Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-Q/A
Amendment No. 1
(Mark One)
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2020
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                                  to


Commission File Number: 001-36812


FLEX PHARMA,SALARIUS PHARMACEUTICALS, INC.
(Exact name of Registrantregistrant as specified in its charter)
Delaware
46-5087339
(State or Other Jurisdictionother jurisdiction of
Incorporationincorporation or Organization)organization)
46-5087339
(I.R.S. Employer
Identification Number)
800 Boylston Street, 24th Floor, Boston, MA 02199
2450 Holcombe Blvd., Suite J 608, Houston, TX 77021
(Address of principal executive offices)(Zip Code)



(346) 772-0346
Registrant's Telephone Number, Including Area Code: (617) 874-1821telephone number, including area code


(Former Name, Former Addressname, former address and Former Fiscal Year,former fiscal year, If Changed Since Last Report: Not Applicable
changed since last report)

Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $ 0.0001 par valueSLRXThe Nasdaq Stock Market LLC


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 the filing requirements for the past 90 days. Yesý Noo
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated FilerNon-accelerated FilerSmaller Reporting Company Emerging Growth Company
Large Accelerated Filero
Accelerated Filerý
Non-accelerated Filero
Smaller Reporting Companyo
 Emerging Growth Companyý
(Do not check if
a smaller reporting company)


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


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yeso Noý

As of November 3, 2017,May 5, 2020, there were 17,971,816 13,650,752shares of common stock outstanding.




FLEX PHARMA,

Table of Contents
EXPLANATORY NOTE
Salarius Pharmaceuticals, Inc. is filing this Amendment No. 1 on Form 10-Q/A to its Quarterly Report on Form 10-Q for quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on May 14, 2020, solely for the purpose of providing XBRL as Exhibit 101 in accordance with Rule 405 of Regulation S-T. Other than as described above, no changes are made to the Quarterly Report on Form 10-Q as filed on May 14, 2020


Table of Contents
SALARIUS PHARMACEUTICALS, INC.
TABLE OF CONTENTS


Page
Page





Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements related to present facts or current conditions or historical facts, containedThe information in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, projected costs, expectations regarding the development of our drug product candidates, including the timing of our planned and ongoing clinical trials, and expectations regarding the commercial prospects of our consumer product, the expected timing for the reporting of data from our ongoing and future studies, prospects, plans and objectives of management, are forward looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue" and similar expressions are intended to identifyinformation incorporated herein by reference, include forward-looking statements although not all forward-lookingwithin the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These are statements contain these identifying words.

Forward-looking statements are not guarantees of future performance and our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, statements about future periods; the Company's strategy and ongoing development programs; the Company's clinical trials, including status, costs, goals, timing costs, results and interpretationother expectations related thereto; the Company’s belief as to the potential of our clinical trials;its lead compound, SP-2577; the uncertainties inherent in conducting clinical trials; results from our ongoingCompany's strategic collaborations and planned pre-clinical development; expectations of our abilitylicense agreements, intellectual property, FDA approval process and government regulation; the potential for Seclidemstat to make regulatory filingstarget the epigenetic dysregulation underlying Ewing sarcoma and obtainadvanced solid tumors including, but not limited to, prostate, breast, ovarian, melanoma, colorectal and maintain regulatory approvals; our ability to developother cancers; expected timing and commercialize our consumer products; anticipated attributes of our consumer products; results of early clinical studies as indicativestudies; the nature, strategy and focus of the results of future trials; availability of funding sufficient for our foreseeableCompany; the development and unforeseeable operating expenses and capital expenditure requirements; other matters that could affect the availability or commercial potential of our consumer or drugany product candidates; the inherentCompany's ability to regain and maintain compliance with Nasdaq's continued listing standards; the Company’s expectations as to revenue, cash flow, and expenses; critical accounting policies; the potential impact of the COVID-19 pandemic on the Company’s business, operations, cash flow and ability to obtain additional financing; the sufficiency of the Company's cash on hand for future operating and capital requirements; the Company's liquidity position, future capital requirements, and need for, and ability to secure, additional financing; the ability of the Company to access additional financing under the Grant Contract with Cancer Prevention and Research Institute of Texas; and the Company's operating losses and ability to continue as a going concern. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties, associated with intellectual property; and other factorsincluding those discussed under “Part I — Item 1A — Risk Factors,” in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 20162019, and under Part II — Item 1A — Risk Factors in this Quarterly Report on Form 10-Q. These risks and uncertainties that could cause actual results to differ materially from expectations or those expressed in these forward-looking statements. These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. When used in this report, the words “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “indicate,” “seek,” “should,” “would,” “aim,” “target” and similar expressions are intended to identify forward-looking statements, though not all forward-looking statements contain these identifying words. All statements, other filings with the Securities and Exchange Commission, or SEC.than statements of historical fact, are statements that could be deemed forward-looking statements.


As a resultIf any of these and other factors, we may not actually achieverisks or uncertainties materializes or any of these assumptions proves incorrect, our results could differ materially from the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on ourin this report. All forward-looking statements.statements in this report are current only as of the date of this report. We do not assumeundertake any obligation to publicly update any forward-looking statements, whether as a result of new information, futurestatement to reflect events or otherwise, except as required by law.circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.







Table of Contents
PART I - FINANCIAL INFORMATION



Item 1.Financial Statements


FLEX PHARMA,SALARIUS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)


 March 31,
2020
December 31,
2019
 
Assets  
Current assets:  
Cash and cash equivalents$9,646,940  $3,738,900  
Grants receivable from CPRIT591,129  —  
Prepaid expenses and other current assets646,360  955,899  
Total current assets10,884,429  4,694,799  
Property and equipment, net21,889  25,016  
Goodwill8,865,909  8,865,909  
Other assets293,147  308,674  
Total assets$20,065,374  $13,894,398  
Liabilities and stockholders' equity (deficit)  
Current liabilities: 
Accounts payable$979,823  $1,790,966  
Accrued expenses and other current liabilities795,567  160,783  
Note payable252,679  502,332  
Deferred revenue—  541,701  
Warrant liability34,692  317,762  
Total liabilities2,062,761  3,313,544  
Commitments and contingencies (Note 6)
Stockholders' equity (deficit):  
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 468,694 issued and outstanding47  —  
Common stock, $0.0001 par value; 100,000,000 shares authorized; 13,650,838 and 4,519,533 shares issued at March 31, 2020 and December 31, 2019, and 13,645,677 and 4,511,174 shares outstanding at March 31, 2020 and December 31, 2019, respectively1,364  451  
Additional paid-in capital32,161,718  22,657,103  
Accumulated deficit(14,160,516) (12,076,700) 
Total stockholders' equity18,002,613  10,580,854  
Total liabilities and stockholders' equity$20,065,374  $13,894,398  
 September 30,
2017
 December 31,
2016
    
Assets 
  
Current assets: 
  
Cash and cash equivalents$20,152,129
 $22,416,040
Marketable securities18,776,390
 38,658,933
Accounts receivable35,134
 12,181
Inventory533,996
 454,132
Prepaid expenses and other current assets1,056,179
 925,983
Total current assets40,553,828
 62,467,269
Property and equipment, net400,991
 556,315
Other assets
 64,800
Restricted cash253,190
 126,595
Total assets$41,208,009
 $63,214,979
Liabilities and stockholders' equity 
  
Current liabilities: 
  
Accounts payable$919,030
 $1,192,183
Accrued expenses and other current liabilities3,897,184
 2,587,573
Deferred revenue97,571
 88,344
Deferred rent, current portion58,821
 21,095
Total current liabilities4,972,606
 3,889,195
Deferred rent, net of current portion53,919
 8,398
Total liabilities5,026,525
 3,897,593
Stockholders' equity: 
  
Preferred stock, $0.0001 par value; 10,000,000 shares authorized at September 30, 2017 and December 31, 2016; none issued or outstanding at September 30, 2017 and December 31, 2016
 
Common stock, $0.0001 par value; 100,000,000 shares authorized at September 30, 2017 and December 31, 2016; 17,971,816 and 17,970,590 shares issued at September 30, 2017 and December 31, 2016, and 17,541,377 and 16,773,798 shares outstanding at September 30, 2017 and December 31, 2016, respectively1,754
 1,678
Additional paid-in capital139,231,785
 135,962,935
Accumulated other comprehensive loss(1,311) (1,614)
Accumulated deficit(103,050,744) (76,645,613)
Total stockholders' equity36,181,484
 59,317,386
Total liabilities and stockholders' equity$41,208,009
 $63,214,979

See accompanying notes to condensed consolidated financial statements.

5
FLEX PHARMA,

Table of Contents
SALARIUS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


 Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Revenue:
Grant revenue$1,132,830  $655,635  
Operating expenses:
Research and development1,643,371  699,929  
General and administrative1,859,017  1,488,490  
Total operating expenses3,502,388  2,188,419  
Loss before other income (expense)(2,369,558) (1,532,784) 
Change in fair value of warrant liability283,070  —  
Interest income net2,672  10,708  
Net loss$(2,083,816) $(1,522,076) 
Loss per common share — basic and diluted$(0.22) $(0.64) 
Weighted-average number of common shares outstanding — basic and diluted9,534,842  2,372,940  
 Three Months Ended September 30, 2017 Three Months Ended September 30, 2016 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Net product revenue$407,241
 $586,134
 $978,221
 $698,819
Other revenue6,360
 12,940
 13,450
 12,940
Total revenue413,601
 599,074
 991,671
 711,759
Costs and expenses:     
  
Cost of product revenue148,756
 221,090
 373,187
 529,041
Research and development4,739,360
 5,665,357
 12,730,554
 16,147,357
Selling, general and administrative4,934,937
 5,447,847
 14,520,596
 15,937,326
Total costs and expenses9,823,053
 11,334,294
 27,624,337
 32,613,724
Loss from operations(9,409,452) (10,735,220) (26,632,666) (31,901,965)
Interest income, net77,339
 97,726
 227,535
 308,877
Net loss$(9,332,113) $(10,637,494) $(26,405,131) $(31,593,088)
Net loss attributable to common stockholders$(9,332,113) $(10,637,494) $(26,405,131) $(31,593,088)
Net loss per share attributable to common stockholders — basic and diluted$(0.54) $(0.65) $(1.54) $(1.96)
Weighted-average number of common shares outstanding — basic and diluted17,386,249
 16,361,617
 17,131,887
 16,104,510



See accompanying notes to condensed consolidated financial statements.



6
FLEX PHARMA,

Table of Contents
SALARIUS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS CASH FLOWS
(Unaudited)


 Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Operating activities  
Net loss$(2,083,816) $(1,522,076) 
Adjustments to reconcile net loss to net cash used in operating activities: 
Depreciation, amortization and impairment4,233  114,707  
Equity-based compensation expense38,409  35,407  
Change in fair value of warrant liability(283,070) —  
Changes in operating assets and liabilities: 
Grants receivable(591,129) —  
Prepaid expenses and other current assets298,959  30,743  
Accounts payable(911,301) 589,700  
Accrued expenses and other current liabilities361,382  (462,816) 
Due to/from related party—  1,256  
Deferred revenue(541,701) (655,634) 
Net cash used in operating activities(3,708,034) (1,868,713) 
Financing activities
Proceeds from issuance of equity securities, net9,865,727  1,508,179  
Payments on note payable(249,653) —  
Net cash provided by financing activities9,616,074  1,508,179  
Net increase (decrease) in cash, cash equivalents and restricted cash5,908,040  (360,534) 
Cash, cash equivalents and restricted cash at beginning of period3,738,900  6,131,781  
Cash, cash equivalents and restricted cash at end of period$9,646,940  $5,771,247  
Supplemental disclosure of cash flow information:
Cash paid for interest$3,061  $—  
Non-cash investing and financing activities:
Accrued issuance costs for public offering$398,561  $—  
Issuance of shares for license$—  $110,474  
Conversion of liabilities to equity$—  $2,869,412  
 Three Months Ended September 30, 2017 Three Months Ended September 30, 2016 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Net loss$(9,332,113) $(10,637,494) $(26,405,131) $(31,593,088)
Other comprehensive gain (loss):       
Unrealized gain (loss) on available-for-sale securities4,305
 (24,818) 303
 39,326
Comprehensive loss$(9,327,808) $(10,662,312) $(26,404,828) $(31,553,762)



See accompanying notes to condensed consolidated financial statements.

7


Table of Contents
FLEX PHARMA,SALARIUS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)


 Common StockPreferred StockAdditional Paid-In CapitalAccumulated DeficitTotal Stockholders' Equity (Deficit)
 SharesAmountSharesAmount
Balance at December 31, 20182,032,763  $203  —  —  $3,869,120  $(5,140,437) $(1,271,114) 
Issuance of equity securities960,489  96  —  —  4,377,495  —  4,377,591  
Issuance of equity securities for license12,907   —  —  110,473  —  110,474  
Equity-based compensation expense9,550   —  —  35,406  —  35,407  
Net loss—  —  —  —  —  (1,522,076) (1,522,076) 
Balance at March 31, 20193,015,709  301  —  —  8,392,494  (6,662,513) 1,730,282  
Balance at December 31, 20194,511,174  451  —  —  22,657,103  (12,076,700) 10,580,854  
Issuance of equity securities, net8,353,480  835  1,246,519  125  9,466,206  —  9,467,166  
Preferred shares converted to common shares777,825  78  (777,825) (78) —  —  —  
Equity-based compensation expense3,198  —  —  —  38,409  —  38,409  
Net loss—  —  —  —  —  (2,083,816) (2,083,816) 
Balance at March 31, 202013,645,677  $1,364  468,694  47  $32,161,718  $(14,160,516) $18,002,613  
 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Operating activities 
  
Net loss$(26,405,131) $(31,593,088)
Adjustments to reconcile net loss to net cash used in operating activities: 
 

Depreciation expense250,563
 165,373
Stock-based compensation expense3,266,879
 5,367,070
Amortization and accretion on investments(38,551) 117,236
Changes in operating assets and liabilities: 
  
Restricted cash(126,595) 240
Accounts receivable(22,953) (21,787)
Inventory(79,864) (109,701)
Prepaid expenses and other current assets(130,196) (645,696)
Other assets64,800
 (64,800)
Accounts payable(274,525) 321,460
Accrued expenses and other current liabilities1,309,611
 647,455
Deferred revenue9,227
 81,399
Deferred rent83,247
 (3,056)
Other long term liabilities
 (15,442)
Net cash used in operating activities(22,093,488) (25,753,337)
Investing activities 
  
Purchases of marketable securities(23,364,721) (28,086,686)
Proceeds from maturities and sales of marketable securities43,286,118
 15,469,810
Purchases of property and equipment(98,100) (508,987)
Proceeds from sales of property and equipment

4,233
 
Net cash provided by (used in) investing activities19,827,530
 (13,125,863)
Financing activities 
  
Proceeds from exercise of common stock2,047
 22,096
Net cash provided by financing activities2,047
 22,096
Net decrease in cash and cash equivalents(2,263,911) (38,857,104)
Cash and cash equivalents at beginning of period22,416,040
 66,686,695
Cash and cash equivalents at end of period$20,152,129
 $27,829,591
Supplemental cash flow information   
Property and equipment purchases included in accounts payable at September 30, 2017$8,472
 $
Property and equipment purchases included in accounts payable and accrued expenses at December 31, 2016 and 2015$7,100
 $106,680
Inventory purchases included in accrued expenses at September 30, 2016$
 $121,077

See accompanying notes to condensed consolidated financial statements.

8
FLEX PHARMA,

Table of Contents
SALARIUS PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. OrganizationORGANIZATION AND OPERATIONS

Nature of Business

Salarius Pharmaceuticals, Inc. (“Salarius” or the “Company”), together with its subsidiaries, Salarius Pharmaceuticals, LLC, Flex Innovation Group LLC, and operations
TK Pharma, Inc., is a clinical-stage biotechnology company focused on developing effective treatments for cancers with high unmet medical need caused by dysregulated gene expression.Epigenetics refers to the regulatory system that affects gene expression and the Company's lead epigenetic enzyme technology was licensed from the University of Utah Research Foundation in 2011. The Company is located in Houston, Texas.

Merger with Flex Pharma, Inc.

On January 3, 2019, Flex Pharma, Inc. ("Flex Pharma"), Salarius Pharmaceuticals LLC ("Private Salarius") and Falcon Acquisition Sub, LLC (“Merger Sub”), a wholly owned subsidiary of Flex Pharma, entered into an Agreement and Plan of Merger (the "Company"“Merger Agreement”) is a biotechnology company that is developing innovative and proprietary treatments for muscle cramps and spasticity associated with severe neurological conditions and exercise-associated muscle cramps. In August 2017, the Company initiated a Phase 2 clinical trial in the United States of its lead drug product candidate, FLX-787, in patients with motor neuron disease, or MND, primarily with amyotrophic lateral sclerosis, or ALS, who suffer from cramps. The Company also initiated an additional Phase 2 clinical trial in October 2017 in patients with Charcot-Marie-Tooth disease, or CMT, who suffer from cramps. FLX-787 is currently in an exploratory Phase 2 spasticity study in Australia in patients with multiple sclerosis, or MS. In 2016, the Company launched its consumer product, HOTSHOT®, to prevent and treat exercise-associated muscle cramps, or EAMCs.

FLX-787, HOTSHOT and the Company's other product candidates are based on the potential mechanism of action the Company describes as chemical neurostimulation, which is the process by which a chemical signal, acting topically, induces a neuronal sensory signal that produces a beneficial effect. The Company's product candidates activate certain receptors in primary sensory neurons, which then act via neuronal circuits to reduce hyperexcitability, which can result in the repetitive firing of alpha-motor neurons in the spinal cord, thereby preventing or reducing the frequency and intensity of muscle cramps and spasms.

The Company operates as two reportable segments, Consumer Operations and Drug Development. See Note 11 for additional discussion and information on the reportable segments.

The Company is subject to risks common to companies in the biotechnology and consumer products industries, including, but not limited to, risks of failure of pre-clinical studies and clinical trials, the need to obtain marketing approval for its drug product candidates, the need to successfully commercialize and gain market acceptance of its drug product candidates and its consumer products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and development by competitors of alternative products.
Liquidity
The Company has incurred an accumulated deficit of $103,050,744 since inception and will require substantial additional capital to fund its research and development and commercialization and growth of its consumer brand and HOTSHOT. The Company had unrestricted cash, cash equivalents and marketable securities of $38,928,519 at September 30, 2017. The Company believes that its existing cash, cash equivalents and marketable securities will be sufficient to allow the Company to fund its current operating plan for at least 12 months from the date the financial statements are issued. Management expects the Company to incur a loss for the foreseeable future. The Company's ability to achieve profitability in the future is dependent upon the successful development, approval and commercialization of its drug product candidates and successful commercialization of HOTSHOT and future consumer products, and achieving a level of revenues adequate to support the Company's cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. Management intends to fund future operations through additional private or public debt or equity offerings, and may seek additional capital through arrangements with collaborators or from other sources. There can be no assurances, however, that additional funding will be available on terms acceptable. Pursuant to the Company, or at all.
2. SummaryMerger Agreement, Merger Sub merged with and into Private Salarius, with Private Salarius continuing as a wholly owned subsidiary of significant accounting policies and recent accounting pronouncements
Flex Pharma. The accompanying unaudited condensed consolidated financial statements reflectmerger was completed on July 19, 2019. After the application of certain significant accounting policies as described below and elsewhere in these notes to the condensed consolidated financial statements. As of September 30, 2017, the Company’s significant accounting policies, which are detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “2016 10-K”), have not changed, other than as noted below.

Revenue
Revenue is comprised of net product revenue and other revenue. Net product revenue includes sales of HOTSHOT finished goods to e-commerce customers, specialty retailers and sports teams, including professional and collegiate teams. Other revenue consists of payments made by customers for expedited shipping and handling, which the Company began offering during the third quarter of 2016. Revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the sales price is fixed or determinable and collectibility is reasonably assured.merger, Flex Pharma was renamed Salarius Pharmaceuticals, Inc. The Company issues refunds to e-commerce customers, upon request, within 30 days of delivery. As the Company currently does not have adequate history to accurately estimate refunds, all e-commerce sales, and their related costs, are deferred and revenue is recognized once the refund period lapses. This deferral represents total deferred revenue presented on the Company's consolidated balance sheet. For specialty retailers and sports teams, the Company does not offer a right of return or refund and revenue is recognized at the time products are delivered to customers.
Discounts provided to customers aremerger was accounted for as a reduction of net product revenue.reverse acquisition with Private Salarius being deemed the acquiring company for accounting purposes. See Note 3.
Net product revenue and other revenue are presented net of taxes collected from customers and remitted
Risks Related to governmental authorities.Covid-19 Pandemic
The Company had no customers that represented greater than 10%outbreak of total revenue duringCOVID-19 has spread worldwide. On March 11, 2020, the three and nine months ended September 30, 2017.World Health Organization declared the outbreak a pandemic. The vast majority of revenue was generated from sales withinCOVID-19 pandemic is affecting the United States.
Accounts receivableStates and allowance for doubtful accounts
Accounts receivable are stated at their carrying values, net of any allowances for doubtful accounts. Accounts receivable consist primarily of amounts due from specialty retailersglobal economies and sports teams, for which collectibility is reasonably assured. Receivables are evaluated for collectibility on a regular basis and an allowance for doubtful accounts is recorded, if necessary.
Advertising expense
Advertising expense consists of media and production costs related to print and digital advertising. All advertising is expensed as incurred. Total advertising expenses are included in selling, general and administrative expenses inmay affect the condensed consolidated statement ofCompany’s operations and were approximately $1,158,000those of third parties on which the Company relies. While the potential economic impact brought by, and $3,073,000 for the threeduration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and nine months ended September 30, 2017 and approximately $1,154,000 and $2,580,000 forsubject to change. The Company does not yet know the three and nine months ended September 30, 2016.
Shipping and handling costs
Shipping and handling costs related tofull extent of potential delays or impacts on its business, financing or other activities or on healthcare systems or the movement of inventory to the Company's co-packer and from the co-packer to the Company's third-party warehousing partner is capitalized as inventory and expensedglobal economy as a cost of product revenue when revenue is recognized. Shipping and handling costs to move finished goods fromwhole. However, these effects could have a material impact on the Company's warehousing partner to the Company's third-party fulfillment partner or to customer locations are included in selling, general and administrative expenses in the condensed consolidated statement ofCompany’s liquidity, capital resources, operations and were approximately $64,000business and $145,000 for the three and nine months ended September 30, 2017, and approximately $98,000 and $126,000 for the three and nine months ended September 30, 2016.
Unaudited interim financial information

Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the 2016 10-K.

The condensed consolidated financial statements as of September 30, 2017, for the three and nine months ended September 30, 2017 and 2016, and the related information contained within the notes to the condensed consolidated financial statements, are unaudited. The unaudited condensed consolidated financial statements have been prepared on the same basis as annual audited consolidated financial statements, and in the opinion of

management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentationthose of the Company’s condensed consolidated financial position as of September 30, 2017, and the statements of operations, comprehensive loss and cash flows for the three and nine month periods ended September 30, 2017 and 2016. The results for the three and nine months ended September 30, 2017 are not necessarily indicative of results to be expected for the year ending December 31, 2017, or any other future annual or interim periods.third parties on which we rely.

NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and use of estimatesPresentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("GAAP"). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principlesGAAP as found in the Accounting StandardsStandard Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB").

As described above, the merger with Flex Pharma closed on July 19, 2019. The preparation ofmerger was accounted for as a reverse acquisition with Private Salarius being deemed the acquiring company for accounting purposes. Private Salarius’ historical financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in thehave replaced Flex Pharma’s historical consolidated financial statements with respect to periods prior to the completion of the merger with retroactive adjustments to Private Salarius' legal capital to reflect the legal capital of Flex Pharma. Flex Pharma (renamed Salarius Pharmaceuticals, Inc.) remains the continuing registrant and accompanying notes. On an ongoing basis,reporting company. Accordingly, the Company's management evaluates its estimates,historical financial and operating data of Salarius Pharmaceuticals, Inc., which include, but arecovers periods prior to the closing date of the merger, reflects the assets, liabilities and results of operations of Private Salarius and does not limitedreflect the assets, liabilities and results of operations of Flex Pharma for the periods prior to estimates related to clinical study accruals, estimates related to inventory realizability, stock-based compensation expense and amounts of expenses during the reported period.July 19, 2019. The Company baseshas retrospectively adjusted its estimates on historical experienceStatement of Changes in Stockholders’ Equity (Deficit) and other market-specific or other relevant assumptionsthe weighted average shares used in determining loss per common share to reflect the conversion of the outstanding common unit, profits interest common unit and Series A Preferred unit of
9

Table of Contents
Private Salarius that it believesconverted into shares of the Company’s common stock upon the merger, and to be reasonable underreflect the circumstances. Actual results may differ from those estimates or assumptions.effect of the 25 to 1 reverse stock split of the Company’s common stock which occurred upon the merger.

Principles of consolidationConsolidation


The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: TK Pharma, Inc., a Massachusetts Securities Corporation, and Flex Innovation Group LLC, a Delaware limited liability company, which contains the Company's consumer-related operations.subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.


ConcentrationUnaudited Interim Financial Information

The accompanying interim financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended December 31, 2019 included elsewhere in the Company's Annual Report on Form 10-K filed with the SEC on March 23, 2020. In the opinion of management, the unaudited interim financial statements reflect all the adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of March 31, 2020 and the results of operations for the three months ended March 31, 2020 and 2019. The interim results of operations are not necessarily indicative of the results that may occur for the full fiscal year. The December 31, 2019 balance sheet included herein was derived from the audited financial statements, but does not include all disclosures, including notes, required by GAAP for complete financial statements.

Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America as defined by the FASB ASC requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

Salarius considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.

At March 31, 2020 and December 31, 2019, Salarius also held approximately $0 and $1.0 million, respectively, which represents funds received from Cancer Prevention and Research Institution of Texas ("CPRIT"). These funds were used for costs for allowable expenses, primarily research and development expenses. The grant has a mandatory fund matching requirement. Subject to CPRIT review, the Company believes that all matching fund requirements have been met at March 31, 2020.


Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. During the three months ended March 31, 2020 and March 31, 2019 , impairment charges related to long-lived assets were $0 and $110,474, respectively.

Goodwill

Goodwill is not amortized but is tested at least annually for impairment at the reporting unit level. The Company has determined that the reporting unit is the single operating segment disclosed in its current financial statements.

Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill. If the fair value exceeds the carrying value, no further action is required and no impairment loss is recognized. Additional impairment assessments may be performed on an interim basis if the Company encounters events or changes in circumstances that would indicate that, more likely than not, the carrying
10

Table of Contents
value of goodwill has been impaired. There was no impairment of goodwill during the three months ended March 31, 2020 or March 31, 2019, respectively.

Financial Instruments and Credit Risks

Financial instruments that potentially subject the Company to credit risk include cash and cash equivalents and restricted cash. Cash is deposited in demand accounts in federally insured domestic institutions to minimize risk. Insurance is provided through the Federal Deposit Insurance Corporation (“FDIC”). Although the balances in these accounts exceed the federally insured limit from time to time, the Company has not incurred losses related to these deposits.

Warrants
In conjunction with the reverse merger transaction, the Company issued rights to receive warrants to purchase the Company’s common stock. Further, on February 11, 2020, the Company issued warrants to purchase the Company's common stock in a registered public offering. The Company determines whether the warrants should be classified as a liability or equity. For warrants classified as liabilities, the Company estimates the fair value of the warrants at each reporting period using Level 3 inputs with changes in fair value recorded in the Condensed Consolidated Statement of Operations within Change in fair value of warrant liability. The estimates in valuation models are based, in part, on subjective assumptions, including but not limited to stock price volatility, the expected life of the warrants, the risk-free interest rate and the fair value of the common stock underlying the warrants, and could differ materially in the future. The Company will continue to adjust the fair value of the warrant liability at the end of each reporting period for changes in fair value from the prior period until the earlier of the exercise or expiration of the applicable warrant.

Clinical Trial Accruals
The Company’s preclinical and clinical trials are performed by third party contract research organizations (CROs) and/or clinical investigators, and clinical supplies are manufactured by contract manufacturing organizations (CMOs). Invoicing from these third parties may be monthly based upon services performed or based upon milestones achieved. The Company accrues these expenses based upon its assessment of the status of each clinical trial and the work completed, and upon information obtained from the CROs and CMOs. The Company’s estimates are dependent upon the timeliness and accuracy of data provided by the CROs and CMOs regarding the status and cost of the studies, and may not match the actual services performed by the organizations. This could result in adjustments to the Company’s research and development expenses in future periods. To date the Company has had no significant adjustments.

Grants Receivable and Revenue Recognition

Salarius’ source of revenue has been from a grant received from CPRIT. Grant revenue is recognized when qualifying costs are incurred and there is reasonable assurance that conditions of the grant have been met. Cash received from grants in advance of incurring qualifying costs is recorded as deferred revenue and recognized as revenue when qualifying costs are incurred. When grant funds are received after costs have been incurred, the Company records revenue and a corresponding grants receivable.

Research and Development Costs

Research and development costs consist of expenses incurred in performing research and development activities, including pre-clinical studies and clinical trials. Research and development costs include salaries and personnel-related costs, consulting fees, fees paid for contract research services, the costs of laboratory equipment and facilities, license fees and other external costs. Research and development costs are expensed when incurred.


Equity-Based Compensation

Salarius measures equity-based compensation based on the grant date fair value of the awards and recognizes the associated expense in the financial statements over the requisite service period of the award, which is generally the vesting period.

11

Table of Contents
The Company outsourcesuses the manufactureBlack-Scholes option valuation model and the Backsolve method (which is similar to the Black-Scholes valuation model and produces similar results) to estimate the fair value of HOTSHOTthe stock-based compensation and incentive units. Assumptions utilized in these models including expected volatility calculated based on implied volatility from traded stocks of peer companies, dividend yield and risk-free interest rate. Additionally, forfeitures are accounted for in compensation cost as they occur.

Loss Per Share

Basic net loss per share is calculated by dividing the net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Since the Company was in a single co-packerloss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods, as the inclusion of all potential common shares outstanding is anti-dilutive.

The number of anti-dilutive shares, consisting of common shares underlying (i) common stock options, (ii) stock purchase warrants, (iii) unvested restricted stock, (iv) convertible preferred stock and (v) rights entitling holders to receive warrants to purchase the Company's common shares, which have been excluded from the computation of diluted loss per share, was 10,597,729 and 30,395 shares as of March 31, 2020 and 2019, respectively.

Income Taxes
Income taxes are recorded in accordance with FASB ASC Topic 740, Income Taxes ("ASC 740"), which provides for deferred taxes using an asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that produces bottled finished goods.are expected to be in effect when the differences are expected to reverse. The Company also sources certain raw materials from sole suppliers. A disruption inprovides a valuation allowance against net deferred tax assets unless, based upon the supply of materials oravailable evidence, it is more likely than not that the production of finished goods could significantly impactdeferred tax assets will be realized. The Company has evaluated available evidence and concluded that the Company's revenues in the future as alternative sources of raw materials and co-packingCompany may not realize the benefit of its deferred tax assets; therefore, a valuation allowance has been established for the full amount of the deferred tax assets.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available at commercially reasonable ratesfacts and circumstances. As of March 31, 2020 and December 31, 2019, the Company did not have any significant uncertain tax positions and no interest or within a reasonably short periodpenalties have been charged. The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company is subject to routine audits by taxing jurisdictions.

Subsequent Events

The Company’s management reviewed all material events through the date that the financial statements were issued for subsequent event disclosure consideration.

Application of time.New Accounting Standards
Recent accounting pronouncements

In May 2014,January 2017, the FASB issued ASU No. 2014-09, Revenue from Contracts2017-04, “Intangibles-Goodwill and Other,” which is intended to simplify the subsequent measurement of goodwill. The pronouncement allows an entity, during its annual or interim goodwill impairment evaluation, to compare the fair value of a reporting unit with Customers (Topic 606). Theits carrying amount. An impairment charge is immediately recognized by which the carrying amount exceeds the fair value. This ASU provides for a single comprehensive model for use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The accounting standard is effective for fiscal
years, and interim and annual periods within those years, beginning after December 15, 2016 with no early2019. The Company does not expect adoption permitted. of this ASU to have a material impact on its consolidated financial statements.

Pronouncements Not Yet Adopted
In July 2015,December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The guidance eliminates certain exceptions for recognizing deferred thetaxes for investments, performing intra-period
12

allocation and calculating income taxes in interim periods. This guidance also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective date of this accounting update tofor annual and interim periods in fiscal years beginning after December 15, 2017, along with an option to permit early2020. Early adoption as of the original effective date.is permitted. The Company is required to adoptcurrently evaluating the standard in the ASU using one of two acceptable methods: retrospectively to all prior reporting periods presented, with certain practical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU recognized at the date of initial application. impact this change will have on its consolidated financial statements.
In MarchJune 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), clarifying2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the implementation guidancemeasurement of all expected credit losses for financial assets including trade receivables held at the reporting date based on principal versus agent considerations. Specifically, an entity is required to determine whether the nature of a promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for the good or service to be providedhistorical experience, current conditions, and reasonable and supportable forecasts. Subsequent to the customer byissuance of ASU 2016-13, the other party (that is,FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU does not change the entity is an agent). The determination influences the timing and amount of revenue recognition. The effective date and transition requirements for ASU No. 2016-08 are the same as the effective date and transition requirements for ASU No. 2014-09.


The Company is currently evaluating the adoption impactcore principle of the guidance relatedin ASU 2016-13, instead these amendments are intended to clarify and improve operability of certain topics included within the Company's sales of HOTSHOT.credit losses guidance. The Company plansFASB also subsequently issued ASU No. 2019-04, Codification Improvements to adoptTopic 326, Financial Instruments—Credit Losses, Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 842), which did not change the standard retrospectively to all prior reporting periods presented. Based on evaluationcore principle of the Company's current revenue streams,guidance in ASU 2016-13 but clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the Company doesvaluation account and should not expect the newexceed amounts previously written off and expected to be written off. The guidance to change the total amount of revenue recognized, but may accelerate the timing of when revenue is recognized. The Company expects thateffective for fiscal years, and interim periods within those years, beginning after December 15, 2019 for public business entities, excluding smaller reporting companies. Early adoption is permitted. As a smaller reporting company, the guidance will impactbe effective for the consolidated statementCompany during the first quarter of operations and balance sheet, but cannot yet quantify those impacts at this time. The Company has completed an initial impact analysis, including reviewing the terms and conditions of its contracts.2023. The Company is in the process of finalizing its accounting policy, and, once finalized,assessing the Company will design and implement necessary changes to processes and controls to allow for proper recognition, presentation and disclosure uponimpact adoption effective in the beginning of fiscal year 2018. The FASB has issued, and may issue in the future, interpretive guidance which may cause the Company's evaluation to change.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330). This ASU simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The Company adopted this ASU as of March 31, 2017, which did not have a material impact on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The ASU requires lessees to recognize assets and liabilities on their balance sheet for the right of use ("ROU") and obligations created by most leases, and to continue to recognize expenses on their income statements over the lease term. It will also require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. While the Company is currently evaluating the effect this standard will have on its consolidated financial statements.

NOTE 3. REVERSE ACQUISITION AND DISPOSAL

Reverse Acquisition

On January 3, 2019, Flex Pharma, Private Salarius and Merger Sub entered into the Merger Agreement. Pursuant to the Merger Agreement, Merger Sub merged with and into Private Salarius, with Private Salarius continuing as a wholly owned subsidiary of Flex Pharma, with Flex Pharma deemed the legal acquiror and Private Salarius deemed the accounting acquiror, as described below. The merger was completed on July 19, 2019. After the merger, Flex Pharma was renamed Salarius Pharmaceuticals, Inc. The merger was accounted for as a reverse acquisition business acquisition with Private Salarius being deemed the acquiring company for accounting purposes. Private Salarius, as the accounting acquirer, recorded the assets acquired and liabilities assumed of Flex Pharma in the merger at their fair values as of the acquisition date. Private Salarius’ historical financial statements have replaced Flex Pharma’s historical consolidated financial statements with respect to periods prior to the completion of the merger with retroactive adjustments to Private Salarius' legal capital to reflect the legal capital of Flex Pharma. Flex Pharma (which was renamed Salarius Pharmaceuticals, Inc. in connection with the merger) remains the continuing registrant and timingreporting company.

Private Salarius was determined to be the accounting acquirer based on the following facts and circumstances: (1) members of adoption,Private Salarius owned approximately 80.7% of the voting interests of the combined company immediately following the closing of the transaction; (2) the majority of the board of directors of the combined company was composed of directors designated by Private Salarius under the terms of the Merger Agreement; and (3) existing members of Private Salarius management became the management of the combined company.

The business purposes of the merger included, among other purposes, obtaining the following potential advantages: (i) the combined organization’s resources would be immediately available to support Private Salarius’ research on Seclidemstat; and (ii) the public company status would allow the Company expectsgreater potential access to additional capital.

At the closing of the merger, each outstanding common unit, profits interest common unit and Series A Preferred unit of Private Salarius converted into shares of the Company’s common stock (subject to the payment of cash in lieu of fractional shares and after giving effect to a 25 to 1 reverse stock split of the Company’s common stock) at the conversion ratio formulae described in the Merger Agreement.

In addition, at the closing of the merger, the Company distributed 1 right per share of common stock to stockholders of record as of the close of business on July 18, 2019. Each right entitles such stockholders to receive
13

a warrant to purchase shares of the Company’s common stock six months and one day following the closing date of the merger. See Note 8.

The Company accounted for the acquisition as a reverse merger using purchase accounting. Because the merger qualifies as a reverse acquisition and given that Private Salarius was a private company at the time of the merger and therefore its value was not readily determinable, the fair value of the merger consideration was deemed to be equal to the sum of the quoted market capitalization of the Company at the merger date, the fair value of the Flex Pharma options that fully vested upon adoption, it will recognize ROUthe merger together, and the fair value of the rights to receive warrants that were granted to the pre-merger Flex Pharma stockholders. Total purchase consideration is as follows:

Flex Pharma market capitalization at closing$10,963,526 
Fair value of rights to warrants1,629,095 
Fair value of Flex Pharma outstanding options on the merger date132,227 
Total purchase consideration$12,724,848 

The Company recorded all tangible and intangible assets acquired and lease liabilities and those amounts could be material.

In March 2016, the FASB issued ASU No. 2016-09 Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classificationassumed at their preliminary estimated fair values on the statement of cash flows.merger date. The guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adoptedfollowing represents the new standard on January 1, 2017 and has elected to account for forfeitures as they occur. The change was applied on a modified retrospective basis with a cumulative effect adjustment to increase retained earnings by approximately $2,000, as of January 1, 2017. In addition, upon adoptionallocation of the new standard,estimated purchase consideration:

Fair value of assets acquired
Cash$5,405,826 
Accounts receivable15,168 
Inventory122,235 
Prepaid expense and other current assets106,319 
Goodwill and intangibles8,937,899 
Total fair value of assets acquired14,587,447 
Fair value of liabilities assumed
Accounts payable, accrued liabilities and other current liabilities1,862,599 
Total fair value of liabilities assumed1,862,599 
Net assets acquired$12,724,848 



Unaudited Pro Forma Disclosure

The following unaudited pro forma financial information summarizes the Company has additional deferred tax assets related to tax deductions from excess tax benefits related to the exercise of stock options. As a result, the deferred tax assets associated with net operating losses increased by $50,000 in the first quarter of 2017. The amounts are offset by a corresponding increase in the valuation allowance, therefore, there is no net effect on the Company’s results of operations for the three or nine months ended September 30, 2017.March 31, 2020 and 2019 as if the merger described above had been completed as of January 1, 2019. Pro forma information primarily reflects adjustments relating to the reversal of transaction costs. Assuming that the merger had been completed as of January 1, 2019, the transaction costs would have been expensed in the prior period.


Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Revenues$1,132,830  $655,635  
Net loss(2,083,816) (9,415,074) 
Net loss per share(0.22) (3.97) 

14

NOTE 4. GRANTS RECEIVABLE
Grants receivable represents qualifying costs incurred and there is reasonable assurance that conditions of the grant have been met but the corresponding funds have not been received as of the reporting date. Grants receivable balances are $591,129 and $0 as of March 31, 2020 and December 31, 2019, respectively.

NOTE 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets at March 31, 2020 and December 31, 2019 consisted of the following:
 March 31, 2020December 31, 2019
Prepaid clinical trial expenses$140,964  $202,743  
Prepaid insurance360,608  617,096  
Other prepaid and current assets144,788  136,060  
Total prepaid expenses and other current assets$646,360  $955,899  

Prepaid insurance is comprised of prepaid directors' and officers' insurance. In NovemberJuly 2019, the Company financed their directors' and officers' insurance premium with a short term note, the principal amount of which is approximately $0.9 million bearing interest at a rate of 4.61%. The note payable balances were $252,679 and $502,332, which were included within Current Liabilities on the Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019, respectively.

NOTE 6. COMMITMENTS AND CONTINGENCIES

License Agreement with the University of Utah Research Foundation

In 2011, the Company entered into a license agreement with the University of Utah, under which, the Company acquired an exclusive license to and epigenetic enzyme lysine specific demethylase 1 ("LSD 1"). In exchange for the license, the Company issued 2% equity ownership in the Company based on a fully diluted basis at the effective date of the agreement and subject to certain adjustments specified in the agreement, granted revenue sharing rights on any resulting products or processes to commence on first commercial sale, and milestone payments based upon regulatory approval of any resulting product or process as well as on the second anniversary of first commercial sale.

Cancer Prevention and Research Institute of Texas

In June 2016, the FASB issued ASU No. 2016-18, StatementCompany entered into a Cancer Research Grant Contract with CPRIT. Pursuant to the contract, CPRIT awarded the Company a grant of Cash Flows,up to $18.7 million to fund the development of LSD-1 inhibitor. This is a 3-year grant award which amends ASU Topic 230. This update requiresoriginally expired on May 31, 2019. However, a six-month extension was approved by CPRIT in May 2019 and an additional six-month extension through May 2020. The Company has applied for an extension with a proposed contract end date of November 30, 2020.

The Company will retain ownership over any intellectual property developed under the contract ("Project Result"). With respect to non-commercial use of any Project Result, the Company agreed to grant to CPRIT a nonexclusive, irrevocable, royalty-free, perpetual, worldwide license with right to sublicense any necessary additional intellectual property rights to exploit all Project Results by CPRIT, other governmental entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer be required to present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliationagencies of the totalsState of Texas, and private or independent institutions of higher education located in the statement of cash flows to the related captions in the balance sheet. Entities will also have to disclose the nature of their restricted cashTexas, for education, research and restricted cash equivalent balances. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted. Entities are required to apply the guidance retrospectively. other non-commercial purposes.

The Company is currently evaluatingobligated to make revenue-sharing payments to CPRIT with respect to net sales of any product covered by the effectcontract, up to a maximum repayment of adopting this new accounting guidance.certain percentage of the aggregate amount paid to the Company by CPRIT under the CPRIT contract. The payments are determined as a percentage of net sales, which may be reduced if the Company is required to obtain a license from a third party to sell any such product. In addition, upon meeting the foregoing limitation on revenue-sharing payments, the Company agreed to make continued revenue-sharing payments to CPRIT of less than 1% of net sales.

15

Table of Contents


The CPRIT grant is subject to funding conditions including a matching funds requirement where the Company believes thatwill match 50% of funding from the impactCPRIT grant. As of other recently issued standards thatMarch 31, 2020, the Company has received an aggregate of $9.6 million from the CPRIT grant and there was $9.1 million of funds available for the Company to draw upon meeting certain requirements. There was 0 funding received from CPRIT during the three months ended March 31, 2020. At March 31, 2020 and December 31, 2019, the Company had deferred revenue of $0 and $541,701, respectively, related to the CPRIT contract. At March 31, 2020 and December 31, 2019, the Company had grants receivable of $591,129 and $0, respectively, related to the CPRIT contract.


NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain assets and liabilities are not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption.
3.carried at fair value under GAAP. Fair value measurements
The Company records cash equivalentsis defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and marketable securities at fair value. ASC Topic 820 Fair Value Measurements and Disclosures established aminimize the use of unobservable inputs. A fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs)three levels of inputs, of which the first two are considered observable and the Company’s own assumptions (unobservable inputs). The hierarchy consists of three levels:last is considered unobservable, are used to measure fair value:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Quoted- Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets, quoted prices in marketsor liabilities; or other inputs that are not active,observable or inputs which arecan be corroborated by observable directly or indirectly,market data for substantially the full term of the assetassets or liability.liabilities.
Level 3 – Unobservable- Significant unobservable inputs that reflect the Company’sincluding Salarius’ own assumptions aboutin determining fair value.
The Company believes the assumptions market participants would use in pricingrecorded values of its financial instruments, including cash and cash equivalents, accounts payable and note payable approximate their fair values due to the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.short-term nature of these instruments.
The following tables summarizetable sets forth a summary of changes in the cash equivalents and marketable securitiesfair value of Level 3 liabilities, the warrant associated with the Flex Pharma merger measured at fair value on a recurring basis for the three months ended March 31, 2020:
DescriptionBalance at December 31, 2019Change in Fair ValueBalance at March 31, 2020
Warrant liability$317,762  $283,070  $34,692  


NOTE 8. STOCKHOLDERS' EQUITY
The accompanying condensed consolidated statements of stockholders' equity (deficit) and the footnotes to the interim financial statements have been retroactively adjusted to reflect the equity structure (that is, the number and type of equity interests issued) of Flex Pharma, the legal parent (accounting acquiree) of the merger closed on July 19, 2019, with the retained earnings and other equity balances of the Private Salarius before the merger. Private Salarius' equity was restated using the exchange ratio established in the merger agreement to reflect the number of shares of Flex Pharma issued in the merger. Concurrent with the merger, the Company's shareholders approved a 1-for-25 reverse stock split, which became effective on July 19, 2019. Total shares owned by Flex Pharma pre-merger shareholders (net of fraction shares paid in cash) was 8,353,480 shares after reverse stock-split.
Common Stock and Preferred Stock
On February 11, 2020, the Company completed a public offering with total gross proceeds of approximately $11.0 million, which includes the full exercise of the underwriter's over-allotment option to purchase an additional 1,252,173 shares and warrants prior to deducting underwriting discounts and commissions and offering expenses payable by Salarius. The offering is comprised of 7,101,307 Class A units, priced at a public offering price of $1.15 per unit, with each unit consisting of one share of common stock and a five-year warrant to purchase 1 share of
16

Table of Contents
common stock at an exercise price of $1.15 per share, and 1,246,519 Class B units, priced at a public offering price of $1.15 per unit, with each unit consisting of one share of Series A convertible preferred stock and a five-year warrant to purchase 1 share of common stock with and exercise price of $1.15 per share. A total of 8,343,480 shares of common stock, 1,246,519 shares of Series A convertible preferred stock, and warrants to purchase up to 9,599,999 shares of common stock were issued in the offering, including the full exercise of the over-allotment option. The convertible preferred stock issued in this transaction includes a beneficial ownership limitation on conversion, but has no dividend rights (except to the extent that dividends are also paid on the common stock). The conversion price of the Series A convertible preferred stock in the offering as well as the exercise price of the warrants are fixed and do not contain any variable pricing features or any price based anti-dilutive features.

In February 2020, 777,825 shares of Series A convertible preferred stock were converted to common stock.

During the three months ended March 31, 2019 the Company issued 960,489 common shares (4,035 Series A preferred units and 350 profit interest units of Private Salarius) for $4,377,591 (net of offering cost of $10,617).

In December 2018, the Company agreed to issue an unrelated party 12,907 common shares (91 common units of Private Salarius) to acquire licenses for the DNMT1 inhibitor. The issuance was approved in January 2019 and the license was granted in 2018. .


Right to Warrants

Pursuant to the Merger Agreement (See Note 3), Flex Pharma distributed 1 right per share of common stock to stockholders of record as of September 30, 2017 and December 31, 2016:
 Level 1 Level 2 Level 3 Balance as of September 30, 2017
Cash equivalents$6,326,982
 $
 $
 $6,326,982
Marketable securities:       
U.S. government agency securities
 12,481,959
 
 12,481,959
Commercial paper
 6,294,431
 
 6,294,431
 $6,326,982
 $18,776,390
 $
 $25,103,372

 Level 1 Level 2 Level 3 Balance as of December 31, 2016
Cash equivalents$11,681,074
 $
 $
 $11,681,074
Marketable securities:       
U.S. government agency securities
 31,059,491
 
 31,059,491
Commercial paper
 6,081,202
 
 6,081,202
Corporate debt securities
 1,518,240
 
 1,518,240
 $11,681,074
 $38,658,933
 $
 $50,340,007

Cash equivalents and marketable securities have been initially valued at the transaction price and subsequently valued, atclose of business on July 18, 2019. Each right entitles such stockholders to receive a warrant to purchase the end of each reporting period, utilizing third-party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market based approaches and observable market inputs to determine value. The majorityCompany's common shares on January 20, 2020. These warrants are exercisable, in the aggregate, into 142,711 shares of the Company's cash equivalents consistcommon stock with a 5-year term from January 20, 2020, and an exercise price of money market funds that$15.17 per share. The warrants are valuedsubject to a cashless exercise, at the option of the Company, at the closing of an issuance and sale of the Company’s common stock in certain qualified financing, upon the closing of which the holders of warrants shall be entitled to receive a number of shares of common stock equal to the greater of two formulae defined by the Merger Agreement, which are based on publicly available quoted market prices for identical securitiesthe volume weighted average price of the Company's common stock during the 10 consecutive trading days ending on the trading day immediately preceding the date of exercise. As a result, the warrants have been classified as of September 30, 2017. After completing its validation procedures, the Company did not adjust or override any fair value carrying amounts as of September 30, 2017.a liability.
The carrying amounts reflected in the condensed consolidated balance sheets for cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate their fair values at September 30, 2017 and December 31, 2016, due to their short-term nature.


The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of assets or liabilities between Level 1 and Level 2 during the nine months ended September 30, 2017 or the year ended December 31, 2016. The Company had no financial assets or liabilities that were classified as Level 3 at any time during the nine months ended September 30, 2017 or the year ended December 31, 2016.
4. Cash equivalents and marketable securities
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash equivalents as of September 30, 2017 and December 31, 2016 consisted of money market funds.
Marketable securities as of September 30, 2017 consisted of U.S. government agency securities and commercial paper. Marketable securities as of December 31, 2016 consisted of U.S. government agency securities, commercial paper and corporate debt securities. Management determines the appropriate classification of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The Company classifies its marketable securities as available-for-sale pursuant to ASC 320, Investments – Debt and Equity Securities. Marketable securities are recordedaccounted for these warrants at fair value with unrealized gains and losses included as a component of accumulated other comprehensive income (loss) in stockholders’ equity and a component of total comprehensive income (loss) in the condensed consolidated statement of comprehensive income (loss), until realized. Realized gains and losses are included in investment income on a specific-identification basis. There were no realized gains on marketable securities during the three and nine months ended September 30, 2017, and there were immaterial realized gains on marketable securities during the three and nine months ended September 30, 2016.
using Level 3 inputs. The Company reviews marketable securities for other-than-temporary impairment wheneverdetermined the fair value of this warrant liability using a marketable security is less thanBlack-Scholes valuation model as the amortized costCompany believes the value will closely approximate the value from the binomial asset pricing model that consisted of a conditional probability weighted expected return method that values the Company’s equity securities assuming various possible future outcomes to estimate the allocation of value within one or more of the scenarios. Using this method, unobservable inputs included the Company’s equity value, expected timing of possible outcomes, risk free interest rates and evidence indicates that a marketable security’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognizedstock
price volatility.

Variables used in the consolidated statementBlack-Scholes model are as follows:

March 31, 2020December 31, 2019
Discount rate0.37%1.69%
Expected life (years)4.81 years5.06 years
Expected volatility113.17%103.07%
Expected dividend—%—%

Wedbush Warrant

On July 19, 2019, upon the closing of operations ifthe merger, the Company has experienced a credit loss, has the intentelected to sell the marketable security, or if it is more likely than not that the Company will be requiredissue warrants to sell the marketable security before recoverypurchase 42,928 common shares to Wedbush Securities Inc. ("Wedbush") to satisfy $500,000 of the amortized cost basis. Evidence considered in this assessment includes reasons for$1,000,000 success fee payable to Wedbush at the impairment, compliance with the Company’s investment policy, the severity and the durationclosing of the impairmentmerger. The remaining $500,000 success fee was paid in cash. These warrants have an exercise price of $18.90 and changes in value subsequenta 5-year term. As of March 31, 2020, all warrants issued to the endWedbush were outstanding.
17

Table of the period.
Marketable securities at September 30, 2017 and December 31, 2016 consisted of the following:
 Amortized Cost Unrealized Gains Unrealized Losses Fair Value
As of September 30, 2017       
Current (due within 1 year):       
U.S. government agency securities$12,483,270
 $298
 $(1,609) $12,481,959
Commercial paper6,294,431
 
 
 6,294,431
Total$18,777,701
 $298
 $(1,609) $18,776,390

NOTE 9. EQUITY-BASED COMPENSATION
 Amortized Cost Unrealized Gains Unrealized Losses Fair Value
As of December 31, 2016       
Current (due within 1 year):       
U.S. government agency securities$31,060,710
 $2,912
 $(4,131) $31,059,491
Commercial paper6,081,202
 
 
 6,081,202
Corporate debt securities1,518,635
 
 (395) 1,518,240
Total$38,660,547
 $2,912
 $(4,526) $38,658,933

Equity Incentive Plans
The Company held fivehas granted options to employees, directors, and six debt securities that were in an unrealized loss position at September 30, 2017 and December 31, 2016, respectively, all of which have been in a continuous loss position for less than 12 months. The aggregate fair value of debt securities in an unrealized loss position was $9,483,010 and $16,519,620 at September 30, 2017 and December 31, 2016, respectively. There were no individual securities that were in a

significant unrealized loss position as of September 30, 2017 or December 31, 2016. The Company evaluated its securities for other-than-temporary impairment and no marketable securities were considered to be other-than-temporarily impaired as of September 30, 2017.
At September 30, 2017 and December 31, 2016, all investments held by the Company were classified as current. Investments classified as current have maturities of less than one year. Investments classified as noncurrent are those that (i) have a maturity greater than one year and (ii) management does not intend to liquidate within the next year, although these funds are available for use and therefore classified as available-for-sale.
5. Inventory
The Company began capitalizing inventory as of March 31, 2016, when it was determined that the inventory had a probable future economic benefit. Inventory has been recorded at cost as of September 30, 2017 and December 31, 2016. Costs capitalized at September 30, 2017 and December 31, 2016 relate to HOTSHOT finished goods, as well as raw materials available to be used for future production runs.
The following table presents inventory:
 September 30, 2017 December 31, 2016
Raw materials$29,409
 $19,888
Finished goods504,587
 434,244
Total inventory$533,996
 $454,132

In the second quarter of 2017, the Company completed a production run of HOTSHOT, and wrote off raw materials purchased for the production run that are not expected to be used in future production runs. In the third quarter of 2017, the Company wrote off expiring finished goods not anticipated to be sold. In 2016, the Company wrote off raw materials purchased for production runs of HOTSHOT that were not expected to be used in future production runs, as well as finished goods not expected to be sold based upon projected sales, estimated product shelf life, the number of units produced and production level requirements.
Write-offs totaled $14,701 and $34,235 for the three and nine months ended September 30, 2017, and $32,734 and $258,684 for the three and nine months ended September 30, 2016, respectively, and were included in cost of product revenue in the accompanying condensed consolidated statement of operations.
The cost of product revenue related to deferred revenue is capitalized and recorded as cost of product revenue at the time the revenue is recognized.
6. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
 September 30, 2017 December 31, 2016
Research and development costs$2,784,448
 $938,665
Payroll and employee-related costs790,518
 1,453,665
Professional fees187,173
 153,219
Consumer product-related costs135,045
 42,024
Total$3,897,184
 $2,587,573


7. Common stock
As of September 30, 2017, the Company had authorized 100,000,000 shares of common stock, $0.0001 par value per share. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors. The Company does not intend to declare dividends for the foreseeable future.
Restricted common stock to founders
In March 2014, the Company sold 4,553,415 shares of restricted common stock to the founders of the Company ("recipients"), for $0.0004 per share, for total proceeds of $1,950. In April 2014, based upon anti-dilution provisions granted to the founders, an additional 867,314 shares of restricted common stock were sold to the same founders, after which the anti-dilution provisions were terminated. The restricted common stock vested 25% upon issuance, and the remaining 75% vests ratably over four years, during which time the Company has the right to repurchase the unvested shares held by a recipient if the relationship between such recipient and the Company ceases. If the relationship terminates, the Company has 90 days to repurchase unvested shares at $0.0004 per share. Such shares are not accounted for as outstanding until they vest. There were 4,996,999 shares of restricted common stock outstanding as of September 30, 2017. Unvested restricted common stock awards to non-employees are re-measured at each vest date and each financial reporting date.
The following is a summary of restricted common stock activity:
 
Number of
Shares
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 20161,185,958
 $0.10
Issued
 
Vested(762,228) 0.10
Forfeited
 
Unvested at September 30, 2017423,730
 $0.10
Restricted common stock to consultants
In 2016, the Company issued 18,194 shares of restricted common stock to non-employee consultants and advisors. The Company has the right to repurchase any unvested shares held by a recipient if the relationship between such recipient and the Company ceases. If the relationship terminates, the Company has 90 days to repurchase unvested shares at $0.0001 per share. Such shares are not accounted for as outstanding until they vest. There were 11,485 shares of restricted common stock issued to consultants outstanding as of September 30, 2017. Unvested restricted common stock awards to non-employees are re-measured at each vest date and each financial reporting date.
The following is a summary of restricted common stock activity:
 
Number of
Shares
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 201610,834
 $9.72
Issued
 
Vested(4,125) 8.95
Forfeited
 
Unvested at September 30, 20176,709
 $10.19



8. Stock-based compensation
In March 2014, the Company adopted the Flex Pharma, Inc. 2014 Equity Incentive Plan (the "2014 Plan"), under which it had the ability to grant incentive stock options ("ISOs"), non-qualified stock options, restricted stock awards, restricted stock units and stock appreciation rights to purchase up to 116,754 shares of common stock. In April 2014, the Company amended the 2014 Plan to reserve for the issuance of up to 1,451,087 shares of common stock pursuant to equity awards. In September 2014, the Company further amended the 2014 Plan to reserve for the issuance of up to 2,070,200 shares of common stock pursuant to equity awards. Terms of stock award agreements, including vesting requirements, were determined by the board of directors, subject to the provisions of the 2014 Plan. For options granted under the 2014 Plan, the exercise price equaled the fair market value of the common stock as determined by the board of directors on the date of grant. No further awards will be granted under the 2014 Plan.
In January 2015, the Company's board of directors adopted, and the Company's stockholders approved, the 2015 Equity Incentive Plan (the "2015 Plan"), which became effective immediately prior. On July 19, 2019, the Company completed a merger with Flex Pharma and Flex Pharma had fully vested options to the closingpurchase 90,279 common shares outstanding as of the Company's IPO.date of the merger that continue to be exercisable. The 2015 Plan provides for the grant of ISOs,incentive stock options ("ISOs"), nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance-based stock awards and other stock-based awards. Additionally, the 2015 Plan provides for the grant of performance-based cash awards. ISOs may be granted only to the Company's employees. All other awards may be granted to the Company's employees, including officers, and to non-employee directors and consultants. As of September 30, 2017,March 31, 2020, there were 738,24834,087 shares remaining available for the grant of stock awards under the 2015 Plan.
TheOn March 23, 2020, the Company has awarded 182,000 stock options to its employees directors, advisors and consultants,directors, pursuant to the plansplan described above. Stock options subsequent to the completion of the Company's IPO are granted with an exercise price equal to the closing market price of the Company's common stock on the date of grant. Stock options generally vest over one to four years and have a contractual term of ten years. Stock options are valued using the Black-Scholes option pricing model and compensation cost is recognized based on the resulting value over the service period. Unvested awardsExpected volatilities utilized in the model are based on implied volatilities from traded stocks of peer companies. Similarly, the dividend yield is based on historical experience and the estimate of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The expected term of the options is based on the average period the stock options are expected to non-employees are re-measured at each vest date and at each financial reporting date. remain outstanding. The fair value of the option grants of $92,007 has been estimated with the following assumptions for the three months ended March 31, 2020:

Risk-free interest rate0.48 %
Volatility 113.17 %
Expected life (years) 5.80
Expected dividend yield %

The following table summarizes stock option activity for employees and non-employees for the ninethree months ended September 30, 2017:March 31, 2020:
 SharesWeighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 2019166,233  $34.42  6.53$—  
Granted182,000  0.61  
Forfeited(10,000) —  
Outstanding at March 31, 2020338,233  $17.01  8.18$—  
Exercisable at March 31, 202084,711  $59.85  3.23$—  
 Shares 
Weighted-Average
Exercise Price
 
Weighted-Average
Remaining
Contractual
Term (in years)
 Aggregate
Intrinsic
Value
Outstanding at December 31, 20162,156,250
 $8.66
 7.94 $1,605,684
Granted1,018,500
 4.23
    
Exercised(1,226) 1.67
    
Cancelled or forfeited(471,602) 9.37
    
Outstanding at September 30, 20172,701,922
 $6.87
 7.60 $731,233
Exercisable at September 30, 20171,359,109
 $7.49
 6.40 $610,027
Vested or expected to vest at September 30, 20172,701,922
 $6.87
 7.60 $731,233

Total stock-based compensation expense recognized for employee and non-employee restricted common stock, and stock options granted to employees and non-employees is included in the Company's condensed consolidated statement of operations as follows:
 Three Months Ended September 30, 2017
Three Months Ended September 30, 2016 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Research and development$386,636
 $783,603
 $1,172,655
 $2,063,764
Selling, general and administrative618,145
 1,076,985
 2,094,224
 3,303,306
Total$1,004,781
 $1,860,588
 $3,266,879
 $5,367,070

As of September 30, 2017,March 31, 2020, there was approximately $5,801,434$489,641 of total unrecognized compensation cost related to unvested equity awards.stock options. Total unrecognized compensation cost will be adjusted for the re-measurement of non-employee awards as well as future changes in employee and non-employee forfeitures, if any. The Company expects to recognize that cost over a remaining weighted-average period of 2.303.27 years.
Employee stock purchase plan
In 2015,
18

NOTE 10. SUBSEQUENT EVENTS

On April 9, 2020, the Company's boardCompany was notified (the “Notice”) by Nasdaq Stock Market, LLC (“Nasdaq”) that on April 8, 2020 the average closing price of directors adopted, and the Company's stockholders approved, the 2015 Employee Stock Purchase Plan (the "ESPP"). As of September 30, 2017, no shares ofCompany’s common stock have been purchased(the “Common Stock”) over the prior 30 consecutive trading days had fallen below $1.00 per share, which is the minimum average closing price required to maintain listing on Nasdaq under Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Requirement”). The Notice has no immediate effect on the ESPP.
9. Income taxes
Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that somelisting or alltrading of the deferred tax assetsCompany’s common stock. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days, to regain compliance with the Minimum Bid Requirement. To regain compliance, the closing bid price of the Company’s common stock must be at least $1.00 per share for a minimum of ten consecutive business days during this 180-day period.
On April 20, 2020, the Company was notified by Nasdaq that it has determined to toll the compliance periods for bid price and market value of publicly held shares (“MVPHS”) requirements (collectively, the “Price-based Requirements”) through June 30, 2020. In that regard, on April 16, 2020, Nasdaq filed an immediately effective rule change with the Securities and Exchange Commission. As a result, companies presently in compliance periods for any Price-based Requirements will remain at that same stage of the process and will not be realized. Based uponsubject to being delisted for these concerns. Starting on July 1, 2020, companies will receive the Company's historybalance of operating losses andany pending compliance period in effect at the uncertainty surrounding the realizationstart of the favorable tax attributes in future tax returns,tolling period to regain compliance.
Accordingly, since the Company had 173 calendar days remaining in its bid price compliance period as of April 16, 2020, it will, upon reinstatement of the Price-based Requirements, still has recorded173 calendar days from July 1, 2020, or until December 21, 2020, subject to any extensions granted by Nasdaq, to regain compliance. The Company can regain compliance, either during the suspension or during the compliance period resuming after the suspension by evidencing compliance with the Price-based Requirements for a full valuation allowance against the Company’s otherwise recognizable net deferred tax assets. There was no significant income tax provision or benefit for the three or nine months ended September 30, 2017 or 2016.minimum of 10 consecutive trading days.

10. Net loss per share
Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period, determined using the treasury stock method and the if-converted method, for convertible securities, if inclusion of these is dilutive.
AsOn April 13, 2020, the Company has reportedwas granted a net loss forloan of approximately $180,000 from Paycheck Protection Program established under the periods presented, diluted net lossCARES Act. The loan matures on April 13, 2022 and bears interest at a rate of 0.5% per common share isannum. The loan will be forgiven if the same as basic net loss per common share.
The following potentially dilutive securities outstanding, priorCompany use it to pay payroll costs including benefit, mortgage interest, rent, and utilities payment over the 8 weeks after getting the loan, by submitting a request to the uselender that is servicing the loan.
19



 September 30, 2017 September 30, 2016
Options to purchase common stock2,701,922
 2,320,247
Unvested restricted common stock430,439
 1,452,243
Total3,132,361
 3,772,490

11. Segment Information
The Company operates as two reportable segments:
The Consumer Operations segment, which reflects the total revenue and costs and expenses related to HOTSHOT and the Company's consumer operations.
The Drug Development segment, which reflects the costs and expenses related to the Company's efforts to develop innovative and proprietary drug products to treat muscle cramps and spasticity associated with severe neurological conditions.
The Company discloses information about its reportable segments based on the way that the Company's Chief Operating Decision Maker, who the Company has identified as the Chief Executive Officer, and management, organize segments within the Company for making operating decisions and assessing financial performance. The Company evaluates the performance of its reportable segments based on revenue and operating income or loss. The accounting policies of the segments are the same as those described herein as well as those described in Note 2 to the audited consolidated financial statements in the 2016 Form 10-K. Corporate and unallocated amounts that do not relate to a reportable segment have been allocated to "Corporate". No asset information has been provided for the Company's reportable segments as management does not measure or allocate such assets on a reportable segment basis.
Information for the Company's reportable segments for the three months ended September 30, 2017 and 2016 are as follows:
Three Months Ended September 30, 2017Consumer OperationsDrug DevelopmentCorporateConsolidated
Total revenue$413,601


$413,601
Interest income, net$

77,339
$77,339
Loss from operations$2,323,919
4,683,533
2,402,000
$9,409,452
Three Months Ended September 30, 2016Consumer OperationsDrug DevelopmentCorporateConsolidated
Total revenue$599,074


$599,074
Interest income, net$

97,726
$97,726
Loss from operations$2,690,601
5,550,853
2,493,766
$10,735,220
Information for the Company's reportable segments for the nine months ended September 30, 2017 and 2016 are as follows:
Nine Months Ended September 30, 2017Consumer OperationsDrug DevelopmentCorporateConsolidated
Total revenue$991,671


$991,671
Interest income, net$

227,535
$227,535
Loss from operations$7,072,225
12,472,149
7,088,292
$26,632,666

Nine Months Ended September 30, 2016Consumer OperationsDrug DevelopmentCorporateConsolidated
Total revenue$711,759


$711,759
Interest income, net$

308,877
$308,877
Loss from operations$8,461,803
15,517,670
7,922,492
$31,901,965

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited financial information and the notes thereto included herein, as well as our audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2019, filed with the SEC on March 23, 2020. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under "Risk"Part I - Item 1A - Risk Factors" discussed in our Annual Report on Form 10-K for the year ended December 31, 2016,2019, for the year ended December 31, 2019, filed with the SEC on March 23, 2020, in other subsequent filings with the SEC, and elsewhere in this Quarterly Report on Form 10-Q. These statements, like all statements in this report, speak only as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments.
Introduction
Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying condensed consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
Overview - A discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.
Results of Operations - An analysis of our financial results comparing the three and nine months ended September 30, 2017 to the three and nine months ended September 30, 2016.
Liquidity and Capital Resources - An analysis of changes in our condensed consolidated balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.
Critical Accounting Policies and Significant Judgments and Estimates - A discussion of critical accounting policies and those that require us to make subjective estimates and judgments.
Overview
We are a clinical-stage biotechnology company that isfocused on developing innovative and proprietaryeffective treatments for muscle crampscancer with high, unmet medical need caused by dysregulated gene expression. Epigenetics refers to the regulatory system that affects gene expression and spasticityour lead epigenetic enzyme technology was licensed from the University of Utah Research Foundation in 2011.

We are focused on strategies addressing dysregulated gene expression, epigenetic strategies for cancer treatment. Epigenetics refers to the system that regulates gene expression through conformational changes to the chromatin rather than changes to the DNA sequence itself. Our compound, Seclidemstat (“SP-2577”), is a small molecule that inhibits the epigenetic enzyme lysine specific demethylase 1 (“LSD1”). LSD1 is an enzyme that removes mono- and di-methyl marks on histones (core protein of chromatin) to alter gene expression. LSD1’s enzymatic activity can cause genes to turn on or off and thereby affect the cell’s gene expression and overall activity. In addition, LSD1 can act via its scaffolding properties, independently of its enzymatic function, to alter gene expression and modulate cell fate. In healthy cells, LSD1 is necessary for stem cell maintenance and cell development processes. However, in several cancers LSD1 is highly expressed and acts aberrantly to incorrectly silence or activate genes leading to disease progression. High levels of LSD1 expression are often associated with severe neurological conditionsaggressive cancer phenotypes and exercise-associated muscle cramps.poor patient prognosis. Hence, development of targeted LSD1 inhibitors is of interest for the treatment of various cancers. SP-2577 uses a novel, reversible mechanism to effectively inhibit LSD1’s enzymatic and scaffolding properties and thereby treat and prevent cancer progression.
Our first indication of interest for SP-2577 is a devastating bone and soft-tissue cancer called Ewing sarcoma. Ewing sarcoma mostly afflicts adolescents and young adults, with the median age of diagnosis being 15. The most commonly expressed fusion oncoprotein in Ewing sarcoma is the EWS-FLI fusion protein, which is present in approximately 85% of Ewing sarcoma cases. The LSD1 enzyme associates with EWS-FLI (and other E26 Transformation-Specific (“ETS”) fusion proteins) and is thought to promote tumorigenesis. We believe the SP-2577 molecule helps inhibit EWS-FLI activity by disrupting EWS-FLI from associating with coregulators (including LSD1) that are necessary for its cancer promoting activity. Therefore, we believe that SP-2577 can potentially reverse the aberrant gene expression and thereby possibly prevent Ewing sarcoma cell proliferation and even promote cell death. Preclinical studies of SP-2577 in certain Ewing sarcoma animal models show a significant tumor reduction as well as a significant survival benefit compared to untreated animals. Our ongoing Phase 1/2 clinical trial is designed as a single agent dose escalation followed by a dose expansion study. The trial can enroll up to 50 relapsed or refractory Ewing sarcoma patients. The primary objectives of the study are to assess the safety and tolerability of SP-2577. Secondary objectives include assessing preliminary efficacy of SP-2577.
As LSD1 can associate with over 60 regulatory proteins other than EWS-FLI, we believe that LSD1 may also play a critical role in progression of various other cancer types. These include both solid tumors and hematologic malignancies. In August 2017,the second quarter of 2019, we initiated a second company-sponsored Phase 2 clinical1 trial to study SP-2577 in Advanced Solid Tumors. The Advanced Solid Tumor (“AST”) trial is a single agent dose escalation, dose expansion study enrolling patients with advanced malignancies, excluding Ewing sarcoma or central nervous system tumors.
In addition, recent data from “LSD1 Ablation Stimulates Anti-tumor Immunity and Enables Checkpoint Blockade” by W. Sheng, et al. and “Inhibition of Histone Lysine-specific Demethylase 1 Elicits Breast Tumor Immunity and Enhances Antitumor Efficacy of Immune Checkpoint Blockade” by Y. Qin, et al. suggests that LSD1 plays a role in tumor immune activity and can sensitize tumors to checkpoint inhibitors. These recent works have sparked interest
20

in combining LSD1 inhibitors with checkpoint inhibitors. We are conducting preclinical work with SP-2577 in this area.
We have no products approved for commercial sale and have not generated any revenue from product sales. We have never been profitable and have incurred operating losses in each year since inception. We had an accumulated deficit of $14,160,516 as of March 31, 2020. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.
The lack of revenue from product sales to date and recurring losses from operations since our inception raise substantial doubt about our ability to continue as a going concern. Our financial statements are prepared using Generally Accepted Accounting Principles in the United States of our lead drug product candidate, FLX-787, in patients with motor neuron disease, or MND, primarily with amyotrophic lateral sclerosis, or ALS, who suffer from cramps. We also initiated an additional Phase 2 clinical trial in October 2017 in patients with Charcot-Marie-Tooth disease, or CMT, who suffer from cramps. FLX-787 is currently in an exploratory Phase 2 spasticity study in Australia in patients with multiple sclerosis, or MS. In 2016, we launched our consumer product, HOTSHOT®,America (“GAAP”) applicable to preventa going concern, which contemplates the realization of assets and treat exercise-associated muscle cramps, or EAMCs.
FLX-787, HOTSHOT and our other product candidates are based on the potential mechanismsatisfaction of action we describe as chemical neurostimulation, which is the process by which a chemical signal, acting topically, induces a neuronal sensory signal that produces a beneficial effect. Our product candidates activate certain receptors in primary sensory neurons, which then act via neuronal circuits to reduce hyperexcitability, which can resultliabilities in the repetitive firingnormal course of alpha-motor neurons inbusiness. Our financial statements do not include any adjustments relating to the spinal cord, thereby preventing or reducing the frequencyrecoverability and intensityclassification of muscle crampsrecorded asset amounts and spasms.
HOTSHOT is our consumer beverage that prevents and treats EAMCs. We market HOTSHOTclassification of liabilities should we be unable to endurance athletes, who drink it before, during and after exercise to prevent and treat muscle cramps. The majority of HOTSHOT sales are generated through our branded website and third-party websites. We also engage in sales and marketing efforts incontinue as a limited number of geographic areas with strong endurance sports markets.

going concern.
We operate as the following two reportable segments:
the Consumer Operations segment, which reflects the total revenue and costs and expense for HOTSHOT and our consumer operations, and
the Drug Development segment, which reflects the costs and expenses relatedexpect to our efforts to develop innovative and proprietary drug products to treat muscle cramps and spasticity associated with severe neurological conditions.
We disclose information about our reportable segments based on the way that we organize segments within the Company for making operating decisions and assessing financial performance. See Note 11 to our condensed consolidated financial statements for certain financial information related to our reportable segments.
We have incurred an operating loss since our inception and we anticipate that we will continue to incur significant expenses and increasing operating losses for at least the next several years. Our net loss was $9.3 millionyears as we initiate and $26.4 millioncontinue the clinical development of, and seek regulatory approval for, our product candidates, add personnel necessary to continue to operate as a public company upon closing of the threemerger, and nine months ended September 30, 2017, respectively,work to develop an advanced clinical pipeline of product candidates. We expect that our operating losses will fluctuate significantly from quarter-to-quarter and $10.6 millionyear-to-year due to timing of clinical development programs and $31.6 millionefforts to achieve regulatory approval.
As of March 31, 2020, we had cash and cash equivalents of $9,646,940, which includes $0 for the threefunds received from Cancer Prevention and nine months ended September 30, 2016, respectively. Our accumulated deficit was $103.1 million asResearch Institution of September 30, 2017. To date,Texas ("CPRIT"). As of March 31, 2020, CPRIT fund matching requirements had been fully met. As of March 31, 2020, we have financedreceived an aggregate of $9.6 million from the CPRIT grant and there was $9.1 million of funds available for us to draw upon meeting certain requirements. The Company has applied for an extension with a proposed contract end date of November 30, 2020.

We believe that our $9.6 million in cash and cash equivalents currently on hand are sufficient to fund our anticipated operating and capital requirements through at least 12 months from the date this quarterly report on Form 10-Q is filed, however we will continue to require substantial additional capital to continue our clinical development activities. Accordingly, we will need to raise substantial additional capital to continue to fund our operations with net proceeds from the private placementas a whole. The amount and timing of our preferred stockfuture funding requirements will depend on many factors, including the pace and results of our development, regulatory and commercialization efforts. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our initial public offering. We expectability to continue incurring significant researchdevelop and development expenses related to the development ofcommercialize our drug product candidates and significant selling, general and administrative expenses as we continue to commercialize HOTSHOT. As a result, we will need additional capital to fund our future operations.
Recent DevelopmentsWe intend, when required, to obtain additional capital through the sale of equity securities in one or more offerings or through issuances of debt instruments. We may also consider new collaborations or selectively partnering our technology. However, we cannot provide any assurance that we will be successful in accomplishing any of our plans to obtain additional capital or be able to do so on favorable terms or on terms acceptable to us.
Management
Special Note About Coronavirus (COVID-19)

The COVID-19 pandemic is significantly affecting the United States, global economies, and Boardbusinesses worldwide. While the potential magnitude and duration of Directors Update

In June 2017, we announced that William McVicar, Ph.D.the economic and social impact of the COVID-19 pandemic is difficult to assess or predict, the impact on the global financial markets may, in the future, reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The COVID-19 pandemic could also have a material and negative impact on our liquidity, capital resources (including our ability to secure additional financing if and when needed), our recently appointed Presidentbusiness and operations, and our workforce, as well as those of Researchthe third parties with which we do business or upon which we rely. While, the situation is fluid and Development, had been appointedwe do not yet know the full extent of potential delays or impacts on us or on healthcare systems or the global economy in general, Salarius has worked to adapt to the unexpected and challenging circumstances resulting from the COVID-19 pandemic and at this time we are experiencing minimal COVID-19 disruptions to our interim Presidentclinical programs, our manufacturing capabilities, or our financing capabilities. However, we may experience disruptions in the future that have and Chief Executive Officer and in July 2017, we announced that Dr. McVicar had been appointedcould further adversely impact our business operations as well as our permanent Presidentpreclinical studies and Chief Executive Officer. Dr. McVicar replaced Christoph Westphal, M.D., Ph.D., who is a director on our Boardclinical trials.
21

Although at Inotek Pharmaceuticals Corporation, most recently as its Executive Vice President and Chief Scientific Officer.

In October 2017,this time we announced that Roger Tung, Ph.D. had been addedare experiencing minimal disruption to our Board of Directors. Dr. Tung is the scientific co-founder of Concert Pharmaceuticals, where he serves as President and Chief Executive Officer. Prior to Concert, Dr. Tung was a founding scientist at Vertex, a pharmaceutical company.

Regulatory Update

In July 2017, we announced that the U.S. Food and Drug Administration, or FDA, granted Fast Track designation for the development of FLX-787 to treat severe muscle cramps in patients with ALS. Fast Track designation allows for a more frequent dialogue throughout the drug development and review process with the Neurology Division at the FDA onclinical trials, our drug development plan, data requirements and clinical trial design.

ALS Clinical Trials Update

In August 2017, we announced the initiation of aongoing Phase 1/2 clinical trial in the United States, referred to as the COMMEND trial. The COMMEND trial is designed to evaluate FLX-787 in patients with MND, focused on ALS, who suffer from cramps. This randomized, controlled, double-blinded, parallel design trial will include a run-in period to establish a baseline in cramp frequency. Patients will then be randomized to 30 mg of FLX-787 administered three times a day, or to a control, for 28 days. Patients will be evaluated for changes in cramp frequency as the primary endpoint, with a number of secondary endpoints. We expect to report topline results from this clinical trial in the third quarter of 2018.

Due to the challenge of enrolling ALS patients in Australia, and a greater priority placed on the completion of the COMMEND trial, in July 2017 we announced that we had stopped our ongoing ALS exploratory study in Australia after 12 patients had been randomized.

In November 2017, we announced topline data from the ALS study in Australia. The study was a randomized, blinded, placebo-controlled Phase 2 clinical trial that originally planned tocan enroll up to 60 subjects with ALS50 relapsed or primary lateral sclerosis, or PLS, with frequent muscle cramps in Australia. The trial included a 14-day run-in period

with no treatment to establish baseline characteristics, followed by treatment periods during which patients received FLX-787 or placebo in the first 14-day treatment period before “crossing-over” to the other treatment for an additional 14-day treatment period. Patients were given 19 mg of FLX-787, formulated as an orally disintegrating tablet, ODT, or placebo control, two or three times daily. The exploratory study was designed to evaluate a number of endpoints relating to cramping frequency, cramp-associated pain, spasticity, stiffness, global impression of change by the patient and the clinician, quality of life, sleep and safety.

In the eight patients who completed the trial per protocol, FLX-787 demonstrated a statistically significant (p<0.05) percentage reduction from baseline in both cramp-associated pain intensity and stiffness, relative to placebo control, based on daily patient assessments by Numerical Rating Scale (NRS). Strong and consistent trends were demonstrated on multiple endpoints, including: percentage reduction in the number of cramps from baseline (p=0.08), increase in cramp free days from baseline (p=0.09), and improvements on both the Patient (PGIC; p=0.06) and Clinician (CGIC; p=0.06) Global Impression of Change. FLX-787 was generally well tolerated.

In the patients completing both cross-over periods per protocol:

FLX-787 showed a median 31% reduction in cramps from baseline versus 0.1% reduction for patients while on placebo control;
Patients had a median 4.4 cramp free days versus 0 for placebo control;
Patients evaluated themselves as improved with FLX-787 treatment 50% of the time versus 12.5% with placebo control (PGIC); and
Clinicians blinded to treatments evaluated 50% of patients as improved with FLX-787 versus 0% for placebo control (CGIC).

In a post-hoc analysis, we analyzed the Period 1 and Period 2 results of all patients randomized in the trial and believe the cross-over results are not driven by a cross-over bias or unblinding effect.

Clinically-assessed baseline spasticity levels as measured by either the Modified Ashworth or Tardieu scales were minimal acrossrefractory Ewing sarcoma patients and were not consistent with the observed patient-reported spasticity treatment differences.    

We believe the data from our Australian study provides the first clinical evidence that FLX-787 has an effect in patients with underlying neurological disease and demonstrates the utility of chemical neurostimulation in treating symptoms arising from motor neuron hyperexcitability.

Additional Clinical Development Update

In October 2017, we announced the initiation of a Phase 2 clinical trial in patients that suffer from cramps associated with CMT, referred to as the COMMIT trial. The COMMIT trial is designed to evaluate FLX-787 in patients with CMT who suffer from cramps. This randomized, controlled, double-blinded, parallel design trial in the United States will include a run-in period to establish a baseline in cramp frequency. Patients will then be randomized to 30 mg of FLX-787 administered three times a day or to a control, for 28 days. Patients will be evaluated for changes in cramp frequency as the primary endpoint, with a number of secondary endpoints. We expect to report topline results from this clinical trial in the third quarter of 2018.

In November 2017, we announced that we were expanding the development of FLX-787 to additional indications, such as dysphagia, or difficulty swallowing, in patients with severe neurological disorders, as well as cramping in renal dialysis. We plan to begin clinical development in each indication during 2018.
Components of Operating Results
Revenue
Revenue is comprised of net product revenue and other revenue. Net product revenue includes sales of HOTSHOT finished goods to e-commerce customers, specialty retailers and sports teams, including professional and collegiate teams. Other revenue consists of payments made by customers for expedited shipping and handling. Revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the sales price is fixed or determinable and collectibility is reasonably assured. For sales through September 30, 2016, we issued refunds to e-commerce customers, upon request, within 21 days of shipment. When we began selling HOTSHOT on a third-party e-commerce website in October 2016, the refund period and related deferral period

increased, as we began offering refunds to e-commerce customers, upon request, within 30 days of delivery, for purchases subsequent to September 30, 2016. As we currently do not have adequate history to accurately estimate refunds, all e-commerce sales, and their related costs, are deferred and revenue is recognized once the refund period lapses. Specialty retailers and sports teams are not offered a right of return or refund and revenue is recognized at the time products are delivered to these customers. Discounts provided to customers are accounted for as a reduction of net product revenue. Total revenue is presented net of any taxes collected from customers and remitted to governmental authorities.

When purchasing via our branded website, customers may purchase HOTSHOT in packs of 6 or 12 bottles and are offered a first-time purchase discount for a 6 pack. We expect that a significant portion of our total revenue will continue to be generated through our branded website. We also sell HOTSHOT via third-party e-commerce websites, including a retailer that offers international shipping. Generally, we realize higher revenue per bottle from our own e-commerce sales as opposed to third-party website, sports teams and specialty retailer sales. HOTSHOT is generally sold to specialty retailers and sports teams in multi-pack cases.

Future sales of HOTSHOT are expected to vary from quarter to quarter and will be impacted by the number of visitors attracted to our branded website and third-party websites, those that purchase, seasonality and the amount of repeat sales that we are able to generate through e-commerce. Future sales will also be impacted by the amount of revenue that we are able to generate through retail channels. Our inability to generate sufficient revenues would have a material adverse impact on our operations.

In the future we may generate revenue from a combination of consumer product sales, drug product sales, governmentencounter delays in enrolling
Although at this time we are experiencing minimal disruption to our clinical trials, our ongoing Phase 1/2 clinical trial can enroll up to 50 relapsed or other third-party funding, marketingrefractory Ewing sarcoma patients and distribution arrangements and other collaborations, strategic alliances and licensing arrangements,in the future we may encounter delays in enrolling new patients due to concerns or a combination of these sources. To the extent any of our drug products are successfully commercialized, we expect that any revenue we generate will fluctuate from quarter to quarterhealthcare resource constraints as a result of the amount and timing of payments thatCOVID-19 pandemic. In addition, although at this time we receive from the salehave experienced no disruptions to manufacturing capabilities, certain aspects of our drug products, the timing and amount of license fees, milestone and other payments. If we fail to complete the development of our drug product candidates in a timely manner, obtain regulatory approval for them, or fail to successfully commercialize these drug products, our results of operations and financial position would be materially adversely affected.
Cost of Product Revenue
We outsource the manufacture of HOTSHOT to a co-packer. Cost of product revenue includes the cost of raw materials utilized to produce HOTSHOT, co-packing fees, repacking fees, in-bound freight charges and warehouse and transportation charges incurred to bring the finished goods to salable condition. All other costs incurred after this condition is met are considered selling costs and included in selling, general and administrative expenses.

Cost of product revenue also includes write-offs of inventory that becomes obsolete, that has a cost basis in excess of its estimated realizable value, or that exceeds projected sales. The amount of inventory write-offs will vary based upon factors such as inventory levels, production levels, projected sales of HOTSHOT and shelf-lives of our inventory components. In the future, if we are not successful in generating sufficient levels of revenue from HOTSHOT or if our other estimates prove to be inaccurate, inventory write-offssupply chain may be required.

Cost of product revenue also includes depreciation expense related to manufacturing equipment purchased to support production,disrupted as well as royalty amounts payable to certain of our founders on HOTSHOT sales.
Researchthird party suppliers and Development Expenses
Our research and development expenses to date include the costs incurred related to the development and testing of our extract formulation and expenses related to the testing and development of our drug product candidates, including FLX-787. Research and development costs include salaries and other compensation-related costs, such as stock-based compensation for research and development employees, costs of clinical studies of our extract formulation and drug product candidates, drug substance production costs, formulation and production costs of clinical supply, including FLX-787, to support clinical studies, costs for consultants who we utilize to supplement our personnel, fees paid to third parties, facilities and overhead expenses, cost of laboratory supplies and other outside expenses.

Research and development activities are central to our business model. Drug product candidates in later stages of clinical development generallymanufacturers have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect to continue incurring

significant research and development expenses related to the development of our drug product candidates. It is difficult to determine, with certainty, the duration and completion costs of our current or future pre-clinical programs and clinical trials of our drug product candidates.

In addition, the probability of success for each drug product candidate will depend on numerous factors, including competition, product safety and efficacy, patent protection, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each programpaused their operations in response to the scientificCOVID-19 pandemic or have otherwise encountered delays in providing supplies and clinical success ofservices. We continue to evaluate the extent to which these delays will impact our drugability to manufacture our product candidates for our clinical trials and conduct other research and development operations and maintain applicable timelines. The ultimate impact of the COVID-19 pandemic on our business operations as well as an assessment of each product candidate's commercial potential.

Research and development expenses also include costs incurred related to our Consumer Operations segment for HOTSHOT, including athlete-based efficacy studies, product formulation work, stabilitypreclinical studies and other efforts.
Selling, Generalclinical trials remains uncertain and Administrative Expenses
Selling, generalsubject to change and administrative expenses include salaries and other compensation-related costs, including stock-based compensation, for personnel in executive, finance and accounting, legal, corporate communications and general administration roles. Other significant costs include professional service fees including legal fees relating to patent and corporate matters, accounting fees, insurance costs, costs for consultants who we utilize to supplement our personnel, travel costs and facility and office-related costs not included in research and development expenses.

Selling, general and administrative expenses also include costs related to our Consumer Operations segment for our consumer brand and HOTSHOT. Prior to the launch of HOTSHOT, these costs included personnel costs, brand development costs, market research costs, product design costs, pre-launch activity costs and other external costs. Since the launch of HOTSHOT, wewill depend on future developments, which cannot be accurately predicted. We will continue to incur costs related to personnel and market research, and are also incurring costs related to our marketing, sales and promotional activities, including print and digital media campaigns, public relations activities, field marketing efforts, other sales and promotional activities and costs related tomonitor the distribution of HOTSHOT. These distribution costs include shipping and handling costs incurred once our product is in salable condition.situation closely.


Our selling, general and administrative expenses may increase as we support the efforts of our Consumer Operations and Drug Development segments as well as the needs of our corporate functions.
Interest Income, Net
Interest income, net primarily consists of interest income from our cash, cash equivalents and marketable securities, amortization and accretion of investment premiums and realized gains and losses.
Results of Operations
Three Months Ended September 30, 2017March 31, 2020 Compared to the Three Months Ended September 30, 2016March 31, 2019
The following table sets forth the condensed consolidated results of our operations including information related to our Consumer Operations and Drug Development segments, for the three months ended September 30, 2017March 31, 2020 compared to the three months ended September 30, 2016.March 31, 2019.
 Three Months Ended March 31, 2020Three Months Ended March 31, 2019Change
$%
Grant revenue$1,132,830  $655,635  $477,195  73 %
Research and development expenses(1,643,371) (699,929) (943,442) 135 %
General and administrative expenses(1,859,017) (1,488,490) (370,527) 25 %
Change in fair value of warrant liability283,070  —  283,070  — %
Interest income, net2,672  10,708  (8,036) (75)%
Net loss$(2,083,816) $(1,522,076) $(561,740) 37 %


 Three Months Ended September 30, 2017 Three Months Ended September 30, 2016 Change
   $ %
Net product revenue$407,241
 $586,134
 $(178,893) (31)%
Other revenue6,360
 12,940
 (6,580) (51)%
Total revenue413,601
 599,074
 (185,473) (31)%
Costs and expenses: 
      
Cost of product revenue148,756
 221,090
 (72,334) (33)%
Research and development4,739,360
 5,665,357
 (925,997) (16)%
Selling, general and administrative4,934,937
 5,447,847
 (512,910) (9)%
Total costs and expenses9,823,053
 11,334,294
 (1,511,241) (13)%
Loss from operations(9,409,452) (10,735,220) 1,325,768
 (12)%
Interest income, net77,339
 97,726
 (20,387) (21)%
Net loss$(9,332,113) $(10,637,494) $1,305,381
 (12)%
TotalGrant Revenue
Our Consumer Operations segment generated all of our
Grant revenue, which was derived solely from the CPRIT grant, was $1,132,830 during the three months ended September 30, 2017, totaling $0.4 million asMarch 31, 2020 compared to $0.6 million$655,635 during the three months ended March 31, 2019. The increase in revenue from the CPRIT grant was due to an increase in overall expenses which resulted in an increase in the amount of expenses reimbursable under the grant. Given the nature of the development process, grant revenue will fluctuate depending on the stage of development and the timing of expenses.
Research and Development Expenses
Research and development expenses were $1,643,371 during the three months ended March 31, 2020 compared to $699,929 during the three months ended March 31, 2019. The increase of $943,442 was principally due to the production of tablets for use in clinical trials, increased consulting fee related to clinic trials and a pre-clinical study for our next generation Seclidemstat program, and increased clinical trial costs resulting from the increased number of patients enrolled and additional clinical trial sites.
General and Administrative Expenses
General and administrative expenses were $1,859,017 for the three months ended September 30, 2016, through sales of HOTSHOT and expedited shipping and handling purchases. Revenue was driven by our HOTSHOT marketing, sales and promotional efforts, including our print and digital media campaigns, public relation efforts, field marketing efforts, other sales and promotional activities. RevenueMarch 31, 2020 compared to $1,488,490 for the three months ended September 30, 2016 was also driven by our HOTSHOT launchMarch 31, 2019. The net increase of $370,527 resulted from the costs related activities.

Sales via e-commerce represented approximately 80% of our total revenueto the Company' transformation into a public company during July 2019 more than offsetting reduced spending for the three months ended September 30, 2017professional fees and legal costs compared to 93% for the three months ended September 30, 2016. E-commerce revenue decreased as a percentage of total revenue in the comparative periods due to an increase in specialty retailer and sports team revenue in 2017.

During the three months ended September 30, 2017, we sold approximately 87,000 bottles of HOTSHOT at an average total revenue per bottle of $4.75, compared to 123,000 bottles at an average total revenue per bottle of $4.87 during the three months ended September 30, 2016. The decrease in average total revenue per bottle is due to various price promotions that were offered to customers during the third quarter of 2017 to attract new and repeat customers. The decrease in volume of bottles sold in the comparative periods was due to launch related media coverage received in 2016 that drove a significant amount of revenue in the three months ended September 30, 2016.
Cost of Product Revenue
All costs of product revenue are recorded by our Consumer Operations segment and relate to the production and sale of HOTSHOT. Cost of product revenue was $0.1 million for the three months ended September 30, 2017 and $0.2 million for the three months ended September 30, 2016, and included the cost of HOTSHOT sold, royalty expense, inventory write-offs, and depreciation expense related to manufacturing equipment purchased to support production which totaled approximately $35,000 for each quarter. Write-offs for the three months ended September 30, 2017 totaled approximately $14,700 and relate to finished goods with a 12 month product shelf life not expected to be sold due to expiration during the fourth quarter of 2017. The inventory produced during the second quarter of 2017 has a 30 month product shelf life. Write-offs for the three months ended September 30, 2016 totaled approximately $32,700, related to production fees for finished goods from the first production run of HOTSHOT that were not expected to be sold based upon projected sales, a 12 month product shelf life, the number of units produced and production level requirements.

Research and Development Expenses

Our Drug Development segment incurred the majority of our research and development expenses, which were $4.7 million for the three months ended September 30, 2017 compared to $5.7 million for the three months ended September 30, 2016. The 16% decrease of $0.9 million was primarily related to:
$0.5 million decrease in the level of clinical activities compared to 2016, related primarily to prior year studies of our extract formulation, studies to identify our drug product candidate, IND-supporting pre-clinical activities and decreased manufacture of drug substance, partially offset by increases related to startup, formulation and production costs for our FLX-787 Phase 2 clinical trials in the United States; and
$0.4 million decrease in stock-based compensation expense, related primarily to the revaluation of non-employee awards and option grants at lower valuations than the prior year due to decreased stock price.
Selling, General and Administrative Expenses
Selling, general and administrative includes expenses that are incurred by our Consumer Operations segment as well as corporate and unallocated amounts that do not relate to a reportable segment. Selling, general and administrative costs were $4.9 million for the three months ended September 30, 2017 compared to $5.4 million for the three months ended September 30, 2016. The 9% decrease of $0.5 million was primarily related to:
$0.5 million decrease in stock-based compensation expense, related primarily to the revaluation of non-employee awards and option grants at lower valuations than the prior year due to decreased stock price, as well as a stock option award modificationsame period in the prior year;
$0.3 million decreaseyear. During the current period the transformation accounted for higher director and officer insurance expense, and fees related to salariesits NASDAQ listing and benefits as Consumer Operations and corporate headcount decreased from the prior year;
$0.2 million ofinvestor relations costs. Additionally, compensation expense increased costs within our Consumer Operations segment related to event sponsorships and sampling of HOTSHOT, offset by a decrease in media spend related to launch activities in the prior year; and
$0.1 million in increased corporate professional costs, mainly related to legal costs for clinical site contracts for our FLX-787 Phase 2 trials in the United States.
Loss from Operations
Our consolidated loss from operations for the three months ended September 30, 2017 totaled $9.4 million. Of this total, $2.3 million of the operating loss was incurred by our Consumer Operations segment, $4.7 million was incurred by our Drug Development segment and the remaining $2.4 million related to corporate and unallocated costs. The operating loss incurred by the Consumer Operations segment was primarily driven by marketing, sales and promotional costs related to HOTSHOT, and personnel-related expenses, including stock-based compensation. These costs were slightly offset by the total revenue generated from HOTSHOT sales in the third quarter of 2017. The operating loss incurred by the Drug Development segment relates to costs incurred for FLX-787 formulation and production and clinical study costs, other clinical study activities and personnel-related expenses, including stock-based compensation.
Interest Income, net
Interest income, net, decreased by $20,387 in the three months ended September 30, 2017 compared to the three months ended September 30, 2016 as we hadMarch 31, 2019 resulting from the payment of bonuses and increased personnel, These higher costs
22

were partially offset by lower available cash to invest.
Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
The following table sets forth the condensed consolidated results of operations, including information related to our Consumer Operationsdecreased legal and Drug Development segments,professional services expenses resulting from 2019 costs incurred for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016 Change
   $ %
Net product revenue$978,221
 $698,819
 $279,402
 40 %
Other revenue13,450
 12,940
 510
 4 %
Total revenue991,671
 711,759
 279,912
 39 %
Costs and expenses: 
  
    
Cost of product revenue373,187
 529,041
 (155,854) (29)%
Research and development12,730,554
 16,147,357
 (3,416,803) (21)%
Selling, general and administrative14,520,596
 15,937,326
 (1,416,730) (9)%
Total costs and expenses27,624,337
 32,613,724
 (4,989,387) (15)%
Loss from operations(26,632,666) (31,901,965) 5,269,299
 (17)%
Interest income, net227,535
 308,877
 (81,342) (26)%
Net loss$(26,405,131) $(31,593,088) $5,187,957
 (16)%
Total Revenue
Our Consumer Operations segment generated all of our revenue during the nine months ended September 30, 2017, totaling $1.0 million, as compared to $0.7 million for the nine months ended September 30, 2016 through sales of HOTSHOT and expedited shipping and handling purchases. HOTSHOT launched in the second quarter of 2016. Revenue was driven by our HOTSHOT marketing, sales and promotional efforts, including our print and digital media campaign, public relation efforts, field marketing efforts and other sales and promotional activities.

Sales via e-commerce represented approximately 82% of our total revenue for the nine months ended September 30, 2017 compared to 92% for the nine months ended September 30, 2016. E-commerce revenue decreased as a percentage of total revenue in the comparative periods due to an increase in specialty retailer and sports team revenue in 2017.

During the nine months ended September 30, 2017, we sold approximately 222,000 bottles of HOTSHOT at an average total revenue per bottle of $4.47, compared to 147,000 bottles at an average total revenue per bottle of $4.84 during the nine months ended September 30, 2016. The decrease in average total revenue per bottle is due to various price promotionsannounced reverse merger with Flex Pharma that were offered to customers during 2017 to attract new and repeat customers. The increase in the number of bottles sold was a result of HOTSHOT being on the market for all of 2017 to date, while available in 2016 from its June launch date.
Cost of Product Revenue
All costs of product revenue are recorded by our Consumer Operations segment and relate to the production and sale of HOTSHOT. Cost of product revenue was $0.4 million for the nine months ended September 30, 2017 compared to $0.5 million for the nine months ended September 30, 2016. Cost of product revenue during the nine months ended September 30, 2017 includes the cost of HOTSHOT sold, royalty expense, inventory write-offs of approximately $34,200 related to certain raw materials that aredid not expected to be used in future production runs and expiring finished goods, and depreciation expense of approximately $0.1 million related to manufacturing equipment used to support production. Cost of product revenue during the nine months ended September 30, 2016 included the cost of HOTSHOT sold, royalty expense, inventory write-offs of $0.3 million related to HOTSHOT finished goods that were not expected to be sold and depreciation expense of approximately $80,000.

Research and Development Expenses
Our Drug Development segment incurred the majority of our research and development expenses, which were $12.7 million for the nine months ended September 30, 2017 compared to $16.1 million for the nine months ended September 30, 2016. The 21% decrease of $3.4 million was primarily related to:
$2.2 million decrease in clinical activities and related work, primarily related to studies completed in the prior year or ramping downrecur in the current year, such as the submissionperiod.
Change in Fair Value of our IND, identificationWarrant Liability

The change in fair value of our drug product candidate and developmentwarrant liability of our drug substance, offset by startup, formulation and production costs for our FLX-787 Phase 2 clinical trials and other related studies in the United States, which commenced in 2017;
$0.9 million decrease in stock-based compensation expense, related primarily to the revaluation of non-employee awards and option grants at lower valuations than the prior year due to decreased stock price;
$0.3 million decrease related to salaries and benefits as research and development personnel changed from the prior year;
$0.2 million decrease related to our Consumer Operations segment, related to formulation of our HOTSHOT product in prior year;
$0.1 million increase in consulting related expenses to supplement our Drug Development personnel; and
$0.1 million increase in rent expense due to entering into a new lease agreement for our current corporate headquarters.
Selling, General and Administrative Expenses
Selling, general and administrative includes expenses that are incurred by our Consumer Operations segment as well as corporate and unallocated amounts that do not relate to a reportable segment. Selling, general and administrative expenses were $14.5 million for the nine months ended September 30, 2017 compared to $15.9 million for the nine months ended September 30, 2016. The 9% decrease of $1.4 million$283,070 was primarily related to:
$1.2 million decrease in stock-based compensation expense, related primarily to the revaluation of non-employee awards and option grants at lower valuations than the prior year due to decreased stock price, as well as a stock option award modification in the prior year;
$0.7 million decrease related to salaries and benefits, as Consumer operations and corporate headcount decreased from the prior year;
$0.4 million decrease in external consulting costs within our Consumer Operations segment due to decreased use of consultants; 
$0.1 million decrease in HOTSHOT sampling costs;
$0.5 million of increased costs within our Consumer Operations segment for HOTSHOT print and digital media campaigns, as well as our branded website;
$0.3 million increase in consulting expenses to supplement our corporate personnel;
$0.1 million increase in rent expense due to the terminationfluctuation of the price of our lease agreement at our office in New York, NY, as well as increase in rent expense due to entering into a new lease agreement for our current corporate headquarters; and
$0.1 million increase related to nine months of distribution costs for HOTSHOT sales in 2017, as the product launched during the second quarter of 2016.
Loss from Operations
Our consolidated loss from operations for the nine months ended September 30, 2017 totaled $26.6 million. Of this total, $7.1 million of the operating loss was incurred by our Consumer Operations segment, $12.5 million was incurred by our Drug Development segment and the remaining $7.1 million related to corporate and unallocated costs. The operating loss incurred by the Consumer Operations segment was driven by sales, marketing, promotional and distribution costs related to HOTSHOT, and personnel-related expenses, including stock-based compensation. These costs were slightly offset by the total revenue generated from HOTSHOT sales during the nine months ended September 30, 2017. The operating loss incurred by the Drug Development segment relates to costs incurred for FLX-787 formulation, production and clinical study costs, other clinical study activities and personnel-related expenses, including stock-based compensation, as well as consulting costs.
Interest Income, net
Interest income, net, decreased by 81,342 in the nine months ended September 30, 2017common stock ($3.78 per share on December 31, 2019 compared to $0.68 per share on March 31, 2020). The Company recognized a gain of $283,070 due the nine months ended September 30, 2016 as we had lower available cash to invest.change in fair value of warrant liability.

Liquidity and Capital Resources
Overview
Since inception, we have incurred an operating losslosses and we anticipate that we will continue to incur operating losses for at least the next several years.foreseeable future. To date, we have financed our operations through private placements of equity securities and our IPO, which we completed in February 2015,generated revenue solely from CPRIT grant, and have not generated limitedany revenue from sales of HOTSHOT. product sales.
We do not know when, or if, we will generate any revenue from product sales. We do not expect to continue incurring significant researchgenerate any revenue from product sales unless and development expenses related to the developmentuntil we obtain regulatory approval for and commercializes any of our drug product candidatescandidates. At the same time, we expect our expenses to increase in connection with our ongoing development and significant selling, general and administrative expensesmanufacturing activities, particularly as we continue to commercialize HOTSHOT. the research, development, manufacture and clinical trials of, and seek regulatory approval for our product candidates.
As a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.
Sources of Liquidity
At September 30, 2017,March 31, 2020, we had $35.6 million$8,821,668 of working capital and our cash and cash equivalents and marketable securities totaled $38.9 million,$9,646,940, which were held in bank deposit accounts and money market funds, U.S. government agency securities and commercial paper.funds. Our cash and cash equivalents and marketable securities balance decreasedincreased during the ninethree months ended September 30, 2017,March 31, 2020, primarily due primarily to our net loss incurred.public offering closed on February 11, 2020.
Cash Flows
Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Net cash (used in) provided by: 
  
Net cash used in:Net cash used in:  
Operating activities$(22,093,488) $(25,753,337)Operating activities$(3,708,034) $(1,868,713) 
Investing activities19,827,530
 (13,125,863)
Financing activities2,047
 22,096
Financing activities9,616,074  1,508,179  
Net increase (decrease) in cash and cash equivalents$(2,263,911) $(38,857,104)Net increase (decrease) in cash and cash equivalents$5,908,040  $(360,534) 

Operating Activities
Net cash used in operating activities was $3,708,034 and $1,868,713 for the ninethree months ended September 30, 2017March 31, 2020, and March 31, 2019, respectively, an increase of $1,839,321. This cash spending increase was $22.1 million, a decrease of $3.7 million comparedprimarily due to increased clinical trial and related research costs plus the same period in the prior year. The use of cashCompany's increased spending for the nine months ended September 30, 2017 was primarily related to our net loss for the period of $26.4 million, offset by non-cash charges for stock-based compensation expense of $3.3 million, depreciation expense of $0.3 million andtransformation into a cash inflow of $0.8 million from changes in operating assets and liabilities.
The $0.8 million cash inflow from changes in operating assets and liabilities was driven primarily by inflows from increases in accrued expenses and other current liabilities, and deferred rent. The increases in accrued expenses and other current liabilities relate to the timing of payments, primarily related to clinical trial startup activities for our FLX-787 Phase 2 clinical trials in the United States. The increase in deferred rent is due to signing a direct lease for our corporate headquarters through 2019. These inflows were offset by outflows primarily from an increase in prepaid expenses and other current assets and restricted cash and a decrease in accounts payable. The increase in prepaid expenses and other current assets relates to the timing of payments for insurance policies. The increase in restricted cash relates to a letter of credit established for the direct lease of our corporate headquarters. The letter of credit for our previous sublease of the office space was not released until October 2017. The decrease in accounts payable related to the timing of payments at December 31, 2016 compared to September 30, 2017.
Net cash used in operating activities for the nine months ended September 30, 2016 totaled $25.8 million and was primarily related to our net loss for the period of $31.6 million, offset by total non-cash charges of $5.6 million, including stock-based compensation expense of $5.4 million, depreciation expense of $0.2 million and amortization and accretion on investments of $0.1 million.
Investing Activities

Net cash provided by (used in) investing activities for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, increased $33.0 million, primarily related to a $32.5 million increase in net purchases and sales of marketable securities. Property and equipment acquisitions decreased $0.4 million, which primarily related to prior year activity of manufacturing equipment purchased to produce HOTSHOT and development of our branded website for HOTSHOT.public company during 2020.
Financing Activities
Net cash provided by financing activities was $9,616,074 for the nine months ended September 30, 2017 did not change significantlyfirst quarter of the year 2020, compared to $1,508,179 for the nine months ended September 30, 2016. Cashsame period of the year 2019. The increase of cash provided by financing activities resulted from the Company completing a public offering on February 11, 2020 with net proceeds of approximately $9.8 million, partially offset by the payment of $249,653 towards the principal on an insurance financing note by the Company. There were no such payments during the ninethree months ended September 30, 2017 and 2016 totaled $2,047 and $22,096, respectively, and related to proceeds from exercises of common stock.
As of September 30, 2017, we had no long-term debt.
We currently have no ongoing material financial commitments, such as lines of credit or guarantees that are expected to affect our liquidity over the next five years, other than leases.
Funding Requirements

We expect that we will require additional funding to support the commercialization of HOTSHOT and to develop and commercialize our drug product candidates. In addition, if we receive regulatory approval for any of our drug product candidates, and if we choose not to grant rights to commercialize our drug products to partners, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution activities. We also expect to incur additional costs to support our operations as well as the costs associated with operating as a public company.

Until we can generate a sufficient amount of revenue from our products, if ever, we expect to finance future cash needs through public or private equity or debt offerings. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or sell some of our assets. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and these securities may have rights senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical costs, third-party research and development costs, legal and other regulatory expenses, manufacturing, marketing, promotion and selling costs related to our consumer brand and products, external consulting costs and general administrative and overhead costs. Our future funding requirements will be heavily reliant upon the resources required to support our drug product candidates as well as our consumer brand and products.
Drug Product Candidates
The successful development of any drug product candidate is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of our future drug product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of drug product candidates. This is due to the numerous risks and uncertainties associated with developing drug products, including the uncertainty of:
receiving regulatory approval to conduct clinical trials;
successfully enrolling, and completing, clinical trials;
receiving marketing approvals from applicable regulatory authorities;
establishing arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity; and

launching commercial sales of our products, if and when approved, whether alone or in collaboration with others.
A change in the outcome of any of these variables with respect to the development of any of our drug product candidates would significantly change the costs and timing associated with the development of that drug product candidate.
As our drug product candidate, FLX-787, is in the early stage of development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of FLX-787 and future development costs may increase.
Consumer Brand and Products
The development and growth of our consumer brand, HOTSHOT and future products is uncertain, including the timing and resources needed to support successful commercialization. Our future success depends, in part, on our ability to implement a growth strategy that establishes distribution and placement of our products, attracts consumers to HOTSHOT and future product offerings, and maintains brand loyalty for our consumer products.
Our future funding requirements will be impacted by our ability to successfully grow our consumer brand, HOTSHOT and any future products. In addition, delays or unexpected costs related to HOTSHOT and growth plans could significantly change the costs and the timing of such costs associated with our consumer operations.
Outlook
Based on our research and development plans, our consumer brand and HOTSHOT growth plans and our expectations of timing related to the progress of our clinical programs, we expect that our existing cash resources and marketable securities will enable us to fund our costs and expenses, working capital and capital expenditure requirements into early 2019. We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect. Additionally, the process of testing drug product candidates in clinical trials is costly, as are the resources required to commercialize a consumer brand and products, and the timing of progress of these efforts is uncertain.
Contractual Obligations
There have been no material changes to our contractual obligations from those described in our Annual Report on Form 10-K for the year ended December 31, 2016, other than as noted below.
In January 2017, we signed a lease agreement for our corporate headquarters in Boston, MA. Our sublease for this office space terminated on August 31, 2017, following which time we leased the same location from September 1, 2017 until AugustMarch 31, 2019. This lease resulted in an aggregate increase to future minimum lease payments of $933,186 through 2019.
Off-Balance Sheet Arrangements
We did not have during the period presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the condensed consolidated balance sheet and the reported amounts of expenses during the reporting period. In
23

accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our condensed consolidated financial statements prospectively from the date of the change in estimate.

There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed with SEC on March 23, 2020.
Readers should refer to our Annual Report on Form10-K filed with SEC on March 23, 2020, Note 2, Basis of Presentation and Significant Accounting Policies to the accompanying financial statements for descriptions of these policies and estimates.
Application of New Accounting Standards
In January 2017, the year endedFASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other,” which is intended to simplify the subsequent measurement of goodwill. The pronouncement allows an entity, during its annual or interim goodwill impairment evaluation, to compare the fair value of a reporting unit with its carrying amount. An impairment charge is immediately recognized by which the carrying amount exceeds the fair value. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 31, 2016.15, 2019. We do not expect adoption of this ASU to have a material impact on our condensed consolidated financial statements.

Item 3.Quantitative and Qualitative Disclosures about Market Risk


The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of September 30, 2017, we had cash, cash equivalents and marketable securities of $38.9 million. We invest our cash in a variety of financial instruments, principally money market funds, U.S. government securities, investment-grade corporate notes and commercial paper. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Available-for-sale securities that we invest in are subject to interest rate risk and may fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.Not applicable.

Item 4.Controls and Procedures


Evaluation of Disclosure Controls and Procedures


We maintain disclosure“disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our periodic and current reports that we file under the Exchange Act with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chiefChief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer and our chief financial officer,principal accounting officer), as appropriate, to allow timely decisions regarding required disclosure.


AsIn designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of September 30, 2017, wethe disclosure controls and procedures are met. Our disclosure controls and procedures have evaluated,been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under the supervision and all potential future conditions.

Based on management’s evaluation (with the participation of our management, includingprincipal executive officer and principal financial officer), as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer (our principal executive officer) and theour Chief Financial Officer the effectiveness(our principal financial and accounting officer) have concluded that, as of the design and operation ofsuch date, our disclosure controls and procedures pursuant to(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act Rule 13a-15. Based upon our evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures Act) were effective at the reasonable assurance level.



24

Changes in Internal Control over Financial Reporting


During the ninethree months ended September 30, 2017,March 31, 2020, there was no significant change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II - OTHER INFORMATION


Item 1.Legal Proceedings

We are not currently a party to any material legal proceedings.proceedings on the date of this report. We may from time to time become involved in legal proceedings arising in the ordinary course of business, and the resolution of any such claims could be material.
.

Item 1A.Risk Factors
You should carefully review and consider the information regarding
For a discussion of certain factors that could materially affect our business, financial condition, or futureand operating results, set forthyou should carefully review and consider the information under “Part I, Item 1A. (Risk Factors)1A- Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

There2019, filed with the SEC on March 23, 2020, as well as the risk factors set forth below. The risk factors below are in addition to and supplement (and with respect to certain matters, update) the risk factors discussed in our Annual Report on Form 10-K. Other than as set forth below, there have been no material changes to the risk factors included in our Annual Report on Form 10-K forfiled with the fiscal year ended December 31, 2016, except as follows:SEC on March 23, 2020.


Risks Related to Our Business Operations and Our Industry

The COVID-19 pandemic could adversely affect our business, results of operations, and financial condition.
Our future success dependsTo date, the COVID-19 pandemic has negatively impacted the global economy and the magnitude, severity, and duration of this impact is unclear and difficult to assess. Salarius has worked to adapt to the unexpected and challenging circumstances resulting from the COVID-19 pandemic and we have experienced minimal COVID-19 disruptions to our clinical programs, our manufacturing capabilities and our financing capabilities during the three months ended March 31, 2020.Both our Ewing Sarcoma clinical study and our Advanced Solid Tumor clinical study are active and continue to enroll patients. Salarius plans to release clinical data from both studies, as previously disclosed, during 2020 and 2021.However, the impact of COVID-19 changes daily and is difficult to predict.

To combat the spread of COVID-19, the United States and other locations in which we operate have imposed measures such as quarantines and “shelter-in-place” orders that are restricting business operations and travel and requiring individuals to work from home (“WFH”), which has impacted all aspects of our business as well as those of the third-parties we rely upon for certain supplies and services.The continuation of WFH and other restrictions for an extended period of time may negatively impact our productivity, research and development, operations, preclinical studies and clinical trials, business and financial results. Among other things, the COVID-19 pandemic may result in:

a global economic recession or depression that could significantly and negatively impact our business or those of third parties upon which we rely for services and supplies;

constraints on our ability to retain key executivesconduct our operations and our preclinical studies and clinical trials;

delays in our ability to extend the term of the CPRIT grant;

reduced productivity in our business operations, research and development, marketing, and other activities;

disruptions to our third-party manufacturers and suppliers;

increased costs resulting from WFH or from our efforts to mitigate the impact of COVID-19; and

reduced access to financing to fund our operations due to a deterioration of credit and financial markets.
25


We will continue to monitor the situation but the continued disruption of the COVID-19 pandemic and its effects on the worldwide economy could negatively and materially impact our operating and financial operating results. The resumption of normal business operations may be delayed and a resurgence of COVID-19 could occur resulting in continued disruption to us or third parties with whom we do business. As a result, the effects of the COVID-19 pandemic could have a material adverse impact on our business, results of operations and financial condition for the remainder of 2020 and beyond.

Risks Related to Salarius’ Financial Condition and Capital Requirements
We will continue to require substantial additional capital to fund our clinical activities and operations and the impact of the COVID-19 pandemic on the financial markets will likely negatively impact our ability to raise additional financing.
We are a clinical development-stage biopharmaceutical company with a limited operating history. We have no products approved for commercial sale and have not generated any revenue from product sales. We have never been profitable and have incurred operating losses in each year since inception. Our net losses were $6,936,263 and $2,083,816 for the year ended December 31, 2019 and the three months ended March 31, 2020, respectively. We have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue in existence.
We will continue to require substantial additional capital to continue our clinical development and potential commercialization activities. Accordingly, we will need to raise substantial additional capital to continue to fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts. To date, we have financed our operations primarily through the sale of equity securities. Our stock price has been negatively impacted in part by the downturn in the financial markets due to the COVID-19 pandemic.This in turn will likely negatively impact our ability to raise funds through equity-related financings.Further, the global economic downturn may impair our ability to obtain additional financing through other means, such as debt financing.There can be no assurance we will be able to secure additional financing on favorable terms to us, or at all.Further any debt financing may contain restrictive covenants which limit our operating flexibility and any equity financing will likely result in additional and possibly significant dilution to existing stockholders. Failure to raise sufficient capital, as and when needed, would have a significant and negative impact on our financial condition and our ability to develop our product candidates.
Risks Related to Salarius’ Reliance on Third Parties
We rely on third parties to conduct our clinical trials, manufacture our product candidates, and perform other services. If these parties are not able to successfully perform due to the impact of the COVID-19 pandemic or otherwise, there may be delays in our ability to successfully complete clinical development, obtain regulatory approval or commercialize our product candidates and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third-parties such as CROs, hospitals, etc. to conduct, monitor and manage our ongoing clinical programs. We rely on these parties for execution of clinical trials and manage and control only some aspects of their activities. In addition, third parties may not prioritize Salarius’ clinical trials relative to those of other customers due to resource or other constraints as a result of COVID-19. Due to the continued impact of COVID-19 pandemic or otherwise, we may experience enrollment at a slower pace at certain of our clinical trial sites than initially anticipated.Further, our clinical trial sites may be required to suspend enrollment due to travel restrictions, workplace safety concerns, quarantine, facility closures, and other governmental restrictions.As a result, results from our clinical trials may be delayed, which in turn would have a material adverse impact on our clinical trial plans and timelines and impair our ability to successfully complete clinical development, obtain regulatory approval, or commercialize our product candidates. This in turn would substantially harm our business and operations.
Salarius expects to rely on third parties to manufacture its clinical product supplies and to attract, retainproduce and motivateprocess its product candidates, if approved.Salarius’ commercialization of any of its product candidates could be stopped, delayed or made less profitable if those third parties are unable to provide Salarius with sufficient quantities of drug product, or to do so at acceptable quality levels or prices due to the COVID-19 pandemic or otherwise.
26

Salarius currently relies on outside vendors to manufacture its clinical supplies of its product candidates and plans to continue relying on third parties to manufacture its product candidates on a commercial scale, if approved.The COVID-19 pandemic has placed a significant strain on the pharmaceutical industry, manufacturers of clinical supplies, healthcare-related supplies and resources, and the healthcare-related manufacturing sector in general.The impact of the COVID-19 pandemic has exacerbated the risks to which Salarius is subject due to its reliance on third-party manufacturers.For example, Salarius may be unable to identify manufacturers on acceptable terms or at all or third-party manufacturers may not be able to execute Salarius’ manufacturing procedures appropriately or may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply its clinical trials or to successfully produce, store and distribute its products.
Additionally, Salarius’ manufacturers may experience manufacturing difficulties due to resource constraints, the impact of the COVID-19 pandemic, or as a result of labor disputes or unstable political environments. If Salarius’ manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, Salarius’ ability to provide its product candidates to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require Salarius to commence new clinical trials at additional expense or terminate clinical trials completely.
Risks Related to Salarius’ Business Operations
Due to its limited number of employees, Salarius’ operations could be significantly and disproportionately impacted if any of its personnel were to test positive for COVID-19.
Salarius is a small company with a limited number of employees performing multiple tasks each. Salarius is also highly dependent on David J. Arthur, its president and chief executive officer, the loss of whose services may adversely impact the achievement of its objectives. There is currently a shortage of highly qualified personnel.personnel in Salarius’ industry, which is likely to continue. Additionally, this shortage of highly qualified personnel is particularly acute in the area where Salarius is located. If any of Salarius’ personnel were to test positive for COVID-19, it would likely significantly impair Salarius’ operations.The loss of services of any of Salarius’ personnel, including Mr. Arthur, particularly for an extended period due to COVID-19 or otherwise, would likely impede the progress of Salarius’ research, development, and commercialization objectives and would negatively impact Salarius’ ability to succeed in its product development strategy.


Our future success dependsWe may face business disruption and related risks resulting from President Trump's recent invocation of the Defense Production Act, either of which could have a material adverse effect on our business.
In response to the COVID-19 pandemic, President Trump invoked the Defense Production Act, codified at 50 U.S.C. §§ 4501 et seq. (the “Defense Production Act”). Pursuant to the, Defense Production Act the federal government may, among other things, require domestic industries to provide essential goods and services needed for the national defense. While we have not experienced any significant impact on our business as a result of such actions, we continue to assess the potential impact COVID-19 and the invocation of the Defense Production Act may have on our ability to retain key executiveseffectively conduct our commercialization efforts and development programs and otherwise conduct our business operations as planned.There can be no assurance that we will not be further impacted by the COVID-19 pandemic or by any action taken by the federal government under the Defense Production Act, including downturns in business sentiment generally or in our industry and business in particular.
Risks Related to attract, retain motivate qualified personnel. WeOur Common Stock
If we are highly dependentunable to maintain listing of our securities on William McVicar,the Nasdaq Capital Market or another reputable stock exchange, it may be more difficult for our Presidentstockholders to sell their securities.
The Nasdaq Stock Market has experienced significant volatility and Chief Executive Officer, and Thomas Wessel, our Chief Medical Officer. Althoughdeclines due to the COVID-19 pandemic.In addition, we have employment agreementsa limited public float and our stock price has experienced a significant decline since the reverse merger.Between January 1, 2020 and April 30, 2020, our closing stock price has fluctuated from a high of $3.82 at January 3, 2020 to a low of $0.57 at March 24, 2020.In addition, Nasdaq requires listing issuers to comply with Drs. McVicar and Wessel, these agreements do not prevent them from terminating their employment with us at any time. We do not maintain “key person” insurance for anycertain standards in order to remain listed on its exchange.
On April 9, 2020, we were notified by Nasdaq that on April 8, 2020 the average closing price of our executives or other employees. The losscommon stock over the prior 30 consecutive trading days had fallen below $1.00 per share, which is the minimum average closing
27

price required to maintain listing on Nasdaq under Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Requirement”).In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days, to regain compliance with the services of any of these persons could impedeMinimum Bid Requirement. To regain compliance, the achievementclosing bid price of our research, development and commercialization objectives.


Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Recent sales of unregistered securities.
None.
Use of Proceeds
In February 2015, we completed our initial public offering pursuant to a registration statement on Form S-1 (File No. 333-201276), which the SEC declared effective on January 28, 2015. In our initial public offering, we issued and sold 5,491,191 shares of common stock (inclusive of 91,191 shares of common stock sold by us pursuant to the exercise of an overallotment option granted to the underwriters in connection with the offering)must be at a public offering price of $16.00least $1.00 per share for aggregate gross offering proceedsa minimum of $87.9 million. The managing underwritersten consecutive business days during this 180-day period. During this 180-day period, we would anticipate reviewing our options to regain compliance with the minimum bid requirements, including conducting a reverse stock split.If we do not achieve compliance with the Minimum Bid Requirement during the initial 180 calendar day period, we may be eligible for an additional 180 calendar days compliance period. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other Nasdaq initial listing standards, with the exception of the bid price requirement, and would need to provide written notice of our intention to cure the deficiency during the second compliance period. However, if it appears to Nasdaq staff that we will not be able to cure the deficiency, or if we do not meet the other listing standards, Nasdaq could provide notice that our common stock will become subject to delisting. In the event we receive notice that our common stock is being delisted, Nasdaq rules permit the us to appeal any delisting determination by the Nasdaq staff.There can be no assurance that we will be able to regain compliance with the Minimum Bid Requirement or maintain compliance with the other listing requirements.
On April 20, 2020, we were notified by Nasdaq that it has determined to toll the compliance periods for bid price and market value of publicly held shares requirements (collectively, the “Price-based Requirements”) through June 30, 2020. In that regard, on April 16, 2020, Nasdaq filed an immediately effective rule change with the SEC. As a result, companies presently in compliance periods for any Price-based Requirements will remain at that same stage of the process and will not be subject to being delisted for these concerns. Starting on July 1, 2020, companies will receive the balance of any pending compliance period in effect at the start of the tolling period to regain compliance.

Accordingly, since we had 173 calendar days remaining in our bid price compliance period as of April 16, 2020, we will, upon reinstatement of the Price-based Requirements, still have 173 calendar days from July 1, 2020, or until December 21, 2020, to regain compliance.
If, for any reason, Nasdaq should delist our securities from trading on its exchange and we are unable to obtain listing on another reputable national securities exchange, a reduction in some or all of the following may occur, each of which could materially adversely affect our stockholders:
the liquidity of our common stock;

the market price of our common stock;

our ability to obtain financing for the continuation of our operations;

the number of institutional and general investors that will consider investing in our common stock;

the number of market makers in our common stock;

the availability of information concerning the trading prices and volume of our common stock; and

the number of broker-dealers willing to execute trades in shares of our common stock.
To the extent that we are unable to resolve any listing deficiency, there is a risk that our common stock may be delisted from Nasdaq, which would adversely impact liquidity of our common stock and potentially result in even lower bid prices for our initial public offering were Jefferies LLC, Piper Jaffray & Co., JPM Securities LLC, Cantor Fitzgerald & Co., and Roth Capital Partners, LLC.common stock.

The aggregate net proceeds received by us from our initial public offering were $79.9 million, after deducting underwriting discounts and commissions and offering expenses payable by us. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10% or more of any class of our equity securities or to any other affiliates or to any other persons.

There has been no material change in the use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b)(4) on January 28, 2015.

Item 3.Defaults Upon Senior Securities

Not applicable.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information


None.As previously disclosed in the Current Report on Form 8-K that the Company filed with the SEC on April 24, 2020, the Company entered into an employment agreement with Mark J. Rosenblum, its Chief Financial Officer and Executive Vice President of Finance (the "Employment Agreement"), with the following terms:


Cash Compensation. Mr. Rosenblum’s annual base salary will equal $265,000 (“Base Salary”) and he will be eligible to receive a target annual bonus of at least 35% of his base salary, to be earned based upon the
28

achievement of performance objectives to be determined by the Compensation Committee of the Board of Directors of the Company.
Benefits. Mr. Rosenblum will be eligible to participate in any company-sponsored benefit plans and programs, including medical, dental, life and disability insurance, holidays and other perquisites, at a level appropriate for his position and duties and to the extent that the Company makes such benefits generally available to executives of the Company. The Company may from time to time, in its sole discretion, amend, adjust or discontinue the benefits available to the Company’s executives and employees.
Termination for Cause or as a Result of Death, Disability or Resignation. If Mr. Rosenblum is terminated by the Company for “cause” or if his employment is terminated as a result of his death or “disability” or Mr. Rosenblum’s resignation without “good reason”, the Company shall pay Mr. Rosenblum (i) any unpaid Base Salary accrued up to the date of termination, (ii) accrued but unused vacation, (iii) benefits payable to Mr. Rosenblum pursuant to the terms and conditions of any benefit plan or program in which he participated during the term of his employment and (iv) unreimbursed business expenses.
Termination without Cause or Resignation for Good Reason. If the Company terminates Mr. Rosenblum’s employment other than for “cause,” or in the event Mr. Rosenblum terminates with “good reason,” then Mr. Rosenblum will receive (i) severance pay in an amount equal to nine months of his then current Base Salary which shall be paid in equal installments over such period and (ii) a monthly payment as a reimbursement that in the aggregate is equal to nine months of COBRA benefits at active employee rates.
The information under this Item 5 is being provided to clarify that Mr. Rosenblum's title under the Employment Agreement is Chief Financial Officer and Executive Vice President of Finance.
29


Item 6.Exhibits

Exhibit
number
Description of Document
3.1 
3.2 
3.3 
3.4 
4.1 
4.2 
4.3 
10.1+ 
10.2+ 
10.3+ 
31.1 
31.2 
32.1* 
101.0 The following materials from Salarius Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in XBRL (eXtensible Business Reporting Language):(i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations (iii) Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit), (iv) Unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Unaudited Consolidated Financial Statements.
Item 6.Exhibits
EXHIBIT INDEX
Exhibit
number
 Description of Document
   
3.1
(1)
   
3.2
(2)
   
4.1
(3)
   
4.2
(4)
   
10.1
(5)+
   
10.2
+
   
31.1
 
   
31.2
 
   
32.1
 
   
101
 The following materials from Flex Pharma, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language):(i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations (iii) Unaudited Condensed Consolidated Statements of Comprehensive Loss, (iv) Unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

+ Indicates managementManagement contract or compensatory plan.plans or arrangements.
(1) Incorporated by reference to* The material contained in Exhibit 3.1 to the Registrant's Current Report on Form 8-K (File No. 001-36812), filed32.1 is not deemed “filed” with the SEC on February 9, 2015.
(2) Incorporatedand is not to be incorporated by reference to Exhibit 3.2into any filing of the Company under the Securities Act of 1933 or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the Registrant's Current Report on Form 8-K (File No. 001-36812), filed withextent that the SEC on February 9, 2015.registrant specifically incorporates it by reference.
(3) Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (File No. 333-201276), as amended, filed with the SEC on January 13, 2015.
30
(4) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 333-201276), filed with the SEC on December 29, 2014.

(5) Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-36812), filed with the SEC on July 11, 2017.





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


SALARIUS PHARMACEUTICALS, INC.
FLEX PHARMA, INC.By:/s/ David J. Arthur
By:/s/ William McVicar
William McVicar, Ph.D.David J. Arthur
President and Chief Executive Officer (Principal Executive Officer)
By:/s/ John McCabeMark J. Rosenblum
John McCabeMark J. Rosenblum
Chief Financial Officer and Executive Vice President of Finance (Principal Financial Officer and Principal Accounting Officer)
Date:November 6, 2017
Date:May 15, 2020





34
31