity                                                 | F-8        
|                                                                                                           |            
|Consolidated Statements of Cash Flows                                                                      | F-9        
|                                                                                                           |            
|Notes to the Consolidated Financial Statements                                                             | F-10 - F-42



F-3









INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING
FIRM





To the Shareholders of Cynapsus Therapeutics Inc.



We have audited the accompanying consolidated
financial statements of Cynapsus Therapeutics Inc. (the “Company”), which comprise the consolidated statements of financial
position as at December 31, 2015 and 2014, and the consolidated statements of loss and comprehensive loss, changes in shareholders’
equity and cash flows for the years ended December 31, 2015 and 2014, and a summary of significant accounting policies and other
explanatory information.



Management's responsibility for the
consolidated financial statements

Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.



Auditors’ responsibility

Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement. We were not engaged to perform an audit of the Company’s internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.



An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.



We believe that the audit evidence we have
obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.



Opinion

In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of Cynapsus Therapeutics Inc. as at December 31, 2015
and 2014, and its financial performance and its cash flows for the years ended December 31, 2015 and 2014 in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board.



Other matter

The consolidated financial statements of
Cynapsus Therapeutics Inc. for the year ended December 31, 2013 were audited by another auditor who expressed an unmodified opinion
on these statements on April 8, 2014.



|                | /s/ Ernst & Young LLP             
|--------------- | ----------------------------------
|                |                                   
|Toronto, Canada | Chartered Professional Accountants
|March 8, 2016   | Licensed Public Accountants       







F-4









INDEPENDENT AUDITOR’S REPORT OF
REGISTERED PUBLIC ACCOUNTING FIRM



To the Shareholders of Cynapsus Therapeutics
Inc.



We have audited the accompanying consolidated
financial statements of Cynapsus Therapeutics Inc. and its subsidiary, which comprise the consolidated statement of financial position
as at December 31, 2013, and the consolidated statement of loss and comprehensive loss, consolidated statement of changes in shareholders’
equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other
explanatory information.



Management's Responsibility for the
Consolidated Financial Statements

Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to
enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.



Auditor's Responsibility

Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement. We were not engaged to perform an audit of the Company’s internal
control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.



An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.



We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.



Opinion

In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of Cynapsus Therapeutics Inc. and its subsidiary as
at December 31, 2013 and their financial performance and cash flows for the year then ended in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.



Emphasis of Matter

Without qualifying our opinion, we draw
attention to the Company’s continuing losses during the year ended December 31, 2013 and a working capital deficiency and
cumulative deficit as at December 31, 2013. These conditions indicate the existence of a material uncertainty that raises substantial
doubt about the Company’s ability to continue as a going concern.





| | McGOVERN,
    HURLEY, CUNNINGHAM, LLP
| | -------------------------------------
| |                                      
| | /s/ McGovern, Hurley, Cunningham, LLP
| |                                      
| | Chartered Accountants                
| | Licensed Public Accountants          





TORONTO, Canada

April 8, 2014



F-5







CYNAPSUS
THERAPEUTICS INC.

Consolidated
Statements of Financial Position





As at December 31, 2015 and 2014

(in Canadian dollars)



|                                           |  | NOTES |       |  | December 31,
2015 |  |             | December 31,
2014 | 
|------------------------------------------ |  | ----- | ----- |  | ----------------- |  | ----------- | ----------------- | 
|                                           |  |       |       |  | $                 |  |             | $                 | 
|ASSETS                                     |  |       |       |  |                   |  |             |                   | 
|Current assets                             |  |       |       |  |                   |  |             |                   | 
|Cash                                       |  |       | 6     |  |                   |  | 104,911,307 |                   | 
|Prepaid expenses and other current assets  |  |       |       |  |                   |  | 870,018     |                   | 
|Total current assets                       |  |       |       |  |                   |  | 105,781,325 |                   | 
|Non-current assets                         |  |       |       |  |                   |  |             |                   | 
|Property, plant and equipment              |  |       | 7     |  |                   |  | 566,634     |                   | 
|Intangible assets                          |  |       | 8     |  |                   |  | 526,645     |                   | 
|                                           |  |       |       |  |                   |  |             |                   | 
|Total assets                               |  |       |       |  |                   |  | 106,874,604 |                   | 
|LIABILITIES                                |  |       |       |  |                   |  |             |                   | 
|Current liabilities                        |  |       |       |  |                   |  |             |                   | 
|Accounts payable and accrued liabilities   |  |       | 9, 16 |  |                   |  | 5,240,617   |                   | 
|Total current liabilities                  |  |       |       |  |                   |  | 5,240,617   |                   | 
|                                           |  |       |       |  |                   |  |             |                   | 
|SHAREHOLDERS’ EQUITY                       |  |       |       |  |                   |  |             |                   | 
|Share capital                              |  |       | 11    |  |                   |  | 142,580,515 |                   | 
|Warrants                                   |  |       | 11    |  |                   |  | 11,486,326  |                   | 
|Share-based payments                       |  |       | 11    |  |                   |  | 7,547,945   |                   | 
|Deficit                                    |  |       |       |  |                   |  | (59,980,799 | )                 | 
|Total shareholders’ equity                 |  |       |       |  |                   |  | 101,633,987 |                   | 
|                                           |  |       |       |  |                   |  |             |                   | 
|Total liabilities and shareholders’ equity |  |       |       |  |                   |  | 106,874,604 |                   | 



COMMITMENTS AND CONTINGENT LIABILITIES (Note 17)

SUBSEQUENT EVENTS (Note 19)



APPROVED ON BEHALF OF THE BOARD:



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



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



F-6







CYNAPSUS THERAPEUTICS INC.

Consolidated
Statements of Loss and Comprehensive Loss



For the years ended December 31, 2015, 2014 and 2013

(in Canadian dollars, except per share and share figures)



|                                                                 |  |       |    |  | December 31, |  |             | December 31, |  |  | December 31, |  
|---------------------------------------------------------------- |  | ----- | -- |  | ------------ |  | ----------- | ------------ |  |  | ------------ | -
|                                                                 |  | NOTES |    |  | 2015         |  |             | 2014         |  |  | 2013         |  
|                                                                 |  |       |    |  | $            |  |             | $            |  |  |              |  
|EXPENSES                                                         |  |       |    |  |              |  |             |              |  |  |              |  
|                                                                 |  |       |    |  |              |  |             |              |  |  |              |  
|Research and development                                         |  |       | 12 |  |              |  | 27,401,657  |              |  |  | 5,702,851    |  
|Operating, general and administrative                            |  |       | 13 |  |              |  | 11,376,296  |              |  |  | 5,760,816    |  
|Acquisition milestone share-based payment                        |  |       | 15 |  |              |  | 1,500,000   |              |  |  | -            |  
|Unrealized foreign exchange (gain) loss                          |  |       |    |  |              |  | (12,788,721 | )            |  |  | (691,578     | )
|Loss on impairment of intangible assets                          |  |       | 8  |  |              |  | -           |              |  |  | 94,449       |  
|Severance and prior years’ bonuses                               |  |       | 16 |  |              |  | -           |              |  |  | -            |  
|Debenture accretion and interest costs                           |  |       | 10 |  |              |  | -           |              |  |  | -            |  
|Gain on debenture exchange                                       |  |       | 10 |  |              |  | -           |              |  |  | -            |  
|Other interest (income) expense and related charges              |  |       |    |  |              |  | (19,085     | )            |  |  | (47,951      | )
|                                                                 |  |       |    |  |              |  |             |              |  |  |              |  
|Loss and comprehensive loss for the year                         |  |       |    |  |              |  | 27,470,147  |              |  |  | 10,818,587   |  
|                                                                 |  |       |    |  |              |  |             |              |  |  |              |  
|Loss per share –
    basic and diluted                           |  |       |    |  |              |  | 2.97        |              |  |  | 2.56         |  
|                                                                 |  |       |    |  |              |  |             |              |  |  |              |  
|Weighted average number of shares outstanding –basic and diluted |  |       |    |  |              |  | 9,246,242   |              |  |  | 4,231,885    |  



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



F-7







CYNAPSUS THERAPEUTICS INC.

Consolidated
Statements of Changes in Shareholders’ Equity



For the years ended December 31, 2015, 2014 and 2013

(in Canadian dollars)



|                                                              |  | NOTES |       |  | Share
capital |  |             | Warrants |  |  | Share-
based
payments |   |  | Deficit |           |   | Total
shareholders’
equity | 
|------------------------------------------------------------- |  | ----- | ----- |  | ------------- |  | ----------- | -------- |  |  | --------------------- | - |  | ------- | --------- | - | -------------------------- | 
|                                                              |  |       |       |  | $             |  |             | $        |  |  | $                     |   |  | $       |           |   | $                          | 
|                                                              |  |       |       |  |               |  |             |          |  |  |                       |   |  |         |           |   |                            | 
|Balance as at December 31, 2012                               |  |       |       |  |               |  | 10,528,756  |          |  |  | 317,423               |   |  |         | 1,402,398 |   |                            | 
|Prospectus offering, first closing, net of transaction costs  |  |       | 11    |  |               |  | 2,908,293   |          |  |  | 2,619,761             |   |  |         | -         |   |                            | 
|Prospectus offering, second closing, net of transaction costs |  |       | 11    |  |               |  | 580,013     |          |  |  | 556,079               |   |  |         | -         |   |                            | 
|Debentures exchange, net of transaction costs                 |  |       | 10,11 |  |               |  | 2,139,336   |          |  |  | 717,751               |   |  |         | -         |   |                            | 
|Share-based payments                                          |  |       | 11    |  |               |  | -           |          |  |  | -                     |   |  |         | 516,274   |   |                            | 
|Loss for the year                                             |  |       |       |  |               |  | -           |          |  |  | -                     |   |  |         | -         |   |                            | 
|Activity for the year                                         |  |       |       |  |               |  | 5,627,642   |          |  |  | 3,893,591             |   |  |         | 516,274   |   |                            | 
|                                                              |  |       |       |  |               |  |             |          |  |  |                       |   |  |         |           |   |                            | 
|Balance as at December 31, 2013                               |  |       |       |  |               |  | 16,156,398  |          |  |  | 4,211,014             |   |  |         | 1,918,672 |   |                            | 
|                                                              |  |       |       |  |               |  |             |          |  |  |                       |   |  |         |           |   |                            | 
|Prospectus offering, net of transaction costs                 |  |       | 11    |  |               |  | 13,037,024  |          |  |  | 9,803,212             |   |  |         | -         |   |                            | 
|Exercise of warrants                                          |  |       | 11    |  |               |  | 2,320,627   |          |  |  | (562,043              | ) |  |         | -         |   |                            | 
|Exercise of share-based payments                              |  |       | 11    |  |               |  | 226,892     |          |  |  | -                     |   |  |         | (106,774  | ) |                            | 
|Share-based payments                                          |  |       | 11    |  |               |  | -           |          |  |  | -                     |   |  |         | 975,627   |   |                            | 
|Loss for the year                                             |  |       |       |  |               |  | -           |          |  |  | -                     |   |  |         | -         |   |                            | 
|Activity for the year                                         |  |       |       |  |               |  | 15,584,543  |          |  |  | 9,241,169             |   |  |         | 868,853   |   |                            | 
|                                                              |  |       |       |  |               |  |             |          |  |  |                       |   |  |         |           |   |                            | 
|Balance as at December 31, 2014                               |  |       |       |  |               |  | 31,740,941  |          |  |  | 13,452,183            |   |  |         | 2,787,525 |   |                            | 
|                                                              |  |       |       |  |               |  |             |          |  |  |                       |   |  |         |           |   |                            | 
|Public offering, net of transaction costs                     |  |       | 11    |  |               |  | 81,175,277  |          |  |  | -                     |   |  |         | -         |   |                            | 
|Private placement, net of transaction costs                   |  |       | 11    |  |               |  | 19,551,377  |          |  |  | -                     |   |  |         | -         |   |                            | 
|Exercise of warrants                                          |  |       | 11    |  |               |  | 8,420,335   |          |  |  | (1,965,857            | ) |  |         | -         |   |                            | 
|Acquisition milestone share-based payment                     |  |       | 15    |  |               |  | 1,500,000   |          |  |  | -                     |   |  |         | -         |   |                            | 
|Exercise of share-based payments                              |  |       | 11    |  |               |  | 192,585     |          |  |  | -                     |   |  |         | (66,887   | ) |                            | 
|Share-based payments                                          |  |       | 11    |  |               |  | -           |          |  |  | -                     |   |  |         | 4,827,307 |   |                            | 
|Loss for the year                                             |  |       |       |  |               |  | -           |          |  |  | -                     |   |  |         | -         |   |                            | 
|Activity for the year                                         |  |       |       |  |               |  | 110,839,574 |          |  |  | (1,965,857            | ) |  |         | 4,760,420 |   |                            | 
|                                                              |  |       |       |  |               |  |             |          |  |  |                       |   |  |         |           |   |                            | 
|Balance as at December 31, 2015                               |  |       |       |  |               |  | 142,580,515 |          |  |  | 11,486,326            |   |  |         | 7,547,945 |   |                            | 





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



F-8







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



|For the years ended December 31, 2015, 2014 and 2013
|----------------------------------------------------
|(in Canadian dollars)                               



|                                                     |  |          |  | December 31, |             |   | December 31, |  |             | December 31, | 
|---------------------------------------------------- |  | -------- |  | ------------ | ----------- | - | ------------ |  | ----------- | ------------ | 
|                                                     |  | NOTES    |  | 2015         |             |   | 2014         |  |             | 2013         | 
|                                                     |  |          |  | $            |             |   | $            |  |             | $            | 
|Operating activities                                 |  |          |  |              |             |   |              |  |             |              | 
|Loss for the year                                    |  |          |  |              | (27,470,147 | ) |              |  | (10,818,587 | )            | 
|Items not affecting cash:                            |  |          |  |              |             |   |              |  |             |              | 
|Share-based payments                                 |  | 11,12,13 |  |              | 4,827,307   |   |              |  | 975,627     |              | 
|Amortization of intangible assets                    |  | 8,12     |  |              | 47,877      |   |              |  | 58,986      |              | 
|Depreciation of property, plant and equipment        |  | 7,12,13  |  |              | 123,876     |   |              |  | 16,131      |              | 
|Acquisition milestone share-based payment            |  | 15,16    |  |              | 1,500,000   |   |              |  | -           |              | 
|Unrealized foreign exchange gain                     |  |          |  |              | (12,788,721 | ) |              |  | (691,578    | )            | 
|Loss on impairment of intangible assets              |  | 8        |  |              | -           |   |              |  | 94,449      |              | 
|Loss on disposal of equipment                        |  |          |  |              | -           |   |              |  | -           |              | 
|Debenture accretion expense                          |  | 10       |  |              | -           |   |              |  | -           |              | 
|Accrual of debenture interest expense                |  | 10       |  |              | -           |   |              |  | -           |              | 
|Gain on debenture exchange                           |  | 10       |  |              | -           |   |              |  | -           |              | 
|                                                     |  |          |  |              | (33,759,808 | ) |              |  | (10,364,972 | )            | 
|Changes in non-cash working capital:                 |  |          |  |              |             |   |              |  |             |              | 
|Change in prepaid expenses and other current assets  |  |          |  |              | (600,239    | ) |              |  | (151,450    | )            | 
|Change in accounts payables and accrued liabilities  |  |          |  |              | 2,159,986   |   |              |  | 765,549     |              | 
|Deferred grant proceeds                              |  | 14       |  |              | -           |   |              |  | (239,968    | )            | 
|Net cash used in operating activities                |  |          |  |              | (32,200,061 | ) |              |  | (9,990,841  | )            | 
|                                                     |  |          |  |              |             |   |              |  |             |              | 
|Investing activities                                 |  |          |  |              |             |   |              |  |             |              | 
|Purchase of property, plant and equipment            |  | 7        |  |              | (432,680    | ) |              |  | (260,224    | )            | 
|Net cash used in investing activities                |  |          |  |              | (432,680    | ) |              |  | (260,224    | )            | 
|Financing activities                                 |  |          |  |              |             |   |              |  |             |              | 
|Gross proceeds from issuance of shares and warrants  |  | 11       |  |              | 110,290,694 |   |              |  | 25,000,000  |              | 
|Commissions and share issuance costs                 |  | 11       |  |              | (9,564,040  | ) |              |  | (2,159,764  | )            | 
|Gross proceeds from exercise of warrants             |  | 11       |  |              | 6,454,478   |   |              |  | 1,758,584   |              | 
|Gross proceeds from exercise of share-based payments |  | 11       |  |              | 125,698     |   |              |  | 120,118     |              | 
|Partial repayment of debentures                      |  | 10       |  |              | -           |   |              |  | -           |              | 
|Net cash provided by financing activities            |  |          |  |              | 107,306,830 |   |              |  | 24,718,938  |              | 
|Effect of exchange rate changes on cash              |  |          |  |              | 12,788,721  |   |              |  | 691,578     |              | 
|Increase in cash                                     |  |          |  |              | 87,462,810  |   |              |  | 15,159,451  |              | 
|Cash, beginning of year                              |  |          |  |              | 17,448,497  |   |              |  | 2,289,046   |              | 
|Cash, end of year                                    |  |          |  |              | 104,911,307 |   |              |  | 17,448,497  |              | 



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



F-9







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



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



Cynapsus Therapeutics Inc. (“Cynapsus”
or the “Company”) is a specialty pharmaceutical company currently focused on 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”) (CTH:
TSX) 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 consolidated financial statements
consolidate the financial statements of Cynapsus 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. See Note 19, Subsequent Events.



These consolidated financial
statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the
International Accounting Standards Board (“IASB”). On March 8, 2016, the board of directors of the Company (“Board
of Directors”) approved and authorized these consolidated financial statements for the year ended December 31, 2015.



Certain comparative figures
have been reclassified to conform to the financial statement presentation adopted for the current year.



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.



F-10







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian 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.



F-11







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



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



The preparation of these 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 consolidated
financial statements include estimates, which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout
the 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 17, Commitments and
Contingent Liabilities.



F-12







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 5. | SIGNIFICANT ACCOUNTING POLICIES
| | -- | -------------------------------



The significant accounting policies
used in the preparation of these consolidated financial statements are described below.



Subsidiaries

Subsidiaries are entities over
which the Company has control. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the investee. Cynapsus had a shareholding
of more than one half of the voting rights in Adagio, its previously wholly-owned subsidiary, before Adagio was amalgamated with
Cynapsus on January 1, 2016. The effects of potential voting rights that are currently exercisable are considered when assessing
whether control exists. Subsidiaries are fully consolidated from the date control is transferred to the Company, and are deconsolidated
from the date control ceases.



Financial instruments

Financial assets and liabilities
are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized
when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially
all risks and rewards of ownership. Financial assets and liabilities are offset and the net amount is reported in the consolidated
statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention
to settle on a net basis, or realize the asset and settle the liability simultaneously.



At initial recognition, the Company
classifies its financial instruments in the following categories depending on the purpose for which the instruments were acquired:



| | (i) | Financial assets and liabilities at fair value
through profit or loss: A financial asset or liability is classified in this category if acquired principally for the purpose
of selling or repurchasing in the short term. Financial instruments in this category are recognized initially and subsequently
at fair value. Transaction costs are expensed in the consolidated statements of loss and comprehensive loss. Gains and losses arising
from changes in fair value are presented in the consolidated statements of loss and comprehensive loss in the period in which they
arise.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Available-for-sale investments: Available-for-sale
investments are non-derivatives that are either designated in this category or not classified in any of the other categories.
Available-for-sale investments are recognized initially at fair value plus transaction costs and are subsequently carried at fair
value. Gains or losses arising from changes in fair value are recognized in other comprehensive income. When an available-for-sale
investment is sold or impaired, the accumulated gains or losses are moved from accumulated other comprehensive income to the consolidated
statements of loss and comprehensive loss and are included in other gains and losses.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-13







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 5. | SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | -------------------------------------------



| | (iii) | Loans and receivables: Loans and receivables
are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables
are initially recognized at the amount expected to be received, less, when material, a discount to reduce the loans and receivables
to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method less a provision
for impairment.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Financial liabilities at amortized cost: Financial
liabilities at amortized cost are initially recognized at the amount required to be paid, less transaction costs, and when material,
a discount to reduce the payables to fair value. Subsequently, financial liabilities at amortized cost are measured at amortized
cost using the effective interest method. Financial liabilities are classified as current liabilities if payment is due within
twelve months. Otherwise, they are presented as non-current liabilities.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Impairment of financial assets

A financial asset not carried
at fair value is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial
asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and
that the loss event had a negative effect on the estimated future cash flows of that asset that can be measured reliably.



Objective evidence that financial
assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that
the Company would not consider otherwise or indicators that a debtor will enter bankruptcy.



The Company considers evidence
of impairment for receivables at both a specific asset and collective level. All individually significant receivables found not
to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables
that are not significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.



In assessing collective impairment,
the Company uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted
for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely
to be greater or less than suggested by historical trends.



An impairment loss in respect
of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value
of the estimated future cash flows discounted at the assets’ original effective interest rate. Losses are recognized in profit
or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognized through
the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment
loss is reversed through profit or loss.



Prepaid expenses and other
current assets

Prepaid expenses consist of
amounts paid in advance for items that have future value to the Company. Other current assets consist of amounts due from tax credits
receivable.



F-14







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 5. | SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | -------------------------------------------



Property, plant and equipment

Property, plant and equipment
are recorded at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of property, plant and
equipment comprises its purchase price. The useful lives of property, plant and equipment are reviewed at least once per year.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major
components) of property, plant and equipment.Property, plant and equipment are depreciated using the diminishing balance
or straight-line method based on their estimated useful lives as follows:

| | · | Computer
equipment – 30% diminishing balance per annum
| | - | ------------------------------------------------------

| | · | Research and development (“R&D”)
– 30% diminishing balance per annum
| | - | --------------------------------------------------------------------

| | · | Furniture and fixtures – 20% diminishing
balance per annum
| | - | ----------------------------------------------------------

| | · | Leasehold improvements – straight-line
over the remaining term of the lease
| | - | ---------------------------------------------------------------------------



Intangible assets

Intangible assets are comprised
of a license for intellectual property, and intellectual property that was acquired. The license for intellectual property is
recorded at cost net of accumulated impairment losses. The intellectual property acquired is recorded at cost and is amortized
on a straight-line basis over an estimated useful life of 15 years net of any accumulated impairment losses.





Impairment of non-financial
assets

The carrying amounts of the
Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset’s recoverable amount is estimated.



The recoverable amount of an
asset or cash-generating unit is the greater of its value in use and its fair value less cost to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For the purposes of impairment testing, assets that
cannot be tested individually are grouped together into the smallest group of assets that generate cash inflows from continuing
use that are largely independent of the cash flows of other assets or groups of assets (the “cash-generating unit”,
or “CGU”).



The Company’s corporate
assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable
amount is determined for the CGU to which the corporate asset belongs.



An impairment loss is recognized
if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit
or loss. Impairment losses recognized in respect of CGUs are allocated to reduce the carrying amount of the assets in the unit
(group of units) on a pro rata basis.



F-15







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 5. | SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | -------------------------------------------



Impairment losses recognized
in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depreciation and amortization, if no impairment loss had been recognized.



Accounts payable and accrued
liabilities

Accounts payable and accrued
liabilities are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers
and are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current
liabilities.



Share capital

The Company records proceeds from share issuances
net of issue costs and any tax effects. Common shares issued for consideration other than cash are valued based on their estimated
market value on the earlier of the date the shares are issued or the goods or services are received from the counterparty.



Research and development
costs

The Company conducts research
and development programs and incurs costs related to these activities, including employee compensation, materials, professional
services and services provided by contract research organizations. Research and development costs, net of contractual reimbursements
from development partners, are expensed in the periods in which they are incurred. Development costs currently do not meet the
criteria for deferral.



Provisions

Provisions are recognized when
(a) the Company has a present obligation (legal or constructive) as a result of a past event, and (b) it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation. Where the Company expects some or all of a provision to be reimbursed, the reimbursement is recognized as a
separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the
consolidated statements of loss and comprehensive loss net of any reimbursement. If the effect of the time value of money is material,
provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.



Employee entitlements

Employee entitlements to annual
leave are recognized as the employees earn them. A provision, stated at current cost, is made for the estimated liability at period
end.



F-16







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 5. | SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | -------------------------------------------



Income taxes

Income taxes comprise current
and deferred taxes. Current taxes are the expected tax payable on the taxable income for the year using tax rates enacted or substantively
enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. Deferred taxes are recognized
in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated
financial statements. Deferred income taxes are determined on a non-discounted basis using tax rates and laws that have been enacted
or substantively enacted at the consolidated statements of financial position date and are expected to apply when the deferred tax
asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered.



Share-based payments

The Company has a stock option
plan that is described in Note 11(iv). Share-based payments to employees are measured at the fair value of the instruments issued
and amortized over the vesting period. Share-based payments to non-employees are measured at the fair value of the goods or services
received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot
be reliably measured, and are recorded at the date the goods or services are received. The offset to the recorded cost is applied
to share-based payments reserve. Consideration received on the exercise of stock options is recorded as share capital, and the
related share-based payments reserve is transferred to share capital.



Research grants

Research grants are recognized
as a recovery on scientific research in the consolidated statements of loss and comprehensive loss when there is reasonable assurance
that the Company will comply with the conditions attached to them and that the grants will be received. The Company only recognizes
grant proceeds on the consolidated statements of loss and comprehensive loss when the proceeds have been spent on research expenses.
Grant amounts received before are recorded as deferred grant proceeds.



Foreign currency translation

The consolidated financial
statements are presented in Canadian dollars, the functional currency of the Company and Adagio, its previously wholly-owned
subsidiary. Revenue and expenses denominated in foreign currencies are translated into Canadian dollars using the exchange
rate in effect at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated
using the rate in effect as at the consolidated statement of financial position date. Non-monetary items that are measured in
terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial
transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the
date when the fair value was determined. Related exchange gains and losses are included in the determination of loss for the
year. Realized foreign exchange gains and losses are allocated to, and recorded as components of research and development
expenses and operating, general and administrative expenses. Unrealized foreign exchange gains and losses are included in the
caption “Unrealized foreign exchange (gains) loss” on the statements of loss and comprehensive loss.



F-17







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 5. | SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | -------------------------------------------



Loss per share

Basic loss per share is calculated
using the weighted number of shares outstanding. Diluted loss per share is calculated assuming that any proceeds from the exercise
of dilutive stock options and warrants would be used to repurchase common shares at the average market price during the year, with
the incremental number of shares being included in the denominator of the diluted loss per share calculation. The diluted loss
per share calculation excludes any potential conversion of options and warrants that would increase earnings per share or decrease
loss per share. All shares issuable from options and warrants were excluded from the computation of diluted loss per share because
they were anti-dilutive for the years ended December 31, 2015 and 2014. 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 the share consolidation.



Operating Segment

The Company operates in a single
operating segment, the research, development and commercialization of a sublingual film for the on-demand management of symptoms
associated with PD. Internal financial and operating measures are presented on a consolidated basis to the chief operating decision
maker to assist in the assessment of operating performance, the allocation of resources, and the long-term strategic direction
of the Company.



F-18







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 6. | 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 year ended December 31, 2015.



| | (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 December 31,
2015, the Company had cash of $104,911,307 and prepaid expenses and other current assets of $870,018 (December 31, 2014 - $17,448,497
and $269,779, respectively) to settle current liabilities of $5,240,617 (December 31, 2014 - $3,080,631). 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 $104,911,307 as at December 31, 2015 (December 31, 2014 - $17,448,497).



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 Canadian dollar and all amounts in the consolidated financial statements
are expressed in Canadian 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 accounts 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.



F-19







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 6. | RISK MANAGEMENT (continued)
| | -- | ---------------------------



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



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





|                       |  | December 31, 
2015 |             |   | December 31, 
2014 |  |            | December 31, 
2013 | 
|---------------------- |  | ------------------ | ----------- | - | ------------------ |  | ---------- | ------------------ | 
|                       |  | $                  |             |   | $                  |  |            | $                  | 
|Cash                   |  |                    | 104,526,864 |   |                    |  | 12,370,423 |                    | 
|Accounts payable       |  |                    | (1,470,185  | ) |                    |  | (1,539,496 | )                  | 
|Net exposure           |  |                    | 103,056,679 |   |                    |  | 10,830,927 |                    | 
|                       |  |                    |             |   |                    |  |            |                    | 
|US$/Cdn$ exchange rate |  |                    | 1.384       |   |                    |  | 1.160      |                    | 





Based on the
Company’s foreign currency exposures noted above, a 10% strengthening of the U.S. dollar against the Canadian dollar as
at December 31, 2015 would have decreased the net loss by approximately $10,300,000 (December 31, 2014 - $1,070,000 and
December 31, 2013 - increase by $28,000), assuming all other variables remained constant. A 10% weakening of the U.S. 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 consolidated
statement of financial position date 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.



F-20







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 6. | 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 year ended December 31, 2015. The Company and Adagio, its previously
wholly-owned subsidiary, are not subject to externally imposed capital requirements.



F-21







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 7. | PROPERTY, PLANT AND EQUIPMENT
| | -- | -----------------------------



The following is a summary
of property, plant and equipment as at each respective December 31, and activity for the years then ended:



|                                       |  | Computer Equipment |         |   | Furniture and Fixtures |  |        | Leasehold Improvements |  |  | R&D Equipment |  |  | Total |       
|-------------------------------------- |  | ------------------ | ------- | - | ---------------------- |  | ------ | ---------------------- |  |  | ------------- |  |  | ----- | ------
|                                       |  | $                  |         |   | $                      |  |        | $                      |  |  | $             |  |  | $     |       
|Cost                                   |  |                    |         |   |                        |  |        |                        |  |  |               |  |  |       |       
|Balance as at December 31, 2012        |  |                    | 15,270  |   |                        |  | 9,318  |                        |  |  | -             |  |  |       | -     
|Additions                              |  |                    | 11,442  |   |                        |  | -      |                        |  |  | -             |  |  |       | -     
|Disposals                              |  |                    | (9,508  | ) |                        |  | -      |                        |  |  | -             |  |  |       | -     
|Balance as at December 31, 2013        |  |                    | 17,204  |   |                        |  | 9,318  |                        |  |  | -             |  |  |       | -     
|Additions                              |  |                    | 182,569 |   |                        |  | 44,775 |                        |  |  | 32,880        |  |  |       | -     
|Balance as at December 31, 2014        |  |                    | 199,773 |   |                        |  | 54,093 |                        |  |  | 32,880        |  |  |       | -     
|Additions                              |  |                    | 181,836 |   |                        |  | 29,674 |                        |  |  | 183,968       |  |  |       | 37,202
|Disposals                              |  |                    | (1,049  | ) |                        |  | -      |                        |  |  | -             |  |  |       | -     
|Balance as at December 31, 2015        |  |                    | 380,560 |   |                        |  | 83,767 |                        |  |  | 216,848       |  |  |       | 37,202
|                                       |  |                    |         |   |                        |  |        |                        |  |  |               |  |  |       |       
|Accumulated Depreciation               |  |                    |         |   |                        |  |        |                        |  |  |               |  |  |       |       
|Balance as at December 31, 2012        |  |                    | 11,958  |   |                        |  | 6,960  |                        |  |  | -             |  |  |       | -     
|Depreciation                           |  |                    | 1,578   |   |                        |  | 472    |                        |  |  | -             |  |  |       | -     
|Disposals                              |  |                    | (8,183  | ) |                        |  | -      |                        |  |  | -             |  |  |       | -     
|Balance as at December 31, 2013        |  |                    | 5,353   |   |                        |  | 7,432  |                        |  |  | -             |  |  |       | -     
|Depreciation                           |  |                    | 5,581   |   |                        |  | 3,550  |                        |  |  | 7,000         |  |  |       | -     
|Balance as at December 31, 2014        |  |                    | 10,934  |   |                        |  | 10,982 |                        |  |  | 7,000         |  |  |       | -     
|Depreciation                           |  |                    | 81,512  |   |                        |  | 10,627 |                        |  |  | 30,807        |  |  |       | 930   
|Disposals                              |  |                    | (1,049  | ) |                        |  | -      |                        |  |  | -             |  |  |       | -     
|Balance as at December 31, 2015        |  |                    | 91,397  |   |                        |  | 21,609 |                        |  |  | 37,807        |  |  |       | 930   
|                                       |  |                    |         |   |                        |  |        |                        |  |  |               |  |  |       |       
|Net book value                         |  |                    |         |   |                        |  |        |                        |  |  |               |  |  |       |       
|Net book value as at December 31, 2013 |  |                    | 11,851  |   |                        |  | 1,886  |                        |  |  | -             |  |  |       | -     
|Net book value as at December 31, 2014 |  |                    | 188,839 |   |                        |  | 43,111 |                        |  |  | 25,880        |  |  |       | -     
|Net book value as at December 31, 2015 |  |                    | 289,163 |   |                        |  | 62,158 |                        |  |  | 179,041       |  |  |       | 36,272



F-22







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 8. | INTANGIBLE ASSETS
| | -- | -----------------



The following is a summary of
intangible assets as at each respective December 31, and activity for the years then ended:



|                                                     |  | APL-130277 Patents |         |  | License Agreement |  |         | Total | 
|---------------------------------------------------- |  | ------------------ | ------- |  | ----------------- |  | ------- | ----- | 
|                                                     |  | $                  |         |  | $                 |  |         | $     | 
|Cost                                                 |  |                    |         |  |                   |  |         |       | 
|Balance as at December 31, 2012, 2013, 2014 and 2015 |  |                    | 718,150 |  |                   |  | 200,000 |       | 
|                                                     |  |                    |         |  |                   |  |         |       | 
|Accumulated Amortization                             |  |                    |         |  |                   |  |         |       | 
|Balance as at December 31, 2012                      |  |                    | 47,876  |  |                   |  | 83,331  |       | 
|Amortization                                         |  |                    | 47,876  |  |                   |  | 11,110  |       | 
|Balance as at December 31, 2013                      |  |                    | 95,752  |  |                   |  | 94,441  |       | 
|Amortization                                         |  |                    | 47,876  |  |                   |  | 11,110  |       | 
|Impairment                                           |  |                    | -       |  |                   |  | 94,449  |       | 
|Balance as at December 31, 2014                      |  |                    | 143,628 |  |                   |  | 200,000 |       | 
|Amortization                                         |  |                    | 47,877  |  |                   |  | -       |       | 
|Balance as at December 31, 2015                      |  |                    | 191,505 |  |                   |  | 200,000 |       | 
|                                                     |  |                    |         |  |                   |  |         |       | 
|Net book value                                       |  |                    |         |  |                   |  |         |       | 
|Net book value as at December 31, 2014               |  |                    | 574,522 |  |                   |  | -       |       | 
|Net book value as at December 31, 2015               |  |                    | 526,645 |  |                   |  | -       |       | 



On December 22, 2011, the Company
completed the acquisition of 100% of the outstanding common shares of Adagio and certain indebtedness of Adagio. The acquisition
was accounted for as a purchase of assets by the Company, as Adagio did not meet the definition of a business.



On June 10, 2005, the Company
entered into a license agreement with a research and development company relating to technologies associated with the Company’s
previous product candidate. The license is for patents that have been issued in certain jurisdictions, which will expire in February
2023, and are currently pending in other jurisdictions. On December 31, 2014, due to the emphasis by the licensee on a different
product line in their development pipeline, and the lack of any progress on the licensed project, the Company reviewed the carrying
value of the intangible asset for potential impairment. The Company determined that there are no expected future cash flows attributable
to this asset and recorded an impairment charge of $94,449 to write down the carrying value of the intangible asset to zero as
at December 31, 2014.



F-23







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 8. | 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.



| | 9. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| | -- | ----------------------------------------



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



|                                            |  | 2015 |           |  | 2014 | 
|------------------------------------------- |  | ---- | --------- |  | ---- | 
|                                            |  | $    |           |  | $    | 
|Trade payables                              |  |      | 3,935,612 |  |      | 
|Due to related parties (Note 16)            |  |      | 254,932   |  |      | 
|Bonus accruals to related parties (Note 16) |  |      | 533,000   |  |      | 
|Other accrued liabilities                   |  |      | 517,073   |  |      | 
|                                            |  |      | 5,240,617 |  |      | 



F-24









|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 10. | GAIN ON DEBENTURES EXCHANGE
| | --- | ---------------------------



On March 1, 2013, holders of
$4,030,244 in Series A to Series E debentures agreed to an exchange of debt for common shares and warrants, with the remaining
$217,424 repaid (See Note 11(ii)). The fair value of the common shares and warrants issued was estimated at the time of grant to
be $2,154,428 and $722,816, respectively (see Note 11(ii)). This resulted in a gain on the settlement of the debentures of $1,153,000.
The related share and warrant issue cost was $20,157. As a result, $2,139,336 was recorded in share capital and $717,751 was recorded
in warrants for the year ended December 31, 2013.



The changes in the value of
debentures were as follows:



|                                                |  | Debentures |           
|----------------------------------------------- |  | ---------- | ----------
|                                                |  | $          |           
|Balance,  December 31, 2012                     |  |            | 4,059,693 
|Debenture accretion expense                     |  |            | 132,428   
|Accrual of debenture interest expense           |  |            | 55,547    
|Issuance of shares in exchange for debentures   |  |            | (2,154,428
|Issuance of warrants in exchange for debentures |  |            | (722,816  
|Gain on exchange of debentures                  |  |            | (1,153,000
|Repayment of Series A1, A2, B and E5 debentures |  |            | (217,424  
|Balance,  December 31, 2013, 2014 and 2015      |  |            | -         



F-25







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 11. | SHARE CAPITAL
| | --- | -------------



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



Unlimited number of
common shares with no par value



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



On February 28, 2013, the Company
completed a share consolidation of the Company’s issued and outstanding common shares concurrent on the basis of one (1)
new common share for every ten (10) common shares issued and outstanding. In addition, 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, 2012                                  |  |                          | 888,400   
|Shares issued for cash                                       |  |                          | 994,230   
|Shares issued for debt from debenture exchange               |  |                          | 547,587   
|Balance,  December 31, 2013                                  |  |                          | 2,430,217 
|Shares issued for cash                                       |  |                          | 2,403,846 
|Shares issued for cash from exercise of warrants             |  |                          | 165,952   
|Shares issued for cash from exercise of share-based payments |  |                          | 20,854    
|Balance,  December 31, 2014                                  |  |                          | 5,020,869 
|Shares issued for cash – public offering                     |  |                          | 5,175,000 
|Shares issued for cash – private placement                   |  |                          | 1,377,467 
|Shares issued as acquisition milestone share-based payment   |  |                          | 69,960    
|Shares issued for cash from exercise of warrants             |  |                          | 624,443   
|Shares issued for cash from exercise of share-based payments |  |                          | 10,394    
|Balance,  December 31, 2015                                  |  |                          | 12,278,133



F-26







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 11. | SHARE CAPITAL (continued)
| | --- | -------------------------



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



On March 1, 2013, the Company
announced that it completed its short form prospectus offering (the “Offering”) in Canada of 816,355 units at a price
of $7.36 per unit for aggregate gross proceeds of $6,008,376. Each unit consisted of one common share and one share purchase warrant.
Each warrant entitles the holder to acquire one additional common share at an exercise price of $9.20 per share from the closing
date for a period of 60 months, except that the warrants will be cancelled if they are not exercised within 30 days after prior
written notice from the Company that the closing price of its common shares on the principal stock exchange of the Company has
been $22.08 or greater for 20 consecutive trading days. The Company paid the agent a work fee of $87,500 plus applicable taxes
and reimbursed the agent for certain expenses incurred in connection with the Offering. The Company also paid the agent a cash
commission of $47,088 and issued 6,397 non-transferable compensation warrants, each exercisable to purchase one common share on
the same terms as the warrants issued in the Offering. In addition, the Company paid other registered dealers and brokers cash
commissions of $117,500 and issued 15,964 non-transferable compensation warrants, each exercisable to purchase one common share
on the same terms as the warrants issued in the Offering.



The grant date fair value of
the warrants and broker warrants were estimated at $2,802,779 and $76,927, respectively, using the Black-Scholes option pricing
model based on the following assumptions: risk free interest rate of 1.19%, expected life of 5 years, expected dividend rate of
0%, and expected volatility of 114%. The issue cost allocated to warrants was $259,945.



Concurrent with the closing
of the Offering, the Company and holders of the Series A to E debentures agreed to convert $4,030,244 in debt for common shares
and warrants. This resulted in 547,587 common shares and 273,793 debenture warrants being issued. The common shares were valued
at $2,154,428 based on their estimated fair value from the concurrent Offering. Each debenture warrant entitles the holder to acquire
one common share at a price of $9.20 for a period of 24 months after the closing date.



The grant date fair value of
the warrants was estimated at $722,816 using the Black-Scholes option pricing model based on the following assumptions: risk free
interest rate of 0.97%, expected life of 2 years, expected dividend rate of 0%, and expected volatility of 114%. The issue cost
allocated to warrants was $5,065.



F-27







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 11. | SHARE CAPITAL (continued)
| | --- | -------------------------



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



On March 21, 2013, the Company
announced that it completed a second closing of the Offering. The Company issued 177,875 units at a price of $7.36 per unit for
aggregate gross proceeds of $1,309,160. Each unit consisted of one common share and one share purchase warrant. Each warrant entitles
the holder to acquire one additional common share at an exercise price of $9.20 per share from the closing date for a period of
60 months, except that the warrants will be cancelled if they are not exercised within 30 days after prior written notice from
the Company that the closing price of its common shares on the principal stock exchange of the Company has been $22.08 for 20 consecutive
trading days. The Company paid to the agent a cash commission of $33,064 and issued 4,492 non-transferable compensation warrants,
each exercisable to purchase one common share on the same terms as the warrants issued in the Offering. In addition, the Company
paid other registered dealers and brokers cash commissions of $71,668 and issued 9,737 non-transferable compensation warrants,
each exercisable to purchase one common share on the same terms as the warrants issued in the Offering.



The grant date fair value of
the warrants and broker warrants were estimated at $610,695 and $48,951 respectively, using the Black-Scholes option pricing model
based on the following assumptions: risk free interest rate of 1.23%, expected life of 5 years, expected dividend rate of 0%, and
expected volatility of 113%. The issue cost allocated to warrants was $103,567.



On April 15, 2014, the Company
announced that it completed its short-form prospectus offering of units in Canada. Pursuant to the offering, the Company issued
an aggregate of 2,403,846 units at a price of $10.40 per unit for gross proceeds of $25,000,000. Each unit consisted of one common
share of the Company and one common share purchase warrant of the Company. The units immediately separated on closing into common
shares and warrants. Each warrant entitles the holder to purchase one common share at a price equal to $12.96 per share for a period
of 60 months after the closing of the offering, 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 $31.20 per common share or more for 20 consecutive trading days. The Company paid a Canadian
agent a work fee in the amount of $65,500, plus HST, and reimbursed the Canadian agent and the U.S. agent for certain expenses
incurred in connection with the offering. In addition, the Company paid the Canadian agent and U.S. agent cash commissions equal
to a total of 7% of the offering, and issued 167,307 non-transferable compensation warrants, each exercisable to purchase one common
share on the same terms as the warrants issued in the offering.



F-28







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 11. | SHARE CAPITAL (continued)
| | --- | -------------------------



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



The
grant date fair value of the warrants and broker warrants was estimated at $10,983,969, using the Black-Scholes option pricing
model based on the following assumptions: risk-free interest rate of 1.41%, expected life of five years, expected dividend rate
of 0%, and expected volatility of 110%, which
was based on the historical share prices of the Company. The issue cost allocated to the warrants was $1,180,757.



As part of the April 15, 2014 offering, Dexcel
Pharma Technologies Ltd. subscribed for 384,615 units having an aggregate subscription price of $4,000,000. Dexcel Pharma Technologies
Ltd. is an affiliate of Dexxon Holdings Ltd., which is a strategic pharmaceutical investor and significant shareholder of Cynapsus,
and which also has two directors on the Board of Directors of the Company.



On March 11, 2015, pursuant
to an amended agreement, the Company issued 69,960 common shares to former Adagio shareholders as an acquisition milestone share-based
payment (see Note 15, Acquisition Milestone Share-based Payment).



On March 31, 2015, the Company
announced the completion of a private placement of 1,377,467 common shares of the Company for gross proceeds of $20,981,579 (US$16,750,000).
The issue price of $15.23 per share represents a 20% discount to the five-day volume-weighted average price per common share on
the TSX as of the close of business on March 27, 2015. The common shares issued were subject to a hold period, which expired four
months plus one day from the date of issue. The Company incurred share issuance and broker commissions costs of $1,430,202 in connection
with this transaction.



As part of the March 31,
2015 private placement,  Dexxon Holdings Ltd., a strategic pharmaceutical investor and significant shareholder of
Cynapsus, which also has two directors on the Board of Directors of the Company, subscribed for 271,381 common shares having
an aggregate subscription price of $4,133,684 (see Note 16, Related Party Transactions).



On June 23, 2015,
the Company completed an underwritten public offering in the United States of 5,175,000 common shares at a price to the
public of US$14.00 per share, for gross proceeds of $89,309,115 (US$72,450,000), including the exercise in full of
the underwriters’ option to purchase additional common shares. The Company incurred share issuance and broker
commissions costs of $8,133,838 in connection with this transaction. The Company’s common shares are now dual-listed on
the NASDAQ Global Market and the TSX. As part of the June 23, 2015 public offering in the United States,  Dexxon Holdings
Ltd. subscribed for 733,500 common shares having an aggregate subscription price of $12,658,596 (US$10,269,000) (see Note 16,
Related Party Transactions).



F-29







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 11. | SHARE CAPITAL (continued)
| | --- | -------------------------



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



| |  | The number of warrants outstanding as at each respective
December 31 and changes during the years then ended are presented below:
| |  | ---------------------------------------------------------------------------------------------------------------------------------





|                                                 |  | Number of Warrants |           |   | Warrants |  |            | Weighted Average Exercise Price/Share | 
|------------------------------------------------ |  | ------------------ | --------- | - | -------- |  | ---------- | ------------------------------------- | 
|                                                 |  | #                  |           |   | $        |  |            | $                                     | 
|Balance, December 31, 2012                       |  |                    | 78,618    |   |          |  | 317,423    |                                       | 
|Expired February 2, 2013                         |  |                    | (36,250   | ) |          |  | -          |                                       | 
|Issued for cash on March 1, 2013 (net of costs)  |  |                    | 816,355   |   |          |  | 2,542,834  |                                       | 
|Issued as broker compensation on March 1, 2013   |  |                    | 22,361    |   |          |  | 76,927     |                                       | 
|Issued for debt on March 1, 2013 (net of costs)  |  |                    | 273,793   |   |          |  | 717,751    |                                       | 
|Issued for cash on March 21, 2013 (net of costs) |  |                    | 177,875   |   |          |  | 507,128    |                                       | 
|Issued as broker compensation on March 21, 2013  |  |                    | 14,229    |   |          |  | 48,951     |                                       | 
|Balance, December 31, 2013                       |  |                    | 1,346,981 |   |          |  | 4,211,014  |                                       | 
|Issued for cash on April 15, 2014 (net of costs) |  |                    | 2,403,846 |   |          |  | 9,088,474  |                                       | 
|Issued as broker compensation on April 15, 2014  |  |                    | 167,307   |   |          |  | 714,738    |                                       | 
|Exercised                                        |  |                    | (165,952  | ) |          |  | (562,043   | )                                     | 
|Balance, December 31, 2014                       |  |                    | 3,752,182 |   |          |  | 13,452,183 |                                       | 
|Exercised                                        |  |                    | (624,443  | ) |          |  | (1,965,857 | )                                     | 
|Balance, December 31, 2015                       |  |                    | 3,127,739 |   |          |  | 11,486,326 |                                       | 



A summary
of warrants exercised during the year ended December 31, 2015 is as follows:



|Number of Warrants |         |  | Cash Proceeds |  |           | Exercise Price | 
|------------------ | ------- |  | ------------- |  | --------- | -------------- | 
|#                  |         |  | $             |  |           | $              | 
|                   | 434,461 |  |               |  | 3,997,053 |                | 
|                   | 188,202 |  |               |  | 2,439,615 |                | 
|                   | 1,780   |  |               |  | 17,810    |                | 
|                   | 624,443 |  |               |  | 6,454,478 |                | 



F-30









|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 11. | SHARE CAPITAL (continued)
| | --- | -------------------------



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



Warrants outstanding and exercisable
as at December 31, 2015 were as follows:



|Number of Warrants |           |  | Exercise Price |  |       | Exercise Trigger |  |  | Expiry Date |  | Description
|------------------ | --------- |  | -------------- |  | ----- | ---------------- |  |  | ----------- |  | -----------
|#                  |           |  | $/Share        |  |       | $/Share          |  |  |             |  |            
|                   | 11,875    |  |                |  | 16.00 |                  |  |  | 24.00       |  |            
|                   | 18,951    |  |                |  | 10.00 |                  |  |  | -           |  |            
|                   | 7,887     |  |                |  | 10.00 |                  |  |  | -           |  |            
|                   | 585,292   |  |                |  | 9.20  |                  |  |  | 22.08       |  |            
|                   | 181,575   |  |                |  | 9.20  |                  |  |  | 22.08       |  |            
|                   | 2,322,159 |  |                |  | 12.96 |                  |  |  | 31.20       |  |            
|                   | 3,127,739 |  |                |  |       |                  |  |  |             |  |            



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 exercise 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 or more for 20 consecutive trading
days (the “Exercise Trigger”).



There were no warrants
issued during the year ended December 31, 2015. The weighted average grant date fair value of the warrants issued during the
year ended December 31, 2014 was $3.81. The weighted average contractual life remaining for the warrants as at December 31,
2015 is 3.00years(December 31, 2014 - 3.71 years).



| | iv) | Share-based payments
| | --- | --------------------



The Company has in place a stock
option plan for the purchase of common shares by its directors, officers, employees and other service providers. 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. The number of options granted is approved by
the Board of Directors. All options expire up to 365 days after the resignation of an employee or director and expire 90 days after
the resignation of a consultant.



F-31







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 11. | SHARE CAPITAL (continued)
| | --- | -------------------------



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



The aggregate number of common
shares reserved for issuance under the stock option plan is a maximum of 10% of the issued and outstanding common shares of the
Company. As at December 31, 2015, there were a total of 1,007,765 options outstanding, representing 8.2% of the issued and outstanding
common shares of the Company (December 31, 2014 – 340,653 options, and 6.8%, respectively). No one person shall be granted
options representing more than 5% of the issued and outstanding common shares of the Company in a 12-month period. Option grants
to persons providing consulting and investor services may not exceed 2% of the issued and outstanding common shares of the Company
in any 12-month period. 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 shares at the time of grant, subject to all applicable regulatory requirements.



The number of stock options
outstanding as at each respective December 31 and changes during the years then ended are as follows:



|                                            |  | Number of Options |           |   | Weighted Average Exercise Price/Share | 
|------------------------------------------- |  | ----------------- | --------- | - | ------------------------------------- | 
|                                            |  | #                 |           |   | $                                     | 
|Options outstanding as at December 31, 2012 |  |                   | 78,722    |   |                                       | 
|Granted                                     |  |                   | 111,894   |   |                                       | 
|Forfeited                                   |  |                   | (2,168    | ) |                                       | 
|Expired                                     |  |                   | (20,254   | ) |                                       | 
|Options outstanding as at December 31, 2013 |  |                   | 168,194   |   |                                       | 
|Granted                                     |  |                   | 223,812   |   |                                       | 
|Exercised                                   |  |                   | (20,854   | ) |                                       | 
|Forfeited                                   |  |                   | (8,937    | ) |                                       | 
|Expired                                     |  |                   | (21,562   | ) |                                       | 
|Options outstanding as at December 31, 2014 |  |                   | 340,653   |   |                                       | 
|Granted                                     |  |                   | 704,693   |   |                                       | 
|Exercised                                   |  |                   | (10,394   | ) |                                       | 
|Forfeited                                   |  |                   | (16,510   | ) |                                       | 
|Expired                                     |  |                   | (10,677   | ) |                                       | 
|Options outstanding as at December 31, 2015 |  |                   | 1,007,765 |   |                                       | 



F-32







|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 11. | SHARE CAPITAL (continued)
| | --- | -------------------------



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



On March 1, 2013, the Company
granted stock options to acquire 23,332 common shares. The stock options were granted to the President and CEO of the Company at
an exercise price of $7.36 per share for a period of 5 years from the date of the grant. One-third of the options granted vested
in 6 months, one-third vested in 12 months and one-third vested in 18 months.



On May 1, 2013, the Company granted
stock options to acquire 87,000 common shares. The stock options were granted to officers, directors, employees and consultants
of the Company at an exercise price equal to $5.76 per share and expire 5 years from the date of grant. One third of the options
granted vested immediately, one-third vested in 6 months and one-third vested in 12 months.



On May 28, 2013, the Company granted
stock options to acquire 1,562 common shares. The stock options were granted to a director of the Company at an exercise price
of $4.96 per share for a period of 5 years from the date of the grant. One third of the options granted vested immediately, one-third
vested in 6 months and one-third vested in 12 months.



On May 20, 2014, the Company granted
141,000 options to directors and officers of the Company at an exercise price of $10.40 per share for a period of five years from
the date of the grant. One third of the options vested immediately, one-third vested in six months and one-third vested in 12 months.



On December 5, 2014, the Company
granted 82,812 options to directors, officers, employees and consultants of the Company at an exercise price of $19.84 per share
and expiring in five years from the date of the grant. For 40,625 of those options, one-eighth vested immediately, and at each
six-month anniversary from the date of the grant, another one-eighth have vested or will vest, as applicable, such that all options
will have vested in 42 months. For 36,875 options, one-third vested in six months, one third vested in 12 months, and one-third
will vest in 18 months. The remaining 5,312 options vested immediately.



On April 2, 2015, the Company
granted stock options to acquire 248,743 common shares. The stock options were granted to officers, directors and employees of
the Company at an exercise price equal to $21.76 per share and expire five years from the date of grant. 39,686 options vested
immediately. For 209,057 of those options, one-quarter vested immediately, one-quarter will vest in one year, one-quarter will
vest in two years, and one-quarter will vest in three years.



On September 18, 2015, the
Company granted stock options to acquire 413,650 common shares. The stock options were granted to officers, directors and employees
of the Company at an exercise price equal to $21.40 per share and expire 10 years from the date of grant. 89,500 options will vest
in one year. For 324,150 of those options, one-fifth vested immediately, 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.



F-33















|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 11. | SHARE CAPITAL (continued)
| | --- | -------------------------



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



On November 16, 2015, the Company
granted stock options to acquire 14,000 common shares. The stock options were granted to an employee of the Company at an exercise
price equal to $20.00 per share and expire 10 years from the date of grant. One-fifth vested immediately, 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.



On December 16, 2015, the Company
granted stock options to acquire 28,300 common shares. The stock options were granted to employees of the Company at an exercise
price equal to $20.10 per share and expire 10 years from the date of grant. One-fifth vested immediately, 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 each respective year ended
December 31, are as follows:



|                                                               |  | 2015 |           |   | 2014 |   |           | 2013 | 
|-------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- | 
|                                                               |  |      |           |   |      |   |           |      | 
|Exercise price                                                 |  | $    | 21.45     |   |      | $ | 13.89     |      | 
|Grant date share price                                         |  | $    | 21.45     |   |      | $ | 12.68     |      | 
|Risk-free interest rate                                        |  |      | 0.98      | % |      |   | 1.32      | %    | 
|Expected dividend yield                                        |  |      | -         |   |      |   | -         |      | 
|Expected volatility                                            |  |      | 100       | % |      |   | 108       | %    | 
|Expected option term                                           |  |      | 4.9 years |   |      |   | 4.3 years |      | 
|Weighted average fair value of options granted during the year |  | $    | 15.54     |   |      | $ | 8.80      |      | 



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.



F-34









|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         



| | 11. | SHARE CAPITAL (continued)
| | --- | -------------------------



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



Stock options issued and outstanding
as at December 31, 2015 were as follows:



|Number of Options Outstanding |           |  | Number of Options Vested and Exercisable |  |         | Effective Exercise Price/ Share |  |  | Expiry Date
|----------------------------- | --------- |  | ---------------------------------------- |  | ------- | ------------------------------- |  |  | -----------
|#                             |           |  | #                                        |  |         | $                               |  |  |            
|                              | 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      
|                              | 28,300    |  |                                          |  | 5,660   |                                 |  |  | 20.10      
|                              | 1,007,765 |  |                                          |  | 441,937 |                                 |  |  |            



The total number of common shares
that were issuable pursuant to stock options that were exercisable as at December 31, 2015 is 441,937(December 31, 2014 - 222,317). The weighted average exercise price of those options as at December 31, 2015 is $14.81(December 31, 2014 - $12.22).



The weighted average contractual
life remaining for the exercisable and outstanding common shares issuable on exercise of stock options as at December 31, 2015
is 4.33 years and 6.36 years, respectively (December 31, 2014 - 3.59 years and 3.98 years).



Total share-based payments compensation
expense for the year ended December 31, 2015 was $4,827,307 (December 31, 2014 - $975,627, December 31, 2013 - $516,274) and has
been allocated to components of research and development expenses and operating, general and administrative expenses.



F-35









|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         





| | 12. | RESEARCH AND DEVELOPMENT
| | --- | ------------------------



Components of research and
development expenses for the years ended December 31 were as follows:



|                                                                  |  | Notes |  | 2015 |            |   | 2014 |  |           | 2013 | 
|----------------------------------------------------------------- |  | ----- |  | ---- | ---------- | - | ---- |  | --------- | ---- | 
|                                                                  |  |       |  | $    |            |   | $    |  |           | $    | 
|APL-130277 research and development excluding the following items |  |       |  |      | 23,631,302 |   |      |  | 5,507,680 |      | 
|Salaries, benefits and bonuses                                    |  |       |  |      | 2,078,986  |   |      |  | 685,487   |      | 
|Share-based payments                                              |  | 11    |  |      | 1,921,196  |   |      |  | 237,043   |      | 
|Amortization of intangible assets                                 |  | 8     |  |      | 47,877     |   |      |  | 58,986    |      | 
|Depreciation of property, plant and equipment                     |  | 7     |  |      | 930        |   |      |  | -         |      | 
|Recovery on scientific research                                   |  |       |  |      | (150,924   | ) |      |  | (91,717   | )    | 
|Research grant                                                    |  | 14    |  |      | (127,710   | ) |      |  | (694,628  | )    | 
|                                                                  |  |       |  |      | 27,401,657 |   |      |  | 5,702,851 |      | 



| | 13. | OPERATING, GENERAL AND ADMINISTRATIVE
| | --- | -------------------------------------



Components of operating, general
and administrative expenses for the years ended December 31 were as follows:



|                                                                    |  | Notes |  | 2015 |            |  | 2014 |  |           | 2013 | 
|------------------------------------------------------------------- |  | ----- |  | ---- | ---------- |  | ---- |  | --------- | ---- | 
|                                                                    |  |       |  | $    |            |  | $    |  |           | $    | 
|Operating general, and administrative excluding the following items |  |       |  |      | 5,853,061  |  |      |  | 3,298,863 |      | 
|Salaries, benefits, bonuses and board fees                          |  |       |  |      | 2,494,178  |  |      |  | 1,707,238 |      | 
|Share-based payments                                                |  | 11    |  |      | 2,906,111  |  |      |  | 738,584   |      | 
|Depreciation of property, plant and equipment                       |  | 7     |  |      | 122,946    |  |      |  | 16,131    |      | 
|                                                                    |  |       |  |      | 11,376,296 |  |      |  | 5,760,816 |      | 



F-36









|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         





| | 14. | RESEARCH GRANT
| | --- | --------------



On August 8, 2012, the Company was
awarded a grant of US$947,925 ($942,977) from The Michael J. Fox Foundation for Parkinson’s Research (“MJFF”)
to support clinical studies to develop the Company’s product candidate, APL-130277, a sublingual thin film strip reformulation
of apomorphine. The grant was awarded under the MJFF’s The Edmond J. Safra Core Programs for Parkinson’s Research,
Clinical Intervention Awards aimed at supporting human clinical trials testing promising PD therapies that may significantly and
fundamentally improve treatment for people with PD. Funds awarded by MJFF are to be used solely for the specified project and are
conditioned on meeting certain milestones and deliverables. As at December 31, 2013, $239,969 was recorded as deferred grant proceeds,
and was fully used and recognized into income in the three months ended March 31, 2014.



On July 3, 2014, the Company was
awarded a second grant of US$500,000 from 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 US$400,000 ($454,660) were received and recognized as research
grant income during the year ended December 31, 2014. The final milestone payment of US$100,000 ($127,710) 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 US$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 US$5,000,000.



F-37









|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         





| | 15. | 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 $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 $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. This study had not been started as at December 31, 2015.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 $21.44 per common share. The fair value
of these shares, in the amount of $1,500,000, was recorded as an expense. See Note 16, Related Party Transactions.



F-38









|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         





| | 16. | 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 years ended December 31:



|                                                      |  | 2015 |            |  | 2014 |  |           | 2013 | 
|----------------------------------------------------- |  | ---- | ---------- |  | ---- |  | --------- | ---- | 
|                                                      |  | $    |            |  | $    |  |           | $    | 
|Short-term salaries, benefits and bonuses to officers |  |      | 1,790,297  |  |      |  | 1,333,789 |      | 
|Prior years’ bonuses to executives                    |  |      | -          |  |      |  | -         |      | 
|Director fees                                         |  |      | 623,620    |  |      |  | 281,438   |      | 
|Share-based payments                                  |  |      | 8,643,428  |  |      |  | 1,373,900 |      | 
|                                                      |  |      | 11,057,345 |  |      |  | 2,989,127 |      | 



Prior years’ bonuses recognized
in 2013 represent bonuses awarded for performance in 2010 to 2012 but which were contingent on the raising of additional capital
and were at the discretion of the Board of Directors. During 2013, the Company completed two closings of a short-form prospectus
offering for gross proceeds of $7,317,160 (see Note 11) and as a result, these bonuses became payable.



Share-based payments presented above
represent the grant date fair value of options issued during the year to key management.



As at December 31, 2015, included
in accounts payable and accrued liabilities was $254,932(December 31, 2014 - $128,713) due to
officers and directors of the Company (see Note 9, Accounts Payable and Accrued Liabilities). These amounts are unsecured and non-interest
bearing with no fixed terms of repayment. As at December 31, 2015, there were accrued bonuses to related parties of $533,000(December 31, 2014 - $508,710).



The Company’s employment agreements
with its executive officers provide for additional payments in the event of termination without cause (see Note 17, 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 15,
Acquisition Milestone Share-based Payment).



As part of the April 15, 2014 offering,  Dexcel
Pharma Technologies Ltd. subscribed for 384,615 units comprised of common shares and warrants having an aggregate subscription
price of $4,000,000 (See Note 11, Share Capital). Dexcel Pharma Technologies Ltd. is an affiliate of Dexxon Holdings Ltd., which
is a strategic pharmaceutical investor and significant shareholder of Cynapsus, and which also has two directors on the Board of
Directors of the Company.



F-39









|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         





| | 16. | RELATED PARTY TRANSACTIONS (continued)
| | --- | --------------------------------------



As part of
the March 31, 2015 private placement,  Dexxon Holdings Ltd., subscribed for 271,381 common shares having an
aggregate subscription price of $4,133,684 (see Note 11, Share Capital).



As part of
the June 23, 2015 public offering in the United States,  Dexxon Holdings Ltd. subscribed for 733,500 common
shares having an aggregate subscription price of $12,658,596 (US$10,269,000) (see Note 11, Share Capital).



During the year ended December 31,
2015, fees of $52,726 were paid or payable to one of the Company’s directors as compensation for consulting services rendered
(December 31, 2014 and 2013 – nil).



| | 17. | COMMITMENTS AND CONTINGENT LIABILITIES
| | --- | --------------------------------------



As at December 31, 2015,
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          |  |                  | 18,284,000 |  |             |  | 4,778,000 |       | 
|Operating leases              |  |                  | 172,000    |  |             |  | 362,000   |       | 
|Total contractual obligations |  |                  | 18,456,000 |  |             |  | 5,140,000 |       | 



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 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 December 31, 2015, the maximum amount of any contingent liability, based on a remaining term of five months, was $343,453,
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 $3,629,431 and would be payable within one year, but are not included in the
table of purchase obligations above.



See also Note 14, Research Grant
and Note 15, Acquisition Milestone Share-based Payment for other contingent liabilities that are not included in the table of contractual
obligations above.



F-40









|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         





| | 18. | INCOME TAXES
| | --- | ------------



| | a) | Provision for income taxes:
| | -- | ---------------------------



Major items causing the Company’s
income tax rate to differ from the Canadian combined federal and provincial statutory rate of approximately 26.5% (2014 - 26.5%)
are as follows:



|                                               |  | 2015 |             |   | 2014 | 
|---------------------------------------------- |  | ---- | ----------- | - | ---- | 
|                                               |  | $    |             |   | $    | 
|Loss before income taxes                       |  |      | (27,470,147 | ) |      | 
|                                               |  |      |             |   |      | 
|Expected income tax recovery                   |  |      | (7,280,000  | ) |      | 
|Adjustments to benefit resulting from:         |  |      |             |   |      | 
|Expired non capital losses                     |  |      | -           |   |      | 
|Share-based compensation                       |  |      | 1,676,500   |   |      | 
|Other                                          |  |      | (3,000      | ) |      | 
|Expenses not deductible for tax purposes       |  |      | 18,000      |   |      | 
|Change in benefit of tax assets not recognized |  |      | 5,588,500   |   |      | 
|Deferred income tax recovery                   |  |      | -           |   |      | 



| | b) | Unrecognized deferred tax assets
| | -- | --------------------------------



Deferred income tax assets have
not been recognized in respect of the following deductible temporary differences:



|                                                              |  | 2015 |             |   | 2014 | 
|------------------------------------------------------------- |  | ---- | ----------- | - | ---- | 
|                                                              |  | $    |             |   | $    | 
|Non-capital loss carryforwards                                |  |      | 61,757,000  |   |      | 
|Scientific research and experimental development expenditures |  |      | 5,704,000   |   |      | 
|Share issuance costs                                          |  |      | 9,696,000   |   |      | 
|Other temporary differences                                   |  |      | (13,624,000 | ) |      | 
|Total                                                         |  |      | 63,533,000  |   |      | 



Deferred tax assets have not been
recognized in respect of these items because it is not probable that future taxable profit will be available against which the
Company can use the benefits.



F-41









|CYNAPSUS THERAPEUTICS INC.                    
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|December 31, 2015, 2014 and 2013              
|(in Canadian dollars)                         





| | 18. | INCOME TAXES (continued)
| | --- | ------------------------



| | c) | The Company had approximately $61,757,000of non-capital losses
as at December 31, 2015, which under certain circumstances can be used to reduce the taxable income of future years. The non-capital
losses expire as follows:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Available To |  | Amount |           
|------------ |  | ------ | ----------
|             |  | $      |           
|2025         |  |        | 426,000   
|2026         |  |        | 1,730,000 
|2027         |  |        | 1,198,000 
|2028         |  |        | 1,508,000 
|2029         |  |        | 1,524,000 
|2030         |  |        | 1,177,000 
|2031         |  |        | 1,858,000 
|2032         |  |        | 1,923,000 
|2033         |  |        | 3,981,000 
|2034         |  |        | 11,102,000
|2035         |  |        | 35,330,000
|             |  |        | 61,757,000



The Company also had approximately
$1,140,013of investment tax credit, and $204,604of Ontario research
and development tax credit as at December 31, 2015, which, under certain circumstances, can be used to reduce income tax payable
in future years.



| | 19. | SUBSEQUENT EVENTS
| | --- | -----------------



Amalgamation of Adagio Pharmaceuticals
Ltd.



In order to simplify the corporate
structure of Cynapsus and to reduce administrative costs, effective January 1, 2016, the Company completed a vertical short-form
amalgamation pursuant to the Canada Business Corporations Act with its previously wholly-owned subsidiary, Adagio. Pursuant
to the amalgamation, all of the issued and outstanding shares of Adagio have been cancelled, and the assets and liabilities of
Adagio have been 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.



F-42







EXHIBIT INDEX



|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                        
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|2.1^           |  | Share Purchase Agreement dated December 22, 2011 among Cynapsus, Adagio and the former shareholders of Adagio (incorporated by reference to Exhibit 2.1 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended September 30, 2015 filed with the SEC on November 12, 2015 (File No. 001-37426))                                         
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|2.2            |  | Share Purchase Agreement Amending Agreement dated January 28, 2015 among Cynapsus and the former shareholders of Adagio (incorporated by reference to Exhibit 2.2 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended September 30, 2015 filed with the SEC on November 12, 2015 (File No. 001-37426))                               
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|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))                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|3.2            |  | By-law No. 2 of Cynapsus (incorporated by reference to Exhibit 3.2 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 14, 2015 (File No. 001-37426))                                                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|4.1            |  | Specimen Common Share Certificate of Cynapsus (incorporated by reference to Exhibit 4.1 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 14, 2015 (File No. 001-37426))                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|4.2            |  | Form of Warrant Certificate dated July 18, 2012 (incorporated by reference to Exhibit 4.2 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 14, 2015 (File No. 001-37426))                                                                                                              
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|4.3            |  | Form of Warrant Certificate dated October 24, 2012 (incorporated by reference to Exhibit 4.3 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 14, 2015 (File No. 001-37426))                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|4.4            |  | Form of Warrant Certificate dated November 23, 2012 (incorporated by reference to Exhibit 4.4 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 14, 2015 (File No. 001-37426))                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|4.5            |  | Warrant Indenture dated March 1, 2013, by and between Equity Financial Trust Company and Cynapsus (incorporated by reference to Exhibit 4.5 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 14, 2015 (File No. 001-37426))                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|4.6            |  | Supplemental Indenture dated May 15, 2015, by and between Equity Financial Trust Company and Cynapsus (relating to the Warrant Indenture dated March 1, 2013) (incorporated by reference to Exhibit 4.6 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 14, 2015 (File No. 001-37426))
|               |  |                                                                                                                                                                                                                                                                                                                                                    
|4.7            |  | Warrant Indenture dated April 15, 2014, by and between Equity Financial Trust Company and Cynapsus (incorporated by reference to Exhibit 4.7 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 14, 2015 (File No. 001-37426))                                                           



- 124 -









|4.8   |  | Supplemental Indenture dated May 15, 2015, by and between Equity Financial Trust Company and Cynapsus (relating to the Warrant Indenture dated April 15, 2014) (incorporated by reference to Exhibit 4.8 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 14, 2015 (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  |  | Short Occupancy Agreement dated August 31, 2015 between Cynapsus and Images Life Media Inc. (incorporated by reference to Exhibit 10.2 to Cynapsus’s Form 8-K filed with the SEC on September 4, 2015 (File No. 001-37426))                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                     
|10.3# |  | Agreement dated March 17, 2015 by and between ARx, LLC and Cynapsus (incorporated by reference to Exhibit 10.3 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 14, 2015 (File No. 001-37426))                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                     
|10.4+ |  | 2014 Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 4.1 to Cynapsus’s registration statement on Form S-8 filed with the SEC on July 29, 2015 (File No. 333-205929))                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                                     
|10.5+ |  | Employment Agreement, dated October 1, 2015, between Anthony Giovinazzo and Cynapsus (incorporated by reference to Exhibit 10.1 to Cynapsus’s Form 8-K filed with the SEC on October 2, 2015 (File No. 001-37426))                                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                                                     
|10.6+ |  | Employment Agreement, dated October 1, 2015, between Andrew Williams and Cynapsus (incorporated by reference to Exhibit 10.2 to Cynapsus’s Form 8-K filed with the SEC on October 2, 2015 (File No. 001-37426))                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                     
|10.7+ |  | Employment Agreement, dated October 1, 2015, between Thierry Bilbault and Cynapsus (incorporated by reference to Exhibit 10.3 to Cynapsus’s Form 8-K filed with the SEC on October 2, 2015 (File No. 001-37426))                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                     
|10.8+ |  | Employment Agreement, dated October 1, 2015, between Albert Agro and Cynapsus (incorporated by reference to Exhibit 10.4 to Cynapsus’s Form 8-K filed with the SEC on October 2, 2015 (File No. 001-37426))                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                     
|10.9+ |  | Form of Director and Officer Indemnification Agreement dated effective as of September 2, 2015 (incorporated by reference to Exhibit 10.1 to Cynapsus’s Form 8-K filed with the SEC on September 4, 2015)                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                     
|10.10 |  | Non-disclosure, Non-solicitation and Non-competition Agreement dated November 16, 2009 between Anthony Giovinazzo and Cynapsus (incorporated by reference to Exhibit 10.11 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended September 30, 2015 filed with the SEC on November 12, 2015 (File No. 001-37426))                       
|      |  |                                                                                                                                                                                                                                                                                                                                                     
|10.11 |  | Non-disclosure, Non-solicitation and Non-competition Agreement dated January 1, 2006 between Andrew Williams and Cynapsus (incorporated by reference to Exhibit 10.12 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended September 30, 2015 filed with the SEC on November 12, 2015 (File No. 001-37426))                            









- 125 -







Subsidiary of Cynapsus





|10.12 |  | Non-disclosure,
    Non-solicitation and Non-competition Agreement dated October 6, 2014 between Thierry Bilbault and Cynapsus (incorporated by
    reference to Exhibit 10.13 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended September 30, 2015 filed
    with the SEC on November 12, 2015 (File No. 001-37426))
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                                                                                                      
|10.13 |  | Non-disclosure,
    Non-solicitation and Non-competition Agreement dated April 1, 2013 between Albert Agro and Cynapsus (incorporated by reference
    to Exhibit 10.14 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended September 30, 2015 filed with the
    SEC on November 12, 2015 (File No. 001-37426))       
|      |  |                                                                                                                                                                                                                                                                                                                                      
|10.14 |  | Consulting
    and Advisory Agreement effective July 1, 2015 between Cynapsus and Hutchinson and Associates LLC (incorporated by reference
    to Exhibit 10.15 to Cynapsus’s quarterly report on Form 10-Q for the quarter ended September 30, 2015 filed with the
    SEC on November 12, 2015 (File No. 001-37426))               
|      |  |                                                                                                                                                                                                                                                                                                                                      
|16.1* |  | Letter
    of McGovern, Hurley, Cunningham, LLP                                                                                                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                      
|21.1* |  | Subsidiary of Cynapsus                                                                                                                                                                                                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                      
|23.1* |  | Consent
    of Ernst & Young LLP                                                                                                                                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                      
|23.2* |  | Consent
    of McGovern, Hurley, Cunningham, LLP                                                                                                                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                      
|24.1* |  | Power
    of Attorney (included on the signature page hereto)                                                                                                                                                                                                                                                                        





|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.                                                                                                                                                       
|^  | Certain schedules have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. We will furnish copies of any of the schedules to the SEC upon request.
|#  | Confidential portions of the exhibit have been redacted and filed separately with the SEC pursuant to a confidential treatment order granted by the SEC.                  
|+  | Indicates management contract or compensatory plan.                                                                                                                       



- 126 -