UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, ~~2021~~2022
OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to

Commission File Number: 001-36812

SALARIUS PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

46-5087339

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

2450 Holcombe Blvd., Suite X, Houston, TX 77021

(Address of principal executive offices)(Zip Code)

(832)~~834-6992~~804-9144

Registrant's telephone number, including area code

(Former name, former address and former fiscal year, If changed since last report)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $ 0.0001 par value

SLRX

The 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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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 Filer

☐

Accelerated Filer

☐

Non-accelerated Filer

☒

Smaller Reporting Company

☒

Emerging Growth 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. ☐

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

As of November ~~1, 2021,~~7, 2022, there were ~~45,206,135~~2,278,227 shares of common stock outstanding.

Table of Contents

SALARIUS PHARMACEUTICALS, INC.

TABLE OF CONTENTS

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

~~The information~~Various statements made in this Quarterly Report on Form 10-Q ~~including~~are forward-looking and involve risks and uncertainties. All statements that address activities, events or developments that we intend, expect or believe may occur in the ~~information and exhibits incorporated herein by reference, include~~future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as ~~amended (the “Exchange Act”). Statements other than~~amended. Such statements give our current expectations or forecasts of future events and are not statements of historical ~~fact constitute forward-looking statements.~~or current facts. These ~~are~~ statements ~~that~~ include, ~~but are not limited to,~~among others, statements about: ~~future periods;~~

•the Company's ~~strategy and ongoing development programs;~~ planned strategy;

•the Company's clinical trials, including ~~status,~~expected costs, goals, timing and other expectations related thereto; ~~the Company’s belief as to~~

•the potential advantages of its lead compound, ~~SP-2577;~~SP-2577, as a treatment for Ewing sarcoma, Ewing-related sarcomas, and other cancers and its ability to improve the ~~Company's strategic collaborations and license agreements, and intellectual property;~~ life of patients;

•the potential for seclidemstat to target the epigenetic dysregulation underlying Ewing sarcoma and advanced solid ~~tumors including, but not limited to, prostate, breast, ovarian, melanoma, colorectal and other cancers; expected timing and results~~tumors;

•the future of ~~clinical studies;~~ the ~~ability~~company’s Phase 1/2 trial of seclidemstat ~~to demonstrate drug activity~~as a treatment for Ewing sarcoma and FET-rearranged sarcomas following the ~~nature, strategy and focus~~SUSAR;

•the potential advantages of protein degraders including the value of SP-3164 as a cancer treatment;

•the expected impact that the addition of new clinical sites will have on the development of the ~~Company; the development and commercial potential of any~~Company’s product candidates;

•the ~~Company's ability~~commercial or market opportunity and ~~plan to regain~~expansion for each therapeutic option, including the availability and ~~maintain compliance with Nasdaq's continued listing standards;~~ value of a pediatric priority review voucher for in-clinic treatments and potential for accelerated approval;

•the Company’s expectations as to revenue, cash flow, and expenses;

•the potential impact of the COVID-19 pandemic on the Company’s business, operations, cash flow and ability to obtain additional financing;

•the Company's liquidity position, the expected sufficiency of such position for anticipatedoperating and capital requirements; ~~future capital requirements, and need for, and ability to secure, additional financing;~~

•the ability of the Company to access additional financing under the Cancer Research Grant Contract with Cancer Prevention and Research Institute of Texas; ~~the Company's operating losses and ability to continue as a going concern ; and the Company's decision to engage in any new collaborations or selectively partnering its technology to improve~~

•the Company's ability to continue as a going concern. ~~These~~

Forward-looking statements also include statements other than statements of current or historical fact, including, without limitation, all statementsrelated to any expectations of revenues, expenses, cash flows, earnings or losses from operations, cash required to maintain current and planned operations, capital or other financial items; any statements of the plans, strategies and objectives of management for future operations; any plans or expectations with respect to product research, development and commercialization, including regulatory approvals; any other statements of expectations, plans, intentions or beliefs; and any statements of assumptions underlying any of the foregoing. We often, although not always, identify forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties, including those discussed under “Part I — Item 1A — Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2020, 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 expectationsby using words or ~~those expressed in these forward-looking statements. These forward-looking statements should not be relied upon~~phrases such 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,” ~~“target”~~“target”, ~~“potential,~~“potential,” “evaluate,” ~~“proceeding” and similar expressions~~“proceeding.”

The following are ~~intended to identify forward-looking statements, though not all forward-looking statements contain these identifying words. All statements, other than statements~~some of ~~historical fact, are statements~~the factors that could ~~be deemed~~cause actual results to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking ~~statements.~~statements:

•the extent to which the COVID-19 pandemic impacts our business, our customers’ businesses, the medical community and the global economy;

•the effectiveness and timeliness of our preclinical studies and clinical trials, and the usefulness of the data;

•the imposition of restrictions imposed by the FDA on the company’s Phase 1/2 trial of seclidemstatas a treatment for Ewing sarcoma and FET-rearranged sarcomas following the SUSAR, including the partial clinical hold on November 1, 2022;

•our ability to resume enrollment in the Phase 1/2 trial of seclidemstat following its review of the available data surrounding the SUSAR;

•the adequacy of our capital to support our future operations and our ability to successfully initiate and complete clinical trials and regulatory submissions;

•fluctuations in our operating results;

Table of Contents

•the success of current and future license and collaboration agreements;

•our dependence on contract research organizations, vendors and investigators;

•effects of competition and other developments affecting development of products;

•market acceptance of our product candidates;

•protection of intellectual property and avoiding intellectual property infringement;

•product liability; and

•other factors described in our filings with the SEC.

IfWe cannot guarantee that the results and other expectations expressed, anticipated or implied in any forward-looking statement will be realized. The risks set forth under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 describe major risks to our business, and you should read and interpret any forward-looking statements together with these risks. A variety of factors, including these risks, could cause our actual results and other expectations to differ materially from the anticipated results or ~~uncertainties materializes~~other expectations expressed, anticipated or ~~any of these~~implied in our forward-looking statements. Should known or unknown risks materialize, or should underlying assumptions ~~proves incorrect, our~~prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected in the forward-looking ~~statements~~statements. You should bear this in ~~this report. All~~mind as you consider any forward-looking statements.

Our forward-looking statements ~~in this report are current~~speak only as of the ~~date of this report.~~dates on which they are made. We do not undertake any obligation to publicly update or revise our forward-looking statements even if experience or future changes makes it clear that any ~~forward-looking statement to reflect events~~projected results expressed or ~~circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.~~

implied in such statements will not be realized.

Table of Contents

PART I - FINANCIAL INFORMATION


Item 1.			Financial Statements

SALARIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


		9/30/2021		12/31/2020			9/30/2022		12/31/2021
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	31,903,727	$	11,118,614	Cash and cash equivalents	$	16,820,220	$	29,214,380
Grants receivable from CPRIT		2,086,157		3,855,996

Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,194,255		822,050		Prepaid expenses and other current assets	1,145,812		949,215
Total current assets	Total current assets	35,184,139		15,796,660		Total current assets	17,966,032		30,163,595
Property and equipment, net		11,570		22,639
Grants receivable from CPRIT						Grants receivable from CPRIT	1,610,490		1,610,490
Other assets	Other assets	201,389		247,113		Other assets	146,461		193,874
Goodwill	Goodwill	8,865,909		8,865,909		Goodwill	—		8,865,909
Total assets	Total assets	$	44,263,007	$	24,932,321	Total assets	$	19,722,983	$	40,833,868
Liabilities and stockholders' equity	Liabilities and stockholders' equity					Liabilities and stockholders' equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	1,234,922	$	1,853,756	Accounts payable	$	1,716,580	$	1,543,096
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	323,364		383,138		Accrued expenses and other current liabilities	1,393,867		567,787

Note payable		—		477,028
Warrant liability		54,006		59,211
Total liabilities	Total liabilities	1,612,292		2,773,133		Total liabilities	3,110,447		2,110,883

Commitments and contingencies (Note 5)	Commitments and contingencies (Note 5)	0		0		Commitments and contingencies (Note 5)

Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 0 issued and outstanding	Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 0 issued and outstanding	—		—		Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 0 issued and outstanding	—		—
Common stock, $0.0001 par value; 100,000,000 shares authorized; 45,172,535 and 23,810,541 shares issued at September 30, 2021 and December 31, 2020, and 45,172,535 and 23,808,546 shares outstanding at September 30, 2021 and December 31, 2020, respectively		4,517		2,381
Common stock, $0.0001 par value; 100,000,000 shares authorized; 2,249,371 and 1,809,593 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively						Common stock, $0.0001 par value; 100,000,000 shares authorized; 2,249,371 and 1,809,593 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	224		181
Additional paid-in capital	Additional paid-in capital	70,738,517		41,585,761		Additional paid-in capital	74,046,524		70,919,996

Accumulated deficit	Accumulated deficit	(28,092,319)		(19,428,954)		Accumulated deficit	(57,434,212)		(32,197,192)
Total stockholders' equity	Total stockholders' equity	42,650,715		22,159,188		Total stockholders' equity	16,612,536		38,722,985
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	44,263,007	$	24,932,321	Total liabilities and stockholders' equity	$	19,722,983	$	40,833,868

See accompanying notes to condensed consolidated financial statements.

Table of Contents

SALARIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended September 30				Nine Months Ended September 30
		2021		2020		2021		2020			2022		2021		2022		2021
Revenue:	Revenue:									Revenue:
Grant revenue	Grant revenue	$	—	$	1,378,239	$	1,840,216	$	3,754,379	Grant revenue	$	—	$	—	$	—	$	1,840,216
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	2,015,930		1,803,682		5,852,887		4,890,375		Research and development	3,790,123		2,015,930		11,151,170		5,852,887
General and administrative	General and administrative	1,730,730		1,333,062		4,655,404		4,893,021		General and administrative	1,832,032		1,730,730		5,346,181		4,655,404
Loss on impairment of goodwill										Loss on impairment of goodwill	8,865,909		—		8,865,909		—
Total operating expenses	Total operating expenses	3,746,660		3,136,744		10,508,291		9,783,396		Total operating expenses	14,488,064		3,746,660		25,363,260		10,508,291
Loss before other income (expense)	Loss before other income (expense)	(3,746,660)		(1,758,505)		(8,668,075)		(6,029,017)		Loss before other income (expense)	(14,488,064)		(3,746,660)		(25,363,260)		(8,668,075)
Change in fair value of warrant liability	Change in fair value of warrant liability	9,073		45,103		5,205		265,538		Change in fair value of warrant liability	335		9,073		12,570		5,205
Government grants and other income		—		—		—		179,027
Interest income (expense), net	Interest income (expense), net	487		(3,230)		(495)		(254)		Interest income (expense), net	78,272		487		113,670		(495)
Loss from continuing operations	Loss from continuing operations	(3,737,100)		(1,716,632)		(8,663,365)		(5,584,706)		Loss from continuing operations	(14,409,457)		(3,737,100)		(25,237,020)		(8,663,365)
Net loss	Net loss	$	(3,737,100)	$	(1,716,632)	$	(8,663,365)	$	(5,584,706)	Net loss	$	(14,409,457)	$	(3,737,100)	$	(25,237,020)	$	(8,663,365)

Loss per common share — basic and diluted	Loss per common share — basic and diluted	$	(0.08)	$	(0.10)	$	(0.22)	$	(0.40)	Loss per common share — basic and diluted	$	(6.41)	$	(2.09)	$	(12.13)	$	(5.41)
Weighted-average number of common shares outstanding — basic and diluted	Weighted-average number of common shares outstanding — basic and diluted	44,804,741		17,968,664		40,064,119		13,833,410		Weighted-average number of common shares outstanding — basic and diluted	2,247,753		1,792,190		2,081,023		1,602,565

See accompanying notes to condensed consolidated financial statements.

Table of Contents

SALARIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended September 30					Nine Months Ended September 30
		2021		2020			2022		2021
Operating activities	Operating activities					Operating activities
Net loss	Net loss	$	(8,663,365)	$	(5,584,706)	Net loss	$	(25,237,020)	$	(8,663,365)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairment		14,387		12,699
Depreciation and amortization						Depreciation and amortization	5,008		14,387
Loss on impairment of goodwill						Loss on impairment of goodwill	8,865,909		—
Equity-based compensation expense	Equity-based compensation expense	413,153		149,660		Equity-based compensation expense	651,296		413,153

Shares issued for services		—		25,000
In-process research and development technology						In-process research and development technology	1,987,900		—
Change in fair value of warrant liability	Change in fair value of warrant liability	(5,205)		(265,538)		Change in fair value of warrant liability	(12,570)		(5,205)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Grants receivable	Grants receivable	1,769,839		(3,212,678)		Grants receivable	—		1,769,839
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(329,799)		799,210		Prepaid expenses and other current assets	(154,192)		(329,799)

Accounts payable	Accounts payable	(618,830)		(607,904)		Accounts payable	173,486		(618,830)
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	(59,774)		288,079		Accrued expenses and other current liabilities	838,648		(59,774)
Deferred revenue		—		(541,701)
Net cash used in operating activities	Net cash used in operating activities	(7,479,594)		(8,937,879)		Net cash used in operating activities	(12,881,535)		(7,479,594)

Investing activities						Investing activities
Purchase in-process research and development technology						Purchase in-process research and development technology	(1,500,000)		—
Net cash used in investing activities						Net cash used in investing activities	(1,500,000)		—

Financing activities	Financing activities					Financing activities

Proceeds from issuance of equity securities, net	Proceeds from issuance of equity securities, net	27,256,384		14,810,945		Proceeds from issuance of equity securities, net	1,987,375		27,256,384
Proceeds from warrants exercised for cash	Proceeds from warrants exercised for cash	1,485,351		636,214		Proceeds from warrants exercised for cash	—		1,485,351
Payments on note payable	Payments on note payable	(477,028)		(690,367)		Payments on note payable	—		(477,028)

Net cash provided by financing activities	Net cash provided by financing activities	28,264,707		14,756,792		Net cash provided by financing activities	1,987,375		28,264,707

Net increase in cash, cash equivalents and restricted cash		20,785,113		5,818,913
Net (decrease) increase in cash, cash equivalents and restricted cash						Net (decrease) increase in cash, cash equivalents and restricted cash	(12,394,160)		20,785,113
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	11,118,614		3,738,900		Cash, cash equivalents and restricted cash at beginning of period	29,214,380		11,118,614
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	31,903,727	$	9,557,813	Cash, cash equivalents and restricted cash at end of period	$	16,820,220	$	31,903,727

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid for interest	Cash paid for interest	$	1,468	$	6,615	Cash paid for interest	$	—	$	1,468
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Common stock issued for in-process research and development technology						Common stock issued for in-process research and development technology	$	487,900	$	—
Accrued issuance costs for public offering	Accrued issuance costs for public offering	$	—	$	12,001	Accrued issuance costs for public offering	$	—	$	—
Prepaid expense financed by note payable		0		$	949,131

See accompanying notes to condensed consolidated financial statements.

Table of Contents

SALARIUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


		Common Stock			Preferred Stock		Additional Paid-In Capital				Accumulated Deficit					Total Stockholders' Equity (Deficit)			Common Stock				Additional Paid-In Capital			Accumulated Deficit			Total Stockholders' Equity (Deficit)
		Shares	Amount		Shares	Amount									Shares					Amount
Balance at December 31, 2019		4,511,174	$	451	—	—			$	22,657,103			$	(12,076,700)					$	10,580,854
Issuance of equity securities, net		8,353,480	835		1,246,519	125	9,466,206				—					9,467,166
Preferred shares converted to common shares		777,825	78		(777,825)	(78)	—				—					—
Equity-based compensation expense		3,198	—		—	—	38,409				—					38,409
Net loss		—	—		—	—	—				(2,083,816)					(2,083,816)
Balance at March 31, 2020		13,645,677	1,364		468,694	47	32,161,718				(14,160,516)					18,002,613
Warrants exercised for cash, net		503,230	50		—	—	578,664				—					578,714
Preferred shares converted to common shares		468,694	47		(468,694)	(47)	—				—					—
Equity-based compensation expense		1,843	—				32,905									32,905
Equity-based services expense		18,564	2				24,998									25,000
Net loss		—	—		—	—	—				(1,784,258)					(1,784,258)
Balance at June 30, 2020		14,638,008	1,463		—	—	32,798,285				(15,944,774)					16,854,974
Warrants exercised for cash		50,000	5				57,495				—					57,500
Issuance of equity securities, net		5,130,390	513				5,331,265				—					5,331,778
Equity-based compensation expense		514	—				78,346				—					78,346
Net loss		—	—				—				(1,716,632)					(1,716,632)
Balance at September 30, 2020		19,818,912	1,981		—	—	38,265,391				(17,661,406)					20,605,966

Balance at December 31, 2020	Balance at December 31, 2020	23,808,546	2,381		—	—	41,585,761				(19,428,954)					22,159,188		Balance at December 31, 2020	952,341		$	95		$	41,588,047		$	(19,428,954)		$	22,159,188
Issuance of equity securities, net	Issuance of equity securities, net	19,627,215	1,963		—	—	26,848,058				—					26,850,021		Issuance of equity securities, net	785,088		79		26,849,942			—			26,850,021
Warrants exercised for cash, net		1,298,567	129		—	—	1,485,222				—					1,485,351
Warrants exercised for cash																		Warrants exercised for cash	51,942		5		1,485,346			—			1,485,351
Equity-based compensation expense	Equity-based compensation expense	—	—		—	—	135,379				—					135,379		Equity-based compensation expense	—		—		135,379			—			135,379
Net loss	Net loss	—	—		—	—	—				(1,851,896)					(1,851,896)		Net loss	—		—		—			(1,851,896)			(1,851,896)
Balance at March 31, 2021	Balance at March 31, 2021	44,734,328	$	4,473	—	—	$	70,054,420			$	(21,280,850)				$	48,778,043	Balance at March 31, 2021	1,789,371		$	179	$	70,058,714		$	(21,280,850)		$	48,778,043
Equity-based compensation expense	Equity-based compensation expense	38,278	4		—	—	147,452				—					147,456		Equity-based compensation expense	1,531		—		147,456			—			147,456
Equity-based services expense		6,188	—		—	—	—				—					—
Issuance of equity securities for services																		Issuance of equity securities for services	247		—		—			—			—
Net loss	Net loss	—	—		—	—					(3,074,369)					(3,074,369)		Net loss	—		—					(3,074,369)			(3,074,369)
Balance at June 30, 2021	Balance at June 30, 2021	44,778,794	4,477		—	—	70,201,872				(24,355,219)					45,851,130		Balance at June 30, 2021	1,791,149		$	179	$	70,206,170		$	(24,355,219)		$	45,851,130
Equity-based compensation expense	Equity-based compensation expense						130,322									130,322		Equity-based compensation expense	—		—		130,322			—			130,322
Issuance of equity securities, net																		Issuance of equity securities, net	15,749		2		406,361			—			406,363
Net loss																		Net loss	—		—		—			(3,737,100)			(3,737,100)
Balance at September 30, 2021																		Balance at September 30, 2021	1,806,898		181		70,742,853			(28,092,319)			42,650,715

Balance at December 31, 2021																		Balance at December 31, 2021	1,809,593		$	181	$	70,919,996		$	(32,197,192)		$	38,722,985
Common stock issued for in-process research and development technology																		Common stock issued for in-process research and development technology	40,000		4		487,896			—			487,900
Equity-based compensation expense																		Equity-based compensation expense	18,215		2		313,901			—			313,903
Net loss																		Net loss	—		—		—			(6,109,225)			(6,109,225)
Balance at March 31, 2022																		Balance at March 31, 2022	1,867,808		$	187	$	71,721,793		$	(38,306,417)		$	33,415,563
Issuance of equity securities, net																		Issuance of equity securities, net	373,577		37		1,987,339			—			1,987,376
Equity-based compensation expense																		Equity-based compensation expense	3,184		—		174,528			—			174,528
Issuance of equity securities for services																		Issuance of equity securities for services	—		—		25,000			—			25,000
Net loss																		Net loss	—		—		—			(4,718,338)			(4,718,338)
Balance at June 30, 2022																		Balance at June 30, 2022	2,244,569		$	224	$	73,908,660		$	(43,024,755)		$	30,884,129
Equity-based compensation expense																		Equity-based compensation expense	—		—		134,316			—			134,316
Issuance of equity securities for services																		Issuance of equity securities for services	4,802		—		3,548			—			3,548
Net loss																		Net loss	—		—		—			(14,409,457)			(14,409,457)

Table of Contents

Issuance of equity securities, net 393,741 40 406,323 406,363
Net loss (3,737,100) (3,737,100)
Balance at September 30, 2021 45,172,535 4,517 — — 70,738,517 (28,092,319) 42,650,715


Balance at September 30, 2022	2,249,371	224	74,046,524	(57,434,212)	16,612,536

See accompanying notes to condensed consolidated financial statements.

Table of Contents

SALARIUS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. ORGANIZATION AND OPERATIONS

Nature of Business

Salarius Pharmaceuticals, Inc. (“Salarius” or the “Company”), together with its subsidiaries, Salarius Pharmaceuticals, LLC, Flex Innovation Group LLC, and TK Pharma, Inc., is a clinical-stage biopharmaceutical company focused on developing effective treatments for cancers with high, unmet medical need. Specifically, the Company is developing treatments for cancers caused by dysregulated gene expression, i.e., genes that are incorrectly turned on or off. The ~~field concerned with~~Company is developing two classes of drugs that address gene ~~expression regulation is called ‘epigenetics’. As cancers are often diseases driven by gene dysregulation, epigenetics is an area of interest for cancer treatment.~~dysregulation: epigenetic inhibitors and targeted protein degraders. The Company's ~~lead epigenetic based technology was licensed from~~technologies have the ~~University~~potential to work in both liquid and solid tumors. The Company's current pipeline consists of ~~Utah Research Foundation in 2011.~~two small molecule drugs: 1) seclidemstat (SP-2577), a targeted protein inhibitor and 2) SP-3164, a targeted protein degrader. The Company is located in Houston, Texas.

~~Risks Related~~Going Concern

Salarius has no products approved for commercial sale, has not generated any revenue from product sales to ~~Covid-19 Pandemic~~

date and has suffered recurring losses from operations since its inception. The ~~COVID-19 pandemic is significantly affecting~~lack of revenue from product sales to date and recurring losses from operations since its inception raise substantial doubt as to the Company's ability to continue as a going concern. The accompanying financial statements are prepared using accounting principles generally accepted in the United States ~~global economies,~~applicable to a going concern, which contemplates the realization of assets and ~~businesses worldwide.While~~ the ~~potential magnitude~~satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and ~~duration~~classification of recorded asset amounts and classification of liabilities should the Company be unable to continue as a going concern. Salarius will require substantial additional capital to fund its research and development expenses related to its oncology drug. Based on Salarius’ expected cash requirements, Salarius believes that there is substantial doubt that its existing cash and cash equivalents, will be sufficient to fund its operations through one year from the financial statements issuance date. The Company intends to obtain additional capital through the sale of equity securities in one or more offerings or through issuances of debt instruments, and may also consider new collaborations or selectively partnering its technology. However, the Company cannot provide any assurance that it will be successful in accomplishing any of its plans. The Company believes that its $16.8 million in cash and cash equivalents on hand as of September 30, 2022, is sufficient to fund its anticipated operations into the second half of 2023.

Recent Developments

Reverse Stock Split

On October 14, 2022, the Company filed a Certificate of Amendment to the Company’s restated certificate of incorporation with the Secretary of State of the ~~economic and social impact~~State of Delaware to effect a 1-for-25 reverse stock split of the ~~COVID-19 pandemic is difficult~~Company’s issued and outstanding shares of common stock, par value $0.0001 per share (the “Reverse Stock Split”) which became effective as of October 14, 2022. All historical share and per share amounts reflected throughout this report have been adjusted to ~~assess~~reflect the Reverse Stock Split.

Partial Clinical Hold

On October 18, 2022, the Company voluntarily paused new patient enrollment in its Phase 1/2 trial of seclidemstat as a treatment for Ewing sarcoma and FET-rearranged sarcomas per protocol design. The pause in new patient enrollment was due to a metastatic FET-rearranged sarcoma patient death that was classified as a suspected unexpected serious adverse reaction (SUSAR). Upon review of the SUSAR and available information by the Company’s independent Safety Review Committee for the clinical trial, patients currently receiving seclidemstat treatment may continue treatment after consulting with their physician. During a conference call with the U.S. Food and Drug Administration (FDA) on November 1, 2022, the FDA informed the Company that the agency agreed with the voluntary enrollment pause and, as an administrative action, the FDA provided verbal notification that the Ewing sarcoma and FET-rearranged sarcoma trial was on partial clinical hold. While on partial clinical hold, FDA informed the Company that the pause in patient enrollment shall remain in place and patients currently receiving seclidemstat treatment may continue treatment after consulting with their physician. FDA’s clinical hold procedures provide the

Table of Contents

Company with an administrative process to work with the FDA to analyze the available data, adjust clinical protocols, and make other changes that may be needed in order to restart patient enrollment.

Acquisition and Strategic Collaboration Agreement

On January 12, 2022, the Company, entered into an Acquisition and Strategic Collaboration Agreement (the “ASCA”), with DeuteRx, LLC, a Delaware limited liability company (the “DeuteRx”), pursuant to which DeuteRx agreed to sell, and the Company agreed to purchase and assume from DeuteRx, all of DeuteRx’s rights, title, and interest in and to certain assets of DeuteRx, including SP-3164, DeuteRx’s intellectual property, information and data related to SP-3164, tangible materials or ~~predict,~~reagents related to SP-3164, goodwill, rights and claims, other than certain excluded assets (collectively, the ~~impact~~“Purchased Assets”), all as more specifically set forth in the ASCA, and assume certain assumed liabilities, upon the terms and subject to the conditions set forth in the ASCA. The Aggregate purchase price paid under the ASCA was $2.0 million consisting of $1.5 million cash payment and the delivery of 40,000 shares of the Company's common stock, valued at $0.5 million. Total cost incurred in obtaining in-process research and development technology ("IPRD") that has no alternative future use are charged to research and development expense as acquired, and presented as investing activity cash outflow on the ~~global financial markets may,~~Statement of Cash Flow. In addition, the Company agreed to pay to DeuteRx potential future milestone payments upon the occurrence of an applicable Milestone Event (as defined in the ASCA) and potential future reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. At this time we are experiencing minimal disruption to our clinical trials. However, our ongoing Phase 1/2 Ewing sarcoma clinical trial and Phase 1/2 AST clinical trial may encounter delays in enrolling new patients due to concerns or healthcare resource constraints becauseroyalty payments. A member of the ~~COVID-19 pandemic.In addition, although at this time we have experienced no disruptions~~Company’s Board of Directors also serves as a consultant to ~~manufacturing capabilities, certain aspects~~DeuteRx and is employed by an affiliate of our supply chain may be disrupted as certain of our third party suppliers and manufacturers have paused their operations in response to the COVID-19 pandemic or have otherwise encountered delays in providing supplies and services. 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 business and operations, and our workforce, as well as those of the third parties with which we do business or upon which we rely. While the situation is fluid and we do not yet know the full extent of potential delays or impacts on us or on healthcare systems or the global economy in general, we have worked to adapt to the unexpected and challenging circumstances resulting from the COVID-19 pandemic. However, we may experience disruptions in the future that have and could further adversely impact our business operations as well as our preclinical studies and clinical trials.DeuteRx.

NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited 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 GAAP as found in the Accounting Standard Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB").

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Unaudited 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, ~~2020~~2021 included elsewhere in the Company's Annual Report on Form 10-K filed with the SEC on March ~~18, 2021.~~25, 2022. In the

~~Table of Contents~~

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 September 30, ~~2021~~2022 and the results of operations for the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021. The interim results of operations are not necessarily indicative of the results that may occur for the full fiscal year. The December 31, ~~2020~~2021 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

Table of Contents

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

~~The Company maintains several bank accounts including an interest-bearing account for funds received from Cancer Prevention and Research Institution of Texas ("CPRIT").~~

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. There were no impairment charges related to long-lived assets for the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

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 charge 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 value of goodwill has been impaired. ~~There was no~~

Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The Company utilizes the option to perform a qualitative assessment for its reporting unit and if the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company utilizes the two-step quantitative assessment. The Company’s qualitative assessment is sensitive to assumptions related to potential adverse events and circumstances, including current market trends in control premiums and involves judgement in determining comparable peer companies to include in the control premium evaluation. The Company recorded goodwill impairment loss of ~~goodwill~~$8.9 million during the three and nine ~~months~~month ended September 30, ~~2021 or September 30, 2020.~~2022. Please refer to NOTE 9 for further discussion.

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

The Company determines whether 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

~~Table of Contents~~

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. For warrants classified as equity contracts, the Company allocates the transaction proceeds to the warrants and any other free-standing instruments issued in the transaction based on an allowable allocation method.

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

Table of Contents

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.

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.

Costs incurred in obtaining IPRD that has no alternative future use are charged to research and development expense as acquired, and presented as investing activity cash outflows on the Statement of Cash Flow.

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.

The Company uses the Black-Scholes option valuation model to estimate the fair value of the 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 loss 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)~~(iii) 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 ~~9,531,198~~approximately 706,400 and ~~10,075,278~~381,248 shares as of September 30, ~~2021~~2022 and ~~2020,~~2021, 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

~~Table of Contents~~

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 are expected to be in effect when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. The Company has evaluated available evidence and concluded that the Company 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 facts and

Table of Contents

circumstances. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company did not have any significant uncertain tax positions and no interest or penalties 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 New Accounting Standards~~Pronouncements Not Yet Adopted

In ~~December 2019,~~June 2016, the FASB issued ASU No. ~~2019-12, Simplifying~~2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the ~~Accounting~~measurement of all expected credit losses for ~~Income Taxes~~financial assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU does not change the core principle of the guidance in ASU 2016-13, instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses guidance. The FASB also subsequently issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Derivatives and Hedging (Topic ~~740).~~815), and Financial Instruments (Topic 825), which did not change the core principle of the 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 valuation account and should not exceed amounts previously written off and expected to be written off. The guidance eliminates certain exceptions for recognizing deferred taxes for investments, performing intra-period 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 for ~~annual~~fiscal years, and interim periods ~~in fiscal~~within those years, beginning after December 15, ~~2020. The~~2019 for public business entities, excluding smaller reporting companies. Early adoption ~~of ASU 2019-12 in~~is permitted. As a smaller reporting company, the guidance will be effective for the Company during the first quarter of ~~2021 did not~~2023. The Company is in the process of assessing the impact adoption will have ~~a material impact~~ on ~~the Company’s condensed~~its consolidated financial statements.

NOTE 3. ~~GRANTS~~GRANT RECEIVABLE FROM CPRIT

Grants receivable represents qualifying costs incurred where 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 ~~$2.1~~$1.6 million ~~and $3.9 million as of~~at both September 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021.

NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets at September 30, ~~2021~~2022 and December 31, ~~2020~~2021 consisted of the following:


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Prepaid clinical trial expenses	Prepaid clinical trial expenses	$	135,227	$	—	Prepaid clinical trial expenses	$	11,185	$	97,557
Prepaid insurance	Prepaid insurance	963,797		684,268		Prepaid insurance	885,974		678,672

Other prepaid and current assets	Other prepaid and current assets	95,231		137,782		Other prepaid and current assets	248,653		172,986
Total prepaid expenses and other current assets	Total prepaid expenses and other current assets	$	1,194,255	$	822,050	Total prepaid expenses and other current assets	$	1,145,812	$	949,215

Prepaid insurance is mainly comprised of prepaid directors' and officers' insurance. In July 2020, the Company financed its directors' and officers' insurance premium with a short term note, the principal amount of which was approximately $0.9 million bearing interest at a rate of 2.49%. In July 2021, the Company paid the directors' and officers' insurance policy in full.

~~Table of Contents~~

NOTE 5. 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 an epigenetic enzyme lysine specific demethylase 1 ("LSD1"). 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 subject to certain adjustments specified in the agreement, such as granted revenue sharing rights on any resulting products or processes to commence on first commercial sale, and milestone payments

Table of Contents

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 Company entered into a Cancer Research Grant Contract with CPRIT. Pursuant to the contract, CPRIT awarded the Company a grant of up to $18.7 million, further modified to $16.1 million, to fund the development of an LSD1 inhibitor. This is a 3-year grant award which originally expired on May 31, 2019. The grant now expires on May 31, 2022.

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 and agencies of the State of Texas, and private or independent institutions of higher education located in Texas, for education, research and other non-commercial purposes.

The Company is obligated to make revenue-sharing payments to CPRIT with respect to net sales of any product covered by the contract, up to a maximum repayment of a 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.

Lease Agreement

The ~~CPRIT grant is subject~~Company presently leases office space under operating lease agreements on a month to funding conditions including a matching funds requirement where the Company will match 50% of funding from the CPRIT grant. As of September 30, 2021, the Company has expended all allowable funds under the grant.

~~At September 30, 2021 and December 31, 2020, the Company had grants receivable of $2.1 million and $3.9 million, respectively, related to the CPRIT contract.~~month basis.

NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS

Certain assets and liabilities are carried at fair value under GAAP. Fair value is 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 minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the 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 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Significant unobservable inputs including Salarius’ own assumptions in determining fair value.

~~Table of Contents~~

The Company believes the recorded values of its financial instruments, including cash and cash equivalents, accounts payable and note payable approximate their fair values due to the short-term nature of these instruments.

The following table sets forth a summary of changes in the fair value of Level 3 liabilities, the warrants issued in connection with the Company's merger with Flex Pharma in 2019 ("Flex Warrants"), which are measured at fair value on a recurring basis for the ~~three and~~ nine months ended September 30, ~~2021:~~2022:


Description	Description	Balance at December 31, 2020		Change in Fair Value		Balance at September 30, 2021		Description	Balance at December 31, 2021		Change in Fair Value		Balance at September 30, 2022
Warrant liability	Warrant liability	$	59,211	$	(5,205)	$	54,006	Warrant liability	$	14,518	$	12,570	$	1,948

NOTE 7. STOCKHOLDERS' EQUITY

~~Preferred Stock and Common Stock~~

Table of Contents

On ~~February 11, 2020,~~October 14, 2022, the Company ~~completed~~filed a ~~public offering~~Certificate of Amendment to the Company’s restated certificate of incorporation with ~~total gross proceeds~~the Secretary of ~~approximately $11.0 million, which includes the full exercise~~State of the ~~underwriter's over-allotment option~~State of Delaware to ~~purchase an additional 1,252,173~~effect a 1-for-25 reverse stock split of the Company’s issued and outstanding shares and warrants prior to deducting underwriting discounts and commissions and offering expenses payable by Salarius (the “February 2020 Offering”). The February 2020 Offering was comprised of 7,101,307 Class A units, priced at a public offering price of $1.15 per unit, with each unit consisting of 1 share of common stock, par value $0.0001 per share (the “Reverse Stock Split”) , which became effective on October 14, 2022. All historical share and ~~a five-year warrant~~per share amounts reflected throughout this report have been adjusted to reflect the Reverse Stock Split.

Common Stock Issuances

On January 12, 2022, the Company issued 40,000 shares of the Company's common stock, valued at $0.5 million to purchase in-process research and development technology SP-3164, please refer to NOTE 1 ~~share~~for further discussion.

On April 22, 2022, the Company entered into a securities purchase agreement with certain institutional and accredited investors for the sale by the Company of approximately 373,577 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a purchase price of $6.25 per share. Concurrently, the Company also sold unregistered warrants exercisable for an aggregate of approximately 280,183 shares of Common Stock, which represents 75% of the shares of Common Stock sold, with 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 1 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$8.4975 per share. ~~A total~~The transaction closed on April 26, 2022 with gross proceeds of 8,353,480 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 exercise price of the warrants are fixed and do not contain any variable pricing features or any price based anti-dilutive features. All Series A preferred stock was converted to common stock prior to December 31, 2020.

As discussed above, in connection with the February 2020 Offering, the Company issued five-year warrants to purchase 1 share of common stock at an exercise price of $1.15 per share (each a "warrant"). On December 11, 2020, the Company entered into warrant exercise inducement offer letters (“Inducement Letters”) with$2.3 million before deducting certain holders of 3,964,065 Warrants (collectively, the “Exercising Holders”) pursuant to which such holders agreed to exercise on December 11, 2020 for cash, their Warrants to purchase 3,964,065 shares of Common Stock in exchange for the Company’s agreement to (i) lower the exercise price of the Warrants held by the Exercising Holders to $0.90 and (ii) issue new warrants (the “Inducement Warrants”) to purchase up to 3,964,065 shares of Common Stock. Each Inducement Warrant is exercisable at a price per share of $1.182 and expires on June 11, 2026.

~~On August 3, 2020, the Company completed a public offering of 5,130,390 shares of its common stock at a price~~fees due to the ~~public of $1.20 per share. Total gross proceeds from the offering were approximately $6.2 million, prior to deducting underwriting discounts~~placement agent and ~~commissions and offering expenses payable by the Company.~~

other estimated transaction expenses.

On February 5, 2021, the Company entered into an At the Market Offering Agreement (the “Sales Agreement”) with Ladenburg Thalmann & Co. Inc. (“Ladenburg”). Under ~~this agreement~~the Sales Agreement the Company iswas able to issue and sell, from time to time, shares of its common ~~stock. On February 5, 2021 and July 2, 2021, the Company filed prospectus supplements with the SEC to register the offering and sale of Common Stock~~stock having an aggregate offering price of up to $6.3 million ~~and $25.0 million, respectively.~~(the “ATM Shares”) with Ladenburg acting as an agent for sales. Sales of the ATM Shares may be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended, including, without limitation, sales made directly on or through the NASDAQ Capital Market. No shares were issued under the Sales Agreement during the nine months ended September 30, 2022. During the nine months ended September 30, 2021, the Company issued ~~3,214,234~~approximately 128,569 shares under the Sales Agreement for gross proceeds of $6.7 million.

On March 8, 2021, the Company completed a public offering of ~~16,806,722~~approximately 672,269 shares of its common stock at a price to the public of ~~$1.3685~~$34.2125 per share. Total gross proceeds from the offering were approximately $23.0 million prior to deducting underwriting discounts and commissions and offering expenses payable by the Company.

~~Table of Contents~~

Warrants Exercised for Cash

The Company has five-year warrants outstanding that were issued in February 2020 and subsequently modified in December 2020 in connection with the issuance of additional inducement warrants. The warrants are exercisable at a price per share of $28.75. The inducement warrants expire on June 11, 2026 and are exercisable at a price per share of $29.55. The Company has 5.5 year warrants outstanding that were issued in April 2022, with an exercise price of $8.4975 per share. The warrants will be exercisable six months following the issuance date and will expire five and one-half years from the issuance date.

During the nine months ended September 30, 2022, no warrants were exercised. During the nine months ended September 30, 2021, the Company issued ~~1,298,567~~approximately 51,942 common shares as a result of warrant exercises, and received cash proceeds of approximately $1.5 million. As of September 30, ~~2021, 7,747,587~~2022, approximately 590,087 warrants remain ~~outstanding.~~

~~Right to~~outstanding, excluding Flex Warrants

~~On January 3, 2019, Flex Pharma, Private Salarius~~ and Merger Sub entered into the Merger Agreement. Pursuant to the Merger Agreement, Flex Pharma 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 a warrant to purchase the Company's common shares on January 20, 2020. These warrants were issued on July 1, 2021 and are exercisable in the aggregate, into 142,711 shares of the Company's common stock with a 5-year term from January 20, 2020, at an exercise price of $15.17 per share. The warrants are subject 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 the 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 a liability.

The Company accounted for these warrants at fair value using Level 3 inputs. The Company determined the fair value of this warrant liability using a Black-Scholes valuation model. Using this method, unobservable inputs included the Company’s equity value, expected timing of possible outcomes, risk free interest rates and stock

~~price volatility.~~

~~Variables used in the Black-Scholes model are as follows:~~

September 30, 2021 December 31, 2020
Discount rate 0.53% 0.27%
Expected life (years) 3.31 years 4.06 years
Expected volatility 130.23% 130.56%
Expected dividend —% —%

Wedbush ~~Warrant~~

On July 19, 2019, upon the closing of the merger, the Company elected to issue warrants to purchase 42,928 common shares to Wedbush Securities Inc. ("Wedbush") to satisfy $0.5 million of the $1.0 million success fee payable to Wedbush at the closing of the merger. The remaining $0.5 million success fee was paid in cash. These warrants have an exercise price of $18.90 and a 5-year term. As of ~~September 30, 2021, all warrants issued to Wedbush were outstanding.~~

Warrants.

NOTE 8. EQUITY-BASED COMPENSATION

Equity Incentive Plans

The Company has granted options to employees, directors, and consultants under the 2015 Equity Incentive Plan (the "2015 Plan"). The 2015 Plan provides for the grant of 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, ~~2021,~~

Table of Contents

2022, there were ~~1,026,690~~approximately 45,468 shares remaining available for the grant of ~~stock~~option awards under the 2015 Plan.

During the nine-month periods ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company awarded ~~79,000~~51,360 and ~~182,000, respectively,~~3,160 stock options, respectively, to its employees and directors, pursuant to the plan described above. 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. Expected volatilities utilized in the model are based on implied volatilities from traded stocks of peer

~~Table of Contents~~

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 remain outstanding. The fair value of the option grants awarded during each of the ~~nine month~~nine-months periods ended September 30, 2022 and 2021 ~~and 2020~~ was ~~$0.1~~$0.5 million and ~~$0.7~~$0.1 million, respectively, which has been estimated with the following assumptions on the grant date.


									Nine Months Ended September 30
		3/10/2021		6/16/2021		9/2/2021			2022	2021
Risk-free interest rate	Risk-free interest rate	1.00	%	1.09	%	0.93	%	Risk-free interest rate	1.62%-1.70%	0.93% - 1%
Volatility	Volatility	133.35	%	131.06	%	130.44	%	Volatility	125.19% 126.42%	130.44% 133.35%
Expected life (years)	Expected life (years)	6.00				6.00		Expected life (years)	5.00-6.00	6.00
Expected dividend yield	Expected dividend yield	0	%	0	%	0	%	Expected dividend yield	0%	0%

Table of Contents

The following table summarizes stock option activity for employees and non-employees for the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


		Shares	Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2019		166,233	$34.42	6.53	$—
Granted		743,118	0.61
Exercised		—
Forfeited		(36,613)	—
Expired		(30,766)
Outstanding at September 30, 2020		841,972	$4.55	9.32	0
Exercisable at September 30, 2020		69,813	$37.84	5.43	$—
							Shares	Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2020	Outstanding at December 31, 2020	1,563,972	$2.78	9.47	$175,770	Outstanding at December 31, 2020	62,559	$69.50	9.47	$175,770
Granted	Granted	79,000	$1.04-$1.49			Granted	3,160	$32.50
Exercised	Exercised	—				Exercised	—
Forfeited	Forfeited	(45,000)				Forfeited	(1,800)	—
Expired	Expired	—				Expired	—
Outstanding at September 30, 2021	Outstanding at September 30, 2021	1,597,972	$2.75	8.75	$271,540	Outstanding at September 30, 2021	63,919	$68.75	8.75	$271,540
Exercisable at September 30, 2021	Exercisable at September 30, 2021	323,730	$9.27	7.74	$34,440	Exercisable at September 30, 2021	6,261	$231.75	7.74	$34,440

Outstanding at December 31, 2021						Outstanding at December 31, 2021	63,919	$68.75	8.50	$—
Granted						Granted	51,360	$11.75
Exercised						Exercised	—
Forfeited						Forfeited	(5,015)
Expired						Expired	(1,375)
Outstanding at September 30, 2022						Outstanding at September 30, 2022	108,889	$23.75	8.53	$—
Exercisable at September 30, 2022						Exercisable at September 30, 2022	36,301	$35.50	7.88	$—

As of both September 30, ~~2021~~2022 and ~~2020,~~2021, there was approximately $1.0 million ~~and $0.4 million respectively~~ of total unrecognized compensation cost related to unvested stock options. Total unrecognized compensation cost will be adjusted for future changes in employee and non-employee forfeitures, if any. The Company expects to recognize that cost over a remaining weighted-average period of ~~2.45~~2.4 years.

NOTE 9 GOODWILL

The recent decline in the Company’s market capitalization, along with other qualitative considerations was determined to be a triggering event for potential goodwill impairment and accordingly, the Company performed the goodwill impairment analysis for the third quarter ended September 30, 2022. In determining the fair value utilized in the goodwill impairment assessment, the Company considers qualitative factors such as changes in strategy, cash flows, the regulatory environment, overall market conditions, as well as the market capitalization of the Company’s publicly traded common stock. The Company operates as a single reporting unit and estimates the fair value of its single reporting unit using the Company’s market capitalization plus an estimated control premium. Market capitalization is determined by multiplying the shares outstanding on the assessment date by the market price of the Company’s common stock. As a result of the impairment assessment during the three months ended September 30, 2022, the Company recorded an impairment charge to write off the entire balance of the goodwill of $8.9 million. The impairment charge was recorded in the consolidated statement of operations and comprehensive loss.

NOTE 10 SUBSEQUENT EVENTS

The Company’s management reviewed all material events through the date that the financial statements were issued for subsequent event disclosure consideration. Please refer to Recent Developments in NOTE 1.

1618

Table of Contents


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 financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on March ~~18, 2021.~~25, 2022. 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 "Part I - Item 1A - Risk Factors" discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, 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.

Overview

We are a clinical-stage biopharmaceutical company focused on developing ~~effective~~ treatments for cancers with high, unmet medical ~~need.~~ need. Specifically, we are developing treatments for cancers caused by dysregulated gene expression, i.e., genes ~~that~~which are incorrectly turned on or off. The field concerned with gene expression regulation is called ‘epigenetics’. As cancers are often diseases driven by gene dysregulation, epigenetics is an area of interest for cancer treatment. Our lead epigenetic based technology, seclidemstat ("SP-2577"), may treat cancers by restoring correct gene expression.

In 2011, Salarius licensed SP-2577 and related compounds from the University of Utah Research Foundation. SP-2577 is a small molecule that inhibits the epigenetic enzyme lysine specific demethylase 1 (“LSD1”). 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 (protein-protein interactions), independently of its enzymatic function, to alter gene expression and modulate cell fate. In healthy cells, LSD1 is necessary for stem cell maintenance and normal cell development processes. However, in several cancers LSD1 is highly expressed and acts to incorrectly silence or activate genes leading to disease progression. High levels of LSD1 expression are often associated with aggressive cancer phenotypes and 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. To effectively develop SP-2577, we are pursuing a speed-to-market and market expansion strategy.

~~As part of our speed-to-market strategy, we are initially focused on developing SP-2577 for the treatment of sarcomas with high unmet needs.~~ We are ~~investigating SP-2577 for the treatment~~developing two classes of ~~several advanced sarcoma subtypes, including Ewing sarcoma, myxoid liposarcoma,~~drugs that address gene dysregulation: epigenetic inhibitors and other sarcomas that share similar biology, i.e. FET-rearranged sarcomas. The described sarcomas are all driven by a chromosomal translocation involving a FET-gene family member (EWS, FUS, or TAF15). The translocation results in an FET-rearranged fusion oncoprotein. SP-2577’s target, LSD1, has been shown to associate with FET-rearranged fusion oncoproteins to help promote tumor growth.

We believe SP-2577 disrupts LSD1 from associating with FET-rearranged fusion oncoproteins and therefore leads to inhibition of the fusion oncoprotein’s cancer promoting activity. As a result, SP-2577 hastargeted protein degraders. Our technologies have the potential to ~~treat FET-rearranged sarcomas by reversing cancer promoting gene expression~~work in both liquid and ~~thereby possibly preventing tumor growth~~solid tumors. Our current pipeline consists of: 1) seclidemstat (SP-2577), a targeted LSD1 protein inhibitor, 2) SP-3164, a targeted protein degrader, and ~~causing cancer cell death. Preclinical studies of SP-2577~~3) a second generation LSD1 inhibitor program in several FET-rearranged sarcoma cell lines including Ewing sarcoma, myxoid liposarcoma, clear cell sarcoma, and desmoplastic small round cell tumors demonstrated that SP-2577 was effective in inhibiting cell proliferation and viability. Additionally, in certain Ewing sarcoma animal models, SP-2577 showed a significant tumor reduction as well as a significant survival benefit compared to untreated animals. Our ongoing Phase 1/2 clinical trial was designed as a single agent dose escalation followed by a dose expansion study in Ewing sarcoma. As a result, given the described preclinical data in FET-rearranged sarcomas and clinical data in FET-rearranged sarcoma patients from our Advanced Solid Tumor (AST) trial, in 2021 we expanded the trial to study SP-2577 in non-Ewing FET-rearranged sarcomas. The amended ongoing dose expansion portion of the trial is studying SP-2577 in combination with a common chemotherapeutic regimen, topotecan and cyclophosphamide ("TC") in Ewing sarcoma patients and single agent SP-2577 in myxoid liposarcoma and other FET-rearranged sarcoma patients. The dose expansion portion can enroll up to 30 relapsed or refractory Ewing sarcoma patients and up to 30 relapsed or refractory FET-rearranged patients (of which up to 15 will be myxoid liposarcoma). In Ewing sarcoma patients, the trial will assess the safety and tolerability of SP-2577 and TC and study preliminary efficacy of the regimen. In myxoid liposarcoma and other FET-rearranged sarcoma patients, the trial is studying single-agent SP-2577 safety, tolerability, and preliminary efficacy. drug discovery.

~~Table of Contents~~

As LSD1 can interact with over 60 regulatory proteins other than FET-fusion oncoproteins, we believe that LSD1 may also play a critical role in progression of various other cancer types. Preliminary efficacy data from our Phase 1/2 AST trial supports this notion and work is ongoing to identify large market solid tumor indications with the highest potential for SP-2577 success. Continued progress in this area will support the market expansion portion of our strategy.

In addition to solid tumors, SP-2577 has shown promising preclinical activity in hematologic cancers. We recently announced the initiation of an Investigator Initiated Trial studying SP-2577 in combination with azacitidine for the treatment of patients with myelodysplastic syndromes or chronic myelomonocytic leukemia. Myelodysplastic syndromes can progress into Acute Myeloid Leukemia (AML) and data from our ongoing trial will inform development of SP-2577 in hematologic cancers (also referred to as “liquid tumors" or "blood cancer”), including AML.~~The American Cancer Society estimates there were almost 20,000 new cases of AML in the US alone in 2020.~~

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 works have sparked interest 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 ~~$28.1~~$57.4 million as of September 30, ~~2021.~~2022. 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. As of September 30, 2022, we had cash and cash equivalents of $16.8 million.

Our financial statements are prepared using Generally Accepted Accounting Principles in the United States of America (“GAAP”) applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should we be unable to continue as a going concern.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years as we initiate and continue the clinical development of, and seek regulatory approval for, our product candidate, add personnel necessary to continue to operate as a public company, and work to develop an advanced clinical pipeline of product candidates. We expect that our operating losses will fluctuate significantly from quarter-to-quarter and year-to-year due to timing of clinical development programs and efforts to achieve regulatory approval.

AsThe lack of ~~September 30, 2021, the Cancer Prevention~~revenue from product sales to date and ~~Research Institution of Texas ("CPRIT") fund matching requirements had been fully met and we have expended all current available funds under the grant. Our September 30, 2021 balance sheet reflects~~recurring losses from operations since our inception raise substantial doubt as to our ability to continue as a ~~receivable due from CPRIT of approximately $2.1 million.~~

going concern. We believe that our $31.9 million in cash and cash equivalents on hand as of September 30, 2021, and the collection of the CPRIT receivable are sufficient to fund our anticipated operating and capital requirements through the completion of our current clinical trials in 2022 and beyond, however, we will continue to require substantial additional capital to continue our clinical development ~~activities.~~activities and may need such additional capital sooner than 12 months. Accordingly, we will need to raise substantial additional capital to continue to fund our ~~operations as a whole.~~operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development, regulatory approvals and authorizations, commercialization ~~efforts.~~efforts and market conditions. 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 ability to develop and commercialize our product ~~candidate~~candidates.

We intend 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 terms acceptable to us.

Recent Developments

Table of Contents

On October 14, 2022, we filed a Certificate of Amendment to our restated certificate of incorporation (as amended, the "Certificate of Amendment"), with the Secretary of State of Delaware, to effect a one-for-25 reverse stock split of our issued and outstanding shares of common stock at 5:00 p.m. Eastern Time on that date. Beginning with the opening of trading on October 17. 2022, our common stock was traded on Nasdaq Capital Market on a split-adjustment basis under a new CUSIP number 79400X305.

On October 18, 2022, we voluntarily paused new patient enrollment in our Phase 1/2 trial of seclidemstat as a treatment for Ewing sarcoma and FET-rearranged sarcomas per protocol design. The pause in new patient enrollment is due to a metastatic FET-rearranged sarcoma patient death that was classified as a suspected unexpected serious adverse reaction (SUSAR). Upon review of the SUSAR and available information by our independent Safety Review Committee for the clinical trial, patients currently receiving seclidemstat treatment may continue treatment after consulting with their physician. During a conference call with the U.S. Food and Drug Administration on November 1, 2022 the FDA informed us that the agency agreed with the voluntary enrollment pause and, as an administrative action, the FDA provided verbal notification that the Ewing sarcoma and FET-rearranged sarcoma trial was on partial clinical hold. While on partial clinical hold, FDA informed us that the pause in patient enrollment shall remain in place and patients currently receiving seclidemstat treatment may continue treatment after consulting with their physician. FDA’s clinical hold procedures provide us with an administrative process to work with the FDA to analyze the available data, adjust clinical protocols, and make other changes that may be needed in order to restart patient enrollment.

Seclidemstat - Targeted Protein Inhibition

Our lead 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 aggressive cancer phenotypes and 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.

SP-2577 is being developed for both solid and liquid tumors. Our lead indication for SP-2577 is a devastating bone and soft-tissue cancer called Ewing sarcoma, which has a median age of diagnosis of 15. We are currently in a Phase 1/2 trial to treat relapsed/refractory Ewing sarcoma patients in combination with topotecan and cyclophosphamide. Based on SP-2577’s proposed mechanism of action, preclinical data, and clinical data from our earlier Advanced Solid Tumor trial, we expanded the Ewing sarcoma dose expansion trial to include a cohort of Ewing-related sarcomas (also referred to as FET-translocated sarcomas). Ewing sarcoma and FET-translocated sarcomas are rare cancers that may provide a speed-to-market development approach. In addition, as part of our market expansion strategy, in 2021 we initiated an Investigator Initiated Trial with the MD Anderson Cancer Center that is studying SP-2577 in combination with azacitidine for the treatment of patients with myelodysplastic syndromes (MDS) or chronic myelomonocytic leukemia (CMML). MDS and CMML can progress into Acute Myeloid Leukemia (AML), which the American Cancer Society estimates there were almost 20,000 new cases of AML in the US alone in 2020.

SP-3164 – Targeted Protein Degradation

SP-3164 is a next-generation cereblon-binding molecular glue. Molecular glues are small molecules that commandeer the body’s normal protein degradation processes by causing proteins to stick to one another thereby inducing selective degradation of cancer-causing proteins. Derived from avadomide, SP-3164 is engineered using DECS (deuterium-enabled chiral switching), a process that replaces hydrogen atoms with deuterium to stabilize the molecule’s active enantiomer, resulting in a novel molecular entity with the potential for increased efficacy and improved safety compared to the 1st generation compound. SP-3164 degrades transcription factors IKZF1 and IKZF3, along with other proteins, resulting in both direct anti-cancer activity and immune-modulating properties.SP-3164 has potential to treat both hematologic and solid tumors and is currently in IND-enabling studies. We have completed the pre-IND meeting process and plan to submit an IND application to the FDA in the first half of 2023

Table of Contents

Our goal is to develop SP-2577 and SP-3164 for treatment of cancers while attempting to maximize return for investors. To achieve this goal, our strategy consists of a two-pronged approach: 1) speed-to-market by developing SP-2577 and SP-3164 in high unmet need indications and 2) expansion of the market by developing SP-2577 and SP-3164 in larger market indications.

Special Note About Coronavirus (COVID-19)

The ongoing COVID-19 coronavirus pandemic (the “Pandemic”) has had a significant effect on the United States, global economies, and business worldwide. While we have thus far experienced minimal disruptions from the Pandemic, the duration and full extent to which the Pandemic impacts our business and financial condition depends on future developments that are highly uncertain, subject to change and are difficult to predict, including new information that may emerge concerning the Pandemic, and may cause intermittent or prolonged periods of interruptions to our clinical operations. We are continuously monitoring the Pandemic and its potential effect on our financial position, results of operations and cash flows. This uncertainty could have an impact in future periods on certain estimates used in the preparation of our periodic financial results. Uncertainty around the extent and length of time of the Pandemic, and any future related financial impact cannot be reasonably estimated at this time.

Results of Operations

Three months ended September 30, 2022 Compared to the Three months ended September 30, 2021

The following table sets forth the condensed consolidated results of our operations for the three months ended September 30, 2022 compared to September 30, 2021.


	Three months ended September 30,				$ Change
	2022		2021
Grant revenue	$	—	$	—	$	—
Research and development expenses	3,790,123		2,015,930		1,774,193
General and administrative expenses	1,832,032		1,730,730		101,302
Loss on Impairment of Goodwill	8,865,909		—		8,865,909
Change in fair value of warrant liability	335		9,073		(8,738)
Interest income(expense), net	78,272		487		77,785
Net loss	$	(14,409,457)	$	(3,737,100)	$	(10,672,357)

Grant Revenue

Grant revenue, which was derived solely from the CPRIT grant, was $0 for the three months ended September 30, 2022 resulting from the completion of CPRIT available funding under the grant during the second quarter of 2021. We have reached the maximum amount of the eligible spending that can be reimbursed from CPRIT.

As of September 30, 2022, we continue to expect to receive $1.6 million from the grant.

Research and Development Expenses

Research and development expenses increased during the three months ended September 30, 2022 compared to the same periods in 2021 primarily due to spending on SP-3164, which was acquired in January 2022. Overall costs associated with SP-2577 decreased by approximately $0.3 million compared to the same period in the prior year mainly driven by lower manufacturing cost.

Table of Contents


	SP-2577				SP-3164
Research and development costs by candidates and by categories:	Three months ended September 30,
	2022		2021		2022		2021
Outsourced research and development costs	$	1,047,906	$	1,128,499	982,646		$	—
Employee-related costs	510,877		420,195		48,049		—
Manufacturing and laboratory costs	136,751		467,236		1,063,894		—
Total research and development costs	$	1,695,534	$	2,015,930	$	2,094,589	$	—

General and Administrative Expenses

General and administrative expenses increased slightly to $1.8 million during the three months ended September 30, 2022 from $1.7 million for the three months ended September 30, 2021.

Loss on Impairment of Goodwill

During the current quarter, we recorded a non cash impairment charge of $8.9 million. There was no impairment charge during the three months ended September 30, 2021.

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

The following table sets forth the condensed consolidated results of our operations for the nine months ended September 30, 2022 compared to September 30, 2021.


	Nine months ended September 30,				$ Change
	2022		2021
Grant revenue	$	—	$	1,840,216	$	(1,840,216)
Research and development expenses	11,151,170		5,852,887		5,298,283
General and administrative expenses	5,346,181		4,655,404		690,777
Loss on Impairment of Goodwill	8,865,909		—		8,865,909
Change in fair value of warrant liability	12,570		5,205		7,365
Interest income(expense), net	113,670		(495)		114,165
Net loss	$	(25,237,020)	$	(8,663,365)	$	(16,573,655)

Grant Revenue

Grant revenue, which was derived solely from the CPRIT grant, was $0 for nine months ended September 30, 2022 resulting from the completion of CPRIT available funding under the grant during the second quarter of 2021. We have reached the maximum amount of the eligible spending that can be reimbursed from CPRIT.

Research and Development Expenses

Research and development expenses increased during the nine months ended September 30, 2022 compared to the same periods in 2021 resulting primarily from the purchase of SP-3164 as an in-process research and development technology and continued spending on SP-3164 drug development. Cost associated with SP-2577 is slightly higher compared to the prior year, mainly driven by higher outsourced research and development costs, personnel costs and clinical trial costs, offset by lower manufacturing cost.

Table of Contents


	SP-2577				SP-3164
Research and development costs by candidates and by categories:	Nine months ended September 30,
	2022		2021		2022		2021
Outsourced research and development costs	$	3,698,339	$	3,225,900	$	1,441,875	$	—
Employee-related costs	1,648,713		1,138,833		136,815		—
Manufacturing and laboratory costs	717,045		1,488,154		1,520,483		—
In process research and development costs	—		—		1,987,900		—
Total research and development costs	$	6,064,097	$	5,852,887	$	5,087,073	$	—

General and Administrative Expenses

General and administrative expenses increased to $5.3 million during the nine months ended September 30, 2022 from $4.7 million for the nine months ended September 30, 2021 due to higher personnel costs, legal cost and public company cost offset by lower professional services related cost.

Liquidity and Capital Resources

Overview

Since inception, we have incurred operating losses and we anticipate that we will continue to incur losses for the foreseeable future.

As of September 30, 2022, we had $14.9 million of working capital and our cash and cash equivalents totaled $16.8 million, which were held in bank deposit accounts and a money market account. Our cash and cash equivalents balance decreased during the nine months ended September 30, 2022, primarily due to cash used in operating and investing activities, offsetting by the cash received from financing activities. We believe that our $16.8 million in cash and cash equivalents on hand as of September 30, 2022, is sufficient to fund our ~~operations.~~anticipated operations into the second half of 2023.

We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize our product candidate. At the same time, we expect to continue to incur significant expenses and increasing operating losses for at least the next several years as we initiate and continue the clinical development of, and seek regulatory approval for, our product candidate, add personnel necessary to continue to operate as a public company, and work to develop an advanced clinical pipeline of product candidates. We expect that our operating losses will fluctuate significantly from quarter-to-quarter and year-to-year due to timing of clinical development programs and efforts to achieve regulatory approval.

To date, we have secured capital from the sale of equity and grant revenue. Until we can generate a sufficient amount of revenue from our products, if ever, we 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.

~~Table of Contents~~

~~Recent Developments~~

On July 2, 2021, the Company filed a prospectus supplement with the SEC to register the offering and sale of our common stock pursuant to the terms of that certain At the Market Offering Agreement (the “Sales Agreement”) between the Company and Ladenburg Thalmann & Co. Inc. (“Ladenburg”), dated as of on February 5, 2021, having an aggregate offering price of up to $25.0 million (the “Additional Shares”). We had previously filed a prospectus supplement with the SEC registering the offering and sale of our common stock under the Sales Agreement having an aggregate offering price of up to $6.3 million (together with the Additional Shares, the “ATM Shares”). Under the Sales Agreement the Company is able to issue and sell, from time to time, shares of its common stock with Ladenburg acting as an agent for such sales. Sales of the ATM Shares may be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended, including, without limitation, sales made directly on or through the NASDAQ Capital Market. During the three month period ending September 30, 2021 the Company sold 393,741 ATM shares for aggregate net proceeds of $0.4 million. In aggregate, during the nine months ended September 30, 2021, we issued 3,214,234 shares under the Sales Agreement for net proceeds of $6.7 million.

~~Special Note About Coronavirus (COVID-19)~~

The COVID-19 pandemic is significantly affecting the United States, global economies, and businesses worldwide. While the potential magnitude and duration of 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. At this time we are experiencing minimal disruption to our clinical trials. However, our ongoing Phase 1/2 Ewing sarcoma clinical trial and Phase 1/2 AST clinical trial may encounter delays in enrolling new patients due to concerns or healthcare resource constraints because of the COVID-19 pandemic. In addition, although at this time we have experienced no disruptions to manufacturing capabilities, certain aspects of our supply chain may be disrupted as certain of our third party suppliers and manufacturers have paused their operations in response to the COVID-19 pandemic or have otherwise encountered delays in providing supplies and services. 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 business and operations, and our workforce, as well as those of the third parties with which we do business or upon which we rely. While the situation is fluid and we do not yet know the full extent of potential delays or impacts on us or on healthcare systems or the global economy in general, we have worked to adapt to the unexpected and challenging circumstances resulting from the COVID-19 pandemic. However, we may experience disruptions in the future that have and could further adversely impact our business operations as well as our preclinical studies and clinical trials.

~~Table of Contents~~

~~Results of Operations~~

~~The following table sets forth the condensed consolidated results of our operations for the nine and three months ended September 30, 2021 compared to September 30, 2020.~~

Nine months ended September 30 Three months ended September 30
2021 2020 2021 2020
Grant revenue $ 1,840,216 $ 3,754,379 $ — $ 1,378,239
Research and development expenses (5,852,887) (4,890,375) (2,015,930) (1,803,682)
General and administrative expenses (4,655,404) (4,893,021) (1,730,730) (1,333,062)
Change in fair value of warrant liability 5,205 265,538 9,073 45,103
Government grants and other income — 179,027 — —
Interest income(expense), net (495) (254) 487 (3,230)
Net loss $ (8,663,365) $ (5,584,706) $ (3,737,100) $ (1,716,632)

~~Grant Revenue~~

Grant revenue, which was derived solely from the CPRIT grant, was $0 for the three month period ended September 30, 2021 resulting from the completion of CPRIT available funding under the grant during the second quarter of 2021. We have reached the maximum amount of the eligible spending that can be reimbursed from CPRIT.

~~Research and Development Expenses~~

Research and development expenses increased during both the current period and nine months ended September 30, 2021 compared to the same periods in 2020 resulting from significantly higher personnel costs, clinical trial costs~~and higher laboratory costs resulting from increased non clinical efforts, all of which more than offset lower manufacturing and process development costs.~~

~~General and Administrative Expenses~~

General and administrative expenses increased during the current three month period compared to the same period a year ago resulting from higher personnel costs and increased professional fees. For the nine months ended September 30, 2021 general and administrative costs were lower than the same period a year ago resulting from lower overall personnel costs (severance costs in 2020 that did not repeat in the current period), and lower professional fees.

~~Government Grant Other Income~~

On July 12, 2021, the Small Business Administration (SBA) authorized full forgiveness of $0.2 million for the Company's Paycheck Protection Program (PPP) Loan. The Company had previously recognized this as government grants and other income during the nine months ended September 30, 2020.

~~Liquidity and Capital Resources~~

~~Overview~~

Since inception, we have incurred operating losses and we anticipate that we will continue to incur losses for the foreseeable future. To date, we have secured capital from the sale of equity and grant revenue.

~~Table of Contents~~

~~our ongoing research and development and manufacturing activities, particularly as we advance our product candidates to later stages of development.~~

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 or other collaborations. Additional capital may not be available on reasonable terms, if at all. If we are unable to ~~raise~~obtain additional ~~capital in sufficient amounts or on terms acceptable to us,~~financing, we may ~~have~~be required to significantly delay, scale back or discontinue the development or commercialization of our product candidate. Furthermore, we may be unable to complete a collaboration, or if we do, we may be forced to relinquish valuable future product rights.

~~We believe that, based on our current operating plan, our current unrestricted cash and cash and cash equivalent balances will be sufficient to fund our operations through the completion~~Table of ~~our current clinical trials in 2022 and beyond.~~Contents

As of September 30, 2021, we had $33.6 million of working capital and our cash and cash equivalents totaled $31.9 million, which were held in bank deposit accounts and a money market account. Our cash and cash equivalents balance increased during the nine months ended September 30, 2021, primarily due to sales of our common stock in our public offering which closed on March 8, 2021 and receipt of $2.7 million as a payment of~~our CPRIT remaining receivable.~~

Cash Flows


		Nine months ended September 30,					Nine months ended September 30,
		2021		2020			2022		2021
Net cash (used in) provided by in:	Net cash (used in) provided by in:					Net cash (used in) provided by in:
Operating activities	Operating activities	$	(7,479,594)	$	(8,937,879)	Operating activities	$	(12,881,535)	$	(7,479,594)
Investing activities						Investing activities	(1,500,000)		—
Financing activities	Financing activities	28,264,707		14,756,792		Financing activities	1,987,375		28,264,707
Net increase in cash and cash equivalents		$	20,785,113	$	5,818,913
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	$	(12,394,160)	$	20,785,113

Operating Activities

Net cash used in operating activities was ~~$7.5~~$12.9 million in the current period, ~~a decrease~~an increase of approximately ~~$1.5~~$5.4 million from the same period a year ago. The ~~Company collected approximately $3.6~~increase is primarily due to higher research and development cost incurred in current year.

Investing Activities

Net cash used in investing activities was $1.5 million in ~~grants receivable from CPRIT~~the current period for the cash portion of the purchase price for the acquisition of in-process research and development technology SP-3164. There was no such transaction during ~~the nine months ended September 30, 2021 compared to $0.8 million for~~ the same period ~~a year ago.~~

in 2021.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, ~~2021~~2022 was ~~$28.3~~$2.0 million, compared to ~~$14.8~~$28.3 million for the same period of the year ~~2020. The increase resulted from~~2021. This is due to the Company's completion of common stock sales ~~in February and~~during the nine monthsended September ~~2021 and a public offering in March~~30, 2021 with total net proceeds of approximately $27.0 million, and the receipt of approximately $1.5 million from the exercise of warrants during the nine months ended ~~September 30,~~ 2021.

Critical Accounting Policies 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 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 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.

~~Table of Contents~~

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 ~~18, 2021.~~25, 2022.

Readers should refer to our Annual Report on Form10-K filed with SEC on March ~~18, 2021,~~25, 2022, Note 2, Basis of Presentation and Significant Accounting Policies to the accompanying financial statements for descriptions of these policies and estimates.


Item 3.			Quantitative and Qualitative Disclosures about Market Risk

~~Not applicable.~~We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.

Table of Contents


Item 4.			Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~We maintain “disclosure~~Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our 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 Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer and principal accounting officer), as ~~appropriate, to allow timely decisions regarding required disclosure.~~

~~In designing and evaluating the disclosure controls and procedures, management~~of September 30, 2022. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving ~~the desired control~~their objectives, and management necessarily ~~is required to apply~~applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

~~As required by Rule 13a-15(b) under~~ Based on the ~~Exchange Act, we carried out an~~ evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer and principal accounting officer), of the effectiveness of our disclosure controls and procedures as ~~such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as~~ of ~~the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing,~~September 30, 2022, our ~~Chief Executive Officer (our~~ principal executive ~~officer)~~officer and ~~Chief Financial Officer (our~~ principal financial officer ~~and principal accounting officer)~~ concluded that, as of such date, our disclosure controls and procedures ~~(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)~~ were effective at the reasonable assurance ~~level as of the end of the period covered by this Quarterly Report~~

level.

Changes in Internal Control over Financial Reporting

During the ~~nine~~three months ended September 30, ~~2021,~~2022, 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 a party to any material legal 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

For a discussion of certain factors that could materially affect our business, financial condition, and operating results, you should carefully review and consider the information under “Part I, Item 1A- Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on March ~~18, 2021,~~25, 2022, as well as the risk factors set forth below. The risk factors below are in addition to and supplement (and with respect to certain

~~Table of Contents~~

matters, update) the risk factors discussed in our Annual Report on Form ~~10-K and in our Current Report on Form 8-K filed on July 29, 2020.~~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 filed with the SEC on March ~~18, 2021 and in our Current Report on Form 8-K filed on July 29, 2020.~~25, 2022.

~~Risks Related~~It may take considerable time and expense to ~~Our Business~~resolve the partial clinical hold that has been placed on our Phase 1/2 trial of seclidemstat as a treatment for Ewing sarcoma and ~~Our Industry~~

~~The COVID-19 pandemic could adversely affect~~FET-rearranged sarcomas by the FDA, and no assurance can be given that the FDA will remove the partial clinical hold, in which case our business ~~results~~and prospects will likely suffer material adverse consequences.

On October 18, 2022, we announced that per protocol design, we voluntarily paused new patient enrollment in our Phase 1/2 trial of ~~operations,~~seclidemstat as a treatment for Ewing sarcoma and ~~financial condition.~~

~~To date,~~FET-rearranged sarcomas. The pause in new patient enrollment was due to a metastatic FET-rearranged sarcoma patient death that was classified as a suspected unexpected serious adverse reaction (SUSAR). At 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. In addition, certain areas, including Texas where we are headquartered, have recently experienced a resurgence of COVID-19 cases. We have worked to adapt to the unexpected and challenging circumstances resulting from the COVID-19 pandemic. At this time, we ~~have experiencing minimal disruption to~~also announced that our independent Safety Review Committee for the clinical ~~trials during~~trial determined that patients currently receiving seclidemstat treatment could continue treatment after consulting with their physician.

During a conference call with the ~~nine months ended September 30, 2021. While both our~~US Food and Drug Administration (FDA) on Tuesday, November 1, 2022, the FDA informed us that the agency agreed with the voluntary enrollment pause and, as an administrative action, the FDA provided verbal notification that the Ewing sarcoma and FET-rearranged sarcoma trial was on partial clinical ~~study~~hold. While on partial clinical hold, FDA informed us that the pause in patient enrollment shall remain in place and ~~our Advanced Solid Tumor~~patients currently receiving seclidemstat treatment may continue treatment after consulting with their physician. FDA’s clinical ~~study are active., either or both~~hold procedures provide us with an administrative process to work with the FDA to analyze the available data, adjust clinical protocols, and make other changes that may ~~encounter delays~~be needed in ~~enrolling new patients due~~order to ~~concerns or healthcare resource constraints because of the COVID-19 pandemic. We plan to release clinical data from both studies, as previously disclosed, during 2021 and 2022.~~restart patient enrollment.

~~However, the situation with respect to the COVID-19 pandemic and its impact changes daily and is difficult to predict.~~

~~In addition, although~~

Table of Contents

It may take a considerable period of time, the length of which is not certain at this time, and expense for us to fully analyze the available data and address the FDA’s concerns. Even if we ~~have experienced no disruptions~~are able to ~~manufacturing capabilities, certain aspects of our supply chain may be disrupted as certain of our third party suppliers and manufacturers have paused their operations in response~~fully respond to the ~~COVID-19 pandemic or have otherwise encountered delays~~FDA’s concerns, the FDA may subsequently make additional requests that we would need to fulfill prior to the lifting of the partial clinical hold. It is possible that we will be unable to fully address the FDA’s concerns and as a result the partial clinical hold may never be lifted and we may never be able to enroll new patients in ~~providing supplies and services.~~the clinical trial.

~~To combat the spread of COVID-19, the United States and other locations in~~We have incurred losses since our inception, have a limited operating history on 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~~assess our business, ~~as well as those of the third-parties~~and anticipate that 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 conduct 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.~~

Wewill continue to monitor the situation and 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 to the third parties with which 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 conditionincur significant losses for the ~~remainder~~foreseeable future which together with our limited working capital, and lack of ~~2021~~revenue from product sales, raises substantial doubt about our financial viability and ~~beyond.~~

~~Risks Related~~as to ~~Salarius’ Financial Condition and Capital Requirements~~whether we will be able to continue as a going concern.

We will continue to require substantial additional capital to fund our clinical activities and operations and the impact of the COVID-19 ~~pandemic~~coronavirus on the financial markets will likely negatively impact our ability to raise additional financing.

~~Table of Contents~~

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 ~~$7.4~~$12.8 million for the year ended December 31, ~~2020,~~2021, and we have incurred a net loss of ~~$3.7~~$14.4 million and ~~$8.7~~$25.2 million for the three months ended September 30, 2022 and nine months ended September 30, ~~2021,~~2022, 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 development of our product ~~candidate~~candidates and funding our operations have been funded through sales of equity and funds received from CPRIT. The amount and timing of our future funding requirements will depend on many factors, including but not limited to the pace and results of our clinical development efforts, as well as our ability to access the funding remaining available under the CPRIT grant. 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 or on commercially reasonable terms, would have a significant and negative impact on our financial condition and our ability to develop our product candidate.

We rely on funding from CPRIT and failure to receive additional funds may harm our business.

During the course of the development of our product candidate, we have been funded through the sale of equity and the funding we received from the CPRIT grant. The CPRIT agreement was awarded in June 2016 and originally provided for a three-year grant award of up to $18.7 million, further modified to $16.1 million, to fund the development of the LSD-1 inhibitor. We have received ~~$14~~$14.5 million since inception of the grant. The term of the CPRIT agreement was extended through ~~May 31,~~November 30, 2022. We currently have a ~~$2.1~~$1.6 million receivable due from CPRIT on our September 30, ~~2021~~2022 balance sheet. If CPRIT terminates our agreement prior to the expiration due to an event of default or if we terminate the agreement, CPRIT may require us to repay some or all of the disbursed grant. Although we may apply for government contracts and grants in the future, we may not be successful in obtaining additional grants for any product candidates or programs.

~~Risks Related to Our Common Stock~~

~~If we are unable to maintain listing of our securities on the Nasdaq Capital Market or another reputable stock exchange, it may be more difficult for our stockholders to sell their securities.~~

Nasdaq requires listing issuers to comply with certain standards in order to remain listed on its exchange. 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.

For example, if at any time the bid price of our common stock closes at below $1.00 per share for more than 30 consecutive trading days, we may be subject to delisting from the Nasdaq Capital Market. If we receive a delisting notice, we would have 180 calendar days to regain compliance (subject to any additional 180-day compliance period which may be available to us), which would mean having a bid price above the minimum of $1.00 for at least 10 consecutive days in the 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. 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 common stock. On November 1, 2021, the closing price of our common stock was $0.85 per share.

2426

Table of Contents


Item 6.			Exhibits


Exhibit number						Description of Document

~~4.01~~3.1						~~Form~~Amended and Restated Certificate Amended and Restated Certificate of ~~Flex Warrant (incorporated by reference~~Incorporation
3.2						Certificate of Amendment to ~~the Company’s Current Report on Form 8-K that was~~Certificate of Incorporation filed with ~~SEC~~the Secretary of State of Delaware on July ~~1, 2021).~~18, 2019
3.3						Certificate of Amendment to Certificate of Incorporation filed with the Secretary of State of Delaware on October 14, 2022
3.4						Amended and Restated Bylaws, effective July 19, 2019
31.1						Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
31.2						Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
32.1*						Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Exchange Act and 18 U.S.C. Section 1350.
101.0						The following materials from Salarius Pharmaceuticals, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021,~~2022, 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.

* The material contained in Exhibit 32.1 is not deemed “filed” with the SEC and is not to be incorporated by reference into 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 extent that the registrant specifically incorporates it by reference.

2527

Table of Contents

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.

By:

/s/ David J. Arthur

David J. Arthur

President and Chief Executive Officer (Principal Executive Officer)

By:

/s/ Mark J. Rosenblum

Mark J. Rosenblum

Chief Financial Officer and Executive Vice President of Finance (Principal Financial Officer and Principal Accounting Officer)

Date:

November ~~4, 2021~~10, 2022

2628


		Page

PART I.	Financial Information
Item 1.	Financial Statements (Unaudited)	45
	Condensed Consolidated Balance Sheets	45
	Condensed Consolidated Statements of Operations	56
	Condensed Consolidated Statements of Cash Flows	67
	Condensed Consolidated Statement s of Stockholders' Equity	78
	Notes to Condensed Consolidated Financial Statements	910
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2224
Item 4.	Controls and Procedures	2225

PART II.	Other Information
Item 1.	Legal Proceedings	2225
Item 1A.	Risk Factors	2225
Item 6.	Exhibits	2527
SIGNATURES		2628


Issuance of equity securities, net	393,741	40			406,323		406,363
Net loss						(3,737,100)	(3,737,100)
Balance at September 30, 2021	45,172,535	4,517	—	—	70,738,517	(28,092,319)	42,650,715


	September 30, 2021	December 31, 2020
Discount rate	0.53%	0.27%
Expected life (years)	3.31 years	4.06 years
Expected volatility	130.23%	130.56%
Expected dividend	—%	—%


	Nine months ended September 30				Three months ended September 30
	2021		2020		2021		2020
Grant revenue	$	1,840,216	$	3,754,379	$	—	$	1,378,239
Research and development expenses	(5,852,887)		(4,890,375)		(2,015,930)		(1,803,682)
General and administrative expenses	(4,655,404)		(4,893,021)		(1,730,730)		(1,333,062)
Change in fair value of warrant liability	5,205		265,538		9,073		45,103
Government grants and other income	—		179,027		—		—
Interest income(expense), net	(495)		(254)		487		(3,230)
Net loss	$	(8,663,365)	$	(5,584,706)	$	(3,737,100)	$	(1,716,632)