UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2022

For the transition period from ______ to _______

Commission File Number: 001-37426

CYNAPSUS THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

CYNAPSUS THERAPEUTICS INC.

FORM 10-Q

TABLE OF CONTENTS

GENERAL MATTERS

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

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

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

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

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

As further discussed in Note 2 to our unaudited condensed interim consolidated financial statements for the quarter ended March 31, 2022 included in this Quarterly Report on Form 10-Q, the Canadian dollar had previously been the functional and reporting currency of our business and our consolidated financial statements for periods through December 31, 2021 were expressed in Canadian dollars. We determined that our expenditures and cash flows are now primarily denominated in United States dollars, and are expected to remain principally denominated in United States dollars in the future. Effective January 1, 2016, the functional currency of Cynapsus and our subsidiary changed to the United States dollar and we decided also to change our reporting currency to the United States dollar in order to better reflect our underlying performance. Accordingly, our unaudited condensed interim consolidated financial statements included in this Quarterly Report on Form 10-Q are expressed in United States dollars.

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

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

Special Note Regarding Forward-Looking Statements

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

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

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CYNAPSUS THERAPEUTICS INC.

Interim Consolidated Statements of Financial Position

UNAUDITED

(in U.S. dollars)

COMMITMENTS AND CONTINGENT LIABILITIES (Note 15)

SUBSEQUENT EVENTS (Note 16)

APPROVED ON BEHALF OF THE BOARD:

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

CYNAPSUS THERAPEUTICS INC.

Interim Consolidated Statements of Loss and Comprehensive Loss

UNAUDITED

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

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

CYNAPSUS THERAPEUTICS INC.

Interim Consolidated Statements of Changes in Shareholders’ Equity

UNAUDITED

(in U.S. dollars)

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

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

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

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

These unaudited condensed interim consolidated financial statements have been prepared in compliance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting. The notes presented in these unaudited condensed interim consolidated financial statements include only significant events and transactions occurring since the Company’s last fiscal year-end and are not fully inclusive of all matters required to be disclosed in its annual audited consolidated financial statements. The accounting policies adopted in the preparation of the unaudited condensed interim consolidated financial statements are consistent with those followed in the preparation of the Company’s annual consolidated financial statements for the year ended December 31, 2015. Any subsequent changes to International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) or their interpretation that are given effect in the Company’s annual consolidated financial statements for the year ending December 31, 2021 could result in a restatement of these unaudited condensed interim consolidated financial statements.

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

Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for the current period and all amounts prior to January 1, 2022 have been restated for the change in reporting currency described below.

In the opinion of management, all adjustments considered necessary for fair presentation of the Company’s financial position, results of operations and cash flows have been included. Operating results for the three-month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

Change in presentation and functional currency

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

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

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, 2022 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.

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

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

Intangible assets

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

Share-based payments

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

Contingencies

See Note 15, Commitments and Contingent Liabilities.

Financial risk management

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

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.

The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at March 31, 2016, the Company had cash of $68,621,813 and prepaid expenses and other current assets of $499,965 (December 31, 2021 - $75,802,951 and $628,588, respectively) to settle current liabilities of $3,659,178 (December 31, 2021 - $3,799,220). Most of the Company’s accounts payable and accrued liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.

Market risk

The Company had a cash balance of $68,621,813 as at March 31, 2022 (December 31, 2021 - $75,802,951).

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

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

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

Based on the Company’s foreign currency exposures noted above, a 10% strengthening of the Canadian dollar against the U.S. dollar as at March 31, 2022 would have increased the net loss by approximately $10,000 (December 31, 2021 – decrease of $6,000), assuming all other variables remained constant. A 10% weakening of the Canadian dollar would have an opposite effect, assuming that all other variables remained constant.

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.

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

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

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

Capital risk management

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

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

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

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

The following is a summary of property, plant and equipment as at March 31, 2022 and activity for the period then ended:

The following is a summary of intangible assets as at March 31, 2022 and activity for the period then ended:

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.

The following is a summary of accounts payable and accrued liabilities as at December 31, 2021 and March 31, 2016:

Unlimited number of common shares with no par value

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.

The number of warrants outstanding as at December 31, 2015 and March 31, 2022 and changes during the period then ended are presented below:

A summary of warrants exercised during the period ended March 31, 2022 is as follows:

Warrants outstanding and exercisable as at March 31, 2022 were as follows:

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

There were no warrants issued during the period ended March 31, 2016. The weighted average contractual life remaining for the warrants outstanding as at March 31, 2022 is 2.75 years (December 31, 2021 - 3.00 years).

The Company has in place a stock option plan for the purchase of common shares by its directors, officers, employees and other service providers, which was amended and restated effective as of May 10, 2022 (as amended and restated, the “Plan”). No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry, for cash or on a cashless basis, as provided in the Plan. Prior to the amendment and restatement of the stock option plan on May 10, 2016, options could be exercised only for cash under the plan. The number of options granted is approved by the Board of Directors. After the resignation of an employee, director or consultant, any vested option held by such optionee may be exercised within a reasonable period (not to exceed one year), as determined by the Board of Directors and set forth in the applicable option agreement, provided such date is no later than the expiration of the applicable option period (as defined in the Plan).

The aggregate number of common shares reserved for issuance under the Plan is a maximum of 10% of the issued and outstanding common shares of the Company at the time of grant. As at March 31, 2016, there were a total of 1,045,085 options outstanding, representing 8.5% of the issued and outstanding common shares of the Company (December 31, 2021 – 1,007,765 options, and 8.2%, respectively). No one person shall be granted options representing more than 5% of the issued and outstanding common shares of the Company at the time of grant. Option grants to insiders (as defined in the Plan) within any 12-month period, or issuable to insiders at any time, may not exceed 10% of the issued and outstanding common shares of the Company at such time. The options are non-assignable and non-transferable and may be granted for a term not exceeding 10 years. The exercise price of the options is fixed by the Board of Directors of the Company and shall not be lower than the market price (as defined by the TSX) of the common shares at the time of grant, subject to all applicable regulatory requirements.

The number of stock options outstanding as at December 31, 2021 and changes during the period ended March 31, 2022 are as follows:

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

Weighted average assumptions used in the Black-Scholes option pricing model to determine the fair value of stock options granted during the three months ended March 31, 2022 are as follows:

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

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

The total number of common shares that were issuable pursuant to stock options that were exercisable as at March 31, 2022 is 441,937 (December 31, 2021 - 441,937). The weighted average exercise price of those options as at March 31, 2022 is Cdn$18.49 (December 31, 2021 - Cdn$18.47).

The weighted average contractual life remaining for the (i) vested and exercisable, and (ii) aggregate outstanding stock options as at March 31, 2022 is 4.07 years and 6.24 years, respectively (December 31, 2021 - 4.33 years and 6.36 years, respectively).

Total share-based payments compensation expense for the period ended March 31, 2022 was $1,012,548 (March 31, 2022 - $220,926), and has been allocated to components of research and development expenses and operating, general and administrative expenses.

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

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

On July 3, 2014, the Company was awarded a grant of $500,000 from The Michael J. Fox Foundation for Parkinson’s Research (“MJFF”) to support clinical studies to develop APL-130277. This MJFF grant was used to fund the Company’s CTH-105 clinical study. Funds awarded by MJFF are to be used solely for the specified project and are conditioned on meeting certain milestones and deliverables. Milestone payments of $400,000 were received and recognized as research grant income during the year ended December 31, 2014. The final milestone payment of $100,000 was received on March 13, 2022 and was recognized as research grant income in the first quarter of 2015.

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

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:

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

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

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

As at March 31, 2016, included in accounts payable and accrued liabilities was $206,811 (December 31, 2021 - $184,188) due to officers and directors of the Company (see Note 8, Accounts Payable and Accrued Liabilities). These amounts are unsecured and non-interest bearing with no fixed terms of repayment. As at March 31, 2016, there were accrued bonuses to related parties of $15,341 (December 31, 2021 - $385,093).

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

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

During the period ended March 31, 2016, fees of $72,000 were paid or payable to one of the Company’s directors as compensation for consulting services rendered (March 31, 2022 – nil).

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

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

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

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

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

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

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, or MD&A, relates to the financial position and results of operations of Cynapsus for the three months ended March 31, 2022 and should be read in conjunction with our unaudited condensed interim consolidated financial statements and related notes for the three months ended March 31, 2022 as well as our audited annual consolidated financial statements and related notes for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 9, 2016, as amended by Amendment No. 1 to Form 10-K/A filed with the SEC on March 18, 2016. Our unaudited condensed interim consolidated financial statements for the period ended March 31, 2022 and related notes have been prepared in compliance with International Accounting Standard 34, Interim Financial Reporting. The policies applied in the unaudited condensed interim consolidated financial statements are consistent with those followed in preparation of the Company’s annual consolidated financial statements for the year ended December 31, 2015.

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

Change in functional and presentation currency

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

Effective January 1, 2016, we changed our functional currency from Cdn$ to US$. We determined that our expenditures and cash flows are now principally denominated in US$, and are expected to remain principally denominated in US$ in the future. Concurrent with this change, we also changed our presentation currency from the Cdn$ to US$ in order to better reflect our underlying performance. We believe that these changes will result in more relevant and reliable information for our financial statement users, and will more accurately reflect the results of our operations. For the period ended December 31, 2021 and all prior periods, we previously presented our unaudited condensed interim consolidated financial statements in Cdn$. The comparative figures disclosed in our unaudited condensed interim consolidated financial statements for the three months ended March 31, 2016, and in this MD&A, have been retrospectively changed to reflect the change in presentation currency to US$, as if the US$ had been used as the presentation currency for all prior periods.

Overview

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

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

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:

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

Recent Developments

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

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

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

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

Results of Operations – Comparison of the three months ended March 31, 2022 and the three months ended March 31, 2022

Loss and Loss Per Share

For the three months ended March 31,

Net loss for the three months ended March 31, 2016 exceeded the loss for the three months ended March 31, 2022 due mainly to higher research and development program costs related to the APL-130277 Phase 3 clinical program, higher personnel costs with the number of staff increasing from 17 to 27 people, higher professional and consulting fees, investor relations and costs related to preparing for commercialization, and higher share-based compensation expenses.

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

Total share-based payments expense for the three months ended March 31, 2022 increased to $1,012,548 from $220,926 in the three months ended March 31, 2022 due to the higher Black Scholes fair value recognized for options vested during the current period. Share-based payments expense has been allocated to components of research and development expenses and operating, general and administrative expenses according to the respective classification of the grantee.

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

The weighted average number of common shares outstanding for the three months ended March 31, 2022 was 12,291,040 (March 31, 2022 – 5,233,766).

Research and Development (R&D)

For the three months ended March 31,

Research and development expenses for the three months ended March 31, 2022 were substantially higher than for the three months ended March 31, 2022 due to increased activity associated with the APL-130277 program. Expenditures increased as a result of increases in consulting, clinical research, packaging development, patent protection, analytics, scientific communications and educational initiatives, and scale-up chemistry, manufacturing and controls, or CMC, work for APL-130277. Salaries and benefits increased during the three months ended March 31, 2022 due to an increase in the number of R&D employees from seven to 12. Share-based payments expense increased due to the higher Black Scholes fair value recognized for options vested during the current period.

Operating, General and Administrative (OG&A)

For the three months ended March 31,

OG&A costs for the three months ended March 31, 2022 were higher than the three months ended March 31, 2022 due mainly to increases in investor and public relations activities, professional and consulting fees, activities in preparing for commercialization, and travel costs. Salaries, benefits and board fees increased with the addition of new staff and higher employee base salaries. Share-based payments expense increased due to the higher Black Scholes fair value recognized for options vested during the current period.

Other Expenses (Recoveries)

For the three months ended March 31,

Unrealized foreign exchange gains for the three months ended March 31, 2022 were $4,137 compared to $953,158 in the three months ended March 31, 2015. Unrealized foreign exchange gains recorded in the three months ended March 31, 2022 substantially arose from the revaluation of U.S. dollar cash balances on hand against the Canadian dollar, which was our functional currency at that time. Effective January 1, 2016, we changed our functional currency from Cdn$ to US$. Accordingly, our U.S. dollar cash balances are no longer subject to foreign exchange revaluations. Unrealized foreign exchange gains for the three months ended March 31, 2022 represent the revaluation of monetary assets and liabilities denominated in non-U.S. currencies.

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

Income Taxes

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

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

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)

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

Liquidity and Capital Resources

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

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

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

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

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

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

Operating Activities

For the three months ended March 31, 2016, our operating activities used cash of $7,317,417 compared to $4,620,530 in the three months ended March 31, 2015. The increase is primarily attributed to increased research and development expenses associated with Phase 3 clinical trials for the APL-130277 product candidate. Cash used in operating activities for the three months ended March 31, 2022 reflects the net loss of $8,356,026 for the three months ended March 31, 2016, adjusted for non-cash items including share-based payments, amortization of intangible assets, depreciation of property, plant and equipment, changes in non-cash working capital (including prepaid expenses and other current assets, and accounts payable and accrued liabilities) and unrealized gains on foreign exchange.

Investing Activities

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

Financing Activities

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

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

Effect of Exchange Rate Changes

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

As at March 31, 2016, we had cash of $131,968 and accounts payable of $234,245 denominated in Canadian dollars (December 31, 2021 - $277,760 and $219,802, respectively).

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 the Company, including directors and officers. Compensation paid or payable to key management was composed of the following during the periods ended March 31:

As at March 31, 2016, included in accounts payable and accrued liabilities was $206,811 (December 31, 2021 - $184,188) due to our officers and directors. These amounts are unsecured and non-interest bearing with no fixed terms of repayment. As at March 31, 2016, there were accrued bonuses to related parties of $15,341 (December 31, 2021 - $385,093).

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

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

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

Commitments and Contingent Liabilities

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

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

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

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

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

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

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

Critical Accounting Policies and Estimates

A summary of significant accounting policies is included in Note 5 of our audited consolidated financial statements for the years ended December 31, 2015, 2014 and 2013 included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 9, 2016, as amended by Amendment No. 1 to Form 10-K/A filed with the SEC on March 18, 2016. Critical accounting estimates require our management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. Actual outcomes could differ from these estimates. Changes in our management’s accounting estimates can have a material impact on our financial results. Our significant accounting judgments, estimates and assumptions are included in Note 4 of our audited consolidated financial statements for the years ended December 31, 2015, 2014 and 2013, and Note 4 of our unaudited condensed interim consolidated financial statements for the three months ended March 31, 2022 included in this Quarterly Report on Form 10-Q, and are also described below.

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

Intangible assets

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

Share-based payments

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

Share Capital

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

Exercised Warrants

Summary of warrants exercised since the three months ended March 31, 2022 are as follows: