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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the headings “SPECIAL NOTE REGARDING Forward-Looking Statements” and “Risk Factors” of this report. The following discussion of our results of operations and financial condition should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report. These risks could cause our actual results to differ materially from any future performance suggested below.

Introduction

Our Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows.

Overview

We are a clinical-stage biotechnology company focused on developing effective epigenetic-based cancer treatments for indications with high unmet medical need. Our lead epigenetic enzyme technology was licensed from the University of Utah Research Foundation in 2011.

Epigenetics refers to the system that regulates gene expression through conformational changes to the chromatin rather than changes to the DNA sequence itself. 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.

Our first indication of interest for SP-2577 is a devastating bone and soft-tissue cancer called Ewing sarcoma. Ewing sarcoma mostly afflicts adolescents and young adults, with the median age of diagnosis being 15. The most commonly expressed fusion oncoprotein in Ewing sarcoma is the EWS-FLI fusion protein, which is present in approximately 85% of Ewing sarcoma cases. The LSD1 enzyme associates with EWS-FLI (and other E26 Transformation-Specific (“ETS”) fusion proteins) and is thought to promote tumorigenesis. We believe the SP-2577 molecule helps inhibit EWS-FLI activity by disrupting EWS-FLI from associating with coregulators (including LSD1) that are necessary for its cancer promoting activity. Therefore, we believe that SP-2577 can potentially reverse the aberrant gene expression and thereby possibly prevent Ewing sarcoma cell proliferation and even promote cell death. Preclinical studies of SP-2577 in certain Ewing sarcoma animal models show a significant tumor reduction as well as a significant survival benefit compared to untreated animals. Our ongoing Phase 1/2 clinical trial is designed

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as a single agent dose escalation followed by a dose expansion study. The trial can enroll up to 50 relapsed or refractory Ewing sarcoma patients. The primary objectives of the study are to assess the safety and tolerability of SP-2577. Secondary objectives include assessing preliminary efficacy of SP-2577.

As LSD1 can associate with over 60 regulatory proteins other than EWS-FLI, we believe that LSD1 may also play a critical role in progression of various other cancer types. These include both solid tumors and hematologic malignancies. In the second quarter of 2019, we initiated a second company-sponsored Phase 1 trial to study SP-2577 in Advanced Solid Tumors. The Advanced Solid Tumor (“AST”) trial is a single agent dose escalation, dose expansion study enrolling patients with advanced malignancies, excluding Ewing sarcoma or central nervous system tumors.

In addition, recent data from “LSD1 Ablation Stimulates Anti-tumor Immunity and Enables Checkpoint Blockade” by W. Sheng, et al. and “Inhibition of Histone Lysine-specific Demethylase 1 Elicits Breast Tumor Immunity and Enhances Antitumor Efficacy of Immune Checkpoint Blockade” by Y. Qin, et al. suggests that LSD1 plays a role in tumor immune activity and can sensitize tumors to checkpoint inhibitors. These recent works have sparked interest 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 $19,428,954 as of December 31, 2020. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

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 candidates, 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.

As of December 31, 2020, we had cash and cash equivalents of $11.1 million. As of December 31, 2020, we have received an aggregate of $10.4 million from the CPRIT grant. A portion of the remaining $8.3 million CPRIT grant was for a castration-resistant prostate study (approximately $2.6 million). We elected not to pursue the study, and accordingly this amount will no longer be available. In February 2021, we received $0.9 million from CPRIT and there was $4.8 million of funds available for us to draw upon meeting certain requirements. We believe that as of December 31, 2020, CPRIT fund matching requirements had been fully met. Additionally, on March 8, 2021 we completed a public offering of our shares, with net proceeds of $21.1 million.

We believe that our cash and cash equivalents currently on hand are sufficient to fund our anticipated operating and capital requirements through at least 12 months from the date this report is filed, however we will continue to require substantial additional capital to continue our clinical development 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. 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 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 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 Events

On March 8, 2021, we completed a public offering of 16,806,722 shares of our common stock, including 2,192,181 shares sold pursuant to the exercise in full of the underwriters' option to purchase additional shares, at the public offering price of $1.3685 per share. The aggregate gross proceeds of the offering, before deducting underwriting discounts and commissions and other offering expense, were approximately $23 million.

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From January 1, 2020 through March 9, 2021, we received approximately $1.5 million from warrants exercised for cash.

On February 11, 2021, we completed an At the Marketing Offering ("ATM offering") with total gross proceeds of approximately $6.3 million. Total common shares sold by the ATM offering were 2,820,490, with an average selling price of $2.24 per share.

During the fourth quarter of 2020 and first quarter of 2021, we received $1.7million from the Cancer Prevention Research Institute of Texas.

We estimate we will have approximately $37 million cash availability when we issue the Form 10-K Annual Report for the year ended December 31, 2020

Results of Operations

The following table sets forth the consolidated results of our operations for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Year ended December 31 Change

Grant Revenue

Grant revenue, which was derived solely from the CPRIT grant, was $5.2 million during the year ended December 31, 2020 compared to $3.5 million during the year ended December 31, 2019. The increase in revenue from the CPRIT grant was due to an increase in overall expenses which resulted in an increase in the amount of expenses reimbursable under the grant. Given the nature of the development process, grant revenue will fluctuate depending on the stage of development and the timing of expenses.

Research and Development Expenses

Research and development expenses were $6.9 million during the year ended December 31, 2020 compared to $4.0 million during the year ended December 31, 2019. This increase of $2.9 million was principally due to the manufacturing of our active pharmaceutical ingredient in preparation of forecasted increased enrollment and clinical trial activity and higher personnel and consulting fees offsetting lower clinical trial spending.

General and Administrative Expense

General and administrative expenses were $6.1 million for the year ended December 31, 2020 compared to $7.7 million for the year ended December 31, 2019, a decrease of $1.6 million. During the current period lower professional fees and non-recurring costs associated with our July 2019 merger and transformation into a public company more than offset significantly higher personnel related expenses and increased director & officers insurance costs.

Change in Fair Value of Warrant Liability

The change in fair value of warrant liability was primarily due to the fluctuation of the price of our common stock which was $0.91 per share on December 31, 2020 compared to $3.78 per share on December 31, 2019.

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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 generated revenue from the CPRIT grant, and have not generated any cash inflows from product sales.

We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercializes any of our product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development and manufacturing activities, particularly as we continue the research, development, manufacture and clinical trials of, and seek regulatory approval for our product candidates.

Resulting from the capital raise activity during the fourth quarter of 2020 and the first quarter of 2021, we presently have sufficient cash and cash equivalents to enable us to fund our anticipated level of operations and meet our obligations as they become due during the twelve months following the date of issuance of this Annual Report on Form 10-K.

As of December 31, 2020, we had $13.0 million of working capital and our cash and cash equivalents totaled $11.1 million, which were held in bank deposit accounts. Our cash and cash equivalents balance increased during the year ended December 31, 2020, primarily due to the capital received from financing activities partially offset by our net loss incurred.

Cash Flows

Year Ended December 31

Net cash (used in) provided by:

Net increase (decrease) in cash and cash equivalents $ 7,379,714 $ (2,392,881)

Operating Activities

Cash used in operating activities was $10.3 million for the year ended December 31, 2020, as compared to $11.6 million for the year ended December 31, 2019. Our receivable from CPRIT increased $3.9 million in the current period reflecting unreimbursed CPRIT allowable cash spending.

Investing Activities

Net cash provided by investing activities during the year ended December 31, 2019 was related to $5.6 million net cash received from Flex Pharma merger and the sale of the HOTSHOT business.

Financing Activities

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Year Ended December 31

Payment of dividend — (133,594)

Net proceeds from warrants exercised for cash 3,869,168 —

Net cash provided by financing activities was $17.7 million and $3.6 million for the years ended December 31, 2020 and 2019. An increase of $14.1 million resulting primarily from the sale of our common and preferred shares during February and August 2020 and the exercise of warrants during the fourth quarter 2020. During the year ended December 31, 2019, we made dividend payments of $0.13 million to preferred unit holders, whereas no such payments during the year ended December 31, 2020 . Principal payments on the insurance financing note were $0.97 million during the year ended December 31, 2020 compared to $0.42 for the year ended December 31, 2019.

Future Capital Requirements

We expect to continue to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we anticipate we will need substantial additional funding in connection with our continuing operations.

We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our product candidates in or towards clinical development.

Salarius’ future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:

•the terms and timing of any strategic alliance, licensing and other arrangements that Salarius may establish;

•the initiation and progress of Salarius’ ongoing pre-clinical studies and clinical trials for its product candidates;

•the number of programs Salarius pursues;

•the outcome, timing and cost of regulatory approvals;

•the cost and timing of hiring new employees to support Salarius’ continued growth;

•the costs involved in patent filing, prosecution, and enforcement; and

•the costs and timing of having clinical supplies of Salarius’ product candidates manufactured.

We believe that our cash and cash equivalents currently on hand (approximately $37 million on March 18, 2021) are sufficient to fund our anticipated operating and capital requirements through at least 12 months from the date this report is filed.

We expect to finance our future cash needs primarily through the issuance of additional equity and potentially through borrowing and strategic alliances with partner companies and CPRIT. To the extent that we raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or

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commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market itself.

Successful development of product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate and ongoing assessments as to each product candidate’s commercial potential. We will need to raise additional capital and may seek to do so through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these 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 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 consolidated financial statements prospectively from the date of the change in estimate.

Our significant accounting policies are described in Note 2 to our audited consolidated financial statements for the year ended December 31, 2020 in this Annual Report on Form 10-K. We believe that our accounting policies relating to revenue recognition, research and development expenses, stock-based compensation and fair value of financial instruments are the most critical to understanding and evaluating our reported financial results. We have identified these policies as critical because they both are important to the presentation of our financial condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may change in future periods. For more information regarding these policies, you should refer to Note 2 of our audited consolidated financial statements included in this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

Salarius has not entered into any off-balance sheet arrangements and does not have any holdings in variable interest entities.

Application of New Accounting Standards

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other,” which is intended to simplify the subsequent measurement of goodwill. The pronouncement allows an entity, during its annual or interim goodwill impairment evaluation, to compare the fair value of a reporting unit with its carrying amount. An impairment charge is immediately recognized by which the carrying amount exceeds the fair value. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The market risk inherent in Salarius’ financial instruments and in Salarius’ financial position represents the potential loss arising from adverse changes in interest rates. As of December 31, 2020, Salarius’ cash was only held in checking and saving accounts. Therefore, Salarius has minimal market risk related to the fair market value of its portfolio.

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Item 8. Financial Statements and Supplementary Data

SALARIUS PHARMACEUTICALS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm 58

Consolidated Balance Sheets 59

Consolidated Statements of Operations 60

Consolidated Statements of Cash Flows 61

Consolidated Statement of Stockholders' Equity (Deficit) 62

Notes to Consolidated Financial Statements 63

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Salarius Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Salarius Pharmaceuticals, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2019.

Houston, Texas

March 18, 2021

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SALARIUS PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

Assets

Current assets:

Grants receivable from CPRIT 3,855,996 —

Liabilities and stockholders' equity (deficit)

Current liabilities:

Accrued expenses and other current liabilities 383,138 160,783

Commitments and contingencies (NOTE 5)

Stockholders' equity (deficit):

See accompanying notes to consolidated financial statements.

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SALARIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Twelve Months Ended December 31

Revenue:

Operating expenses:

Fair value increase related to warrant modification (396,407) —

Loss per common share — basic and diluted $ (0.50) $ (2.12)

Total net loss per share $ (0.50) $ (2.12)

See accompanying notes to consolidated financial statements.

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SALARIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Twelve Months Ended December 31

Operating activities

Adjustments to reconcile net loss to net cash (used in) operating activities:

Depreciation, amortization and impairment 18,058 127,408

Changes in operating assets and liabilities:

Accounts receivable — 690

Accrued expenses and other current liabilities 222,355 (320,637)

Investing activities

Purchase of property and equipment (2,600) —

Net cash received in reverse acquisition — 5,403,634

Net proceeds received from disposal of discontinued operations — 204,274

Net cash (used in) provided by investing activities (2,600) 5,607,908

Financing activities

Payment of dividends — (133,594)

Warrants exercised for cash 3,869,168 —

Supplemental disclosure of cash flow information:

Non-cash investing and financing activities:

Issuance of shares for license $ — $ 110,474

Conversion of liabilities to equity securities $ — $ 2,869,412

Issuance of common shares for business combination $ — $ 11,093,561

Change in accrued capital expenditures $ 8,657 $ —

Accrued issuance costs for warrants exercised for cash $ 56,915 $ —

See accompanying notes to consolidated financial statements.

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SALARIUS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

Shares Amount Shares Amount

Distribution to stockholders — — — — (99,758) — (99,758)

Modification of warrants exercise prices and terms — — — — 396,407 — 396,407

Increase in fair value for warrants modification — — — — (396,407) — (396,407)

See accompanying notes to consolidated financial statements.

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SALARIUS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 biotechnology company focused on developing effective epigenetic-based cancer treatments for indications with high unmet medical need. Salarius’ lead epigenetic enzyme technology was licensed from the University of Utah Research Foundation in 2011. The Company is located in Houston, Texas.

Merger with Flex Pharma, Inc.

On January 3, 2019, Flex Pharma, Inc. ("Flex Pharma"), Salarius Pharmaceuticals LLC ("Private Salarius") and Falcon Acquisition Sub, LLC (“Merger Sub”), a wholly owned subsidiary of Flex Pharma, entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, Merger Sub merged with and into Private Salarius, with Private Salarius continuing as a wholly owned subsidiary of Flex Pharma and the surviving company of the merger. The merger was completed on July 19, 2019. After the merger, Flex Pharma was renamed Salarius Pharmaceuticals, Inc. The merger was accounted for as a reverse acquisition with Private Salarius being deemed the acquiring company for accounting purposes. See Note 3.

NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying 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").

The Company considered its going concern disclosure requirements in accordance with ASC 205-40-50. As of December 31, 2020, the Company had determined that substantial doubt about the Company's ability to continue as a going concern existed. Subsequently, the Company took into consideration of capital raise transactions conducted in the first quarter of 2021. As a result, substantial doubt about the Company’s ability to continue as a going concern for the 12 months from the date of issuance of these financial statements is alleviated.

The Company is subject to risks common to companies in the biotechnology industry and the future success of the Company is dependent on its ability to successfully complete the development of, and obtain regulatory approval for, its product candidates, manage the growth of the organization, obtain additional financing necessary in order to develop, launch and commercialize its product candidates, and compete successfully with other companies in its industry.

Private Salarius’ historical financial statements have replaced Flex Pharma’s historical consolidated financial statements with respect to periods prior to the completion of the merger with retroactive adjustments to Private Salarius' legal capital to reflect the legal capital of Flex Pharma. Flex Pharma (renamed Salarius Pharmaceuticals, Inc.) remains the continuing registrant and reporting company. Accordingly, the historical financial and operating data of Salarius Pharmaceuticals, Inc., which covers periods prior to the closing date of the merger, reflects the assets, liabilities and results of operations of Private Salarius and does not reflect the assets, liabilities and results of operations of Flex Pharma Inc. for the periods prior to July 19, 2019. The Company retrospectively adjusted its Statement of Changes in Stockholders’ Equity (Deficit) and the weighted average shares used in determining loss per common share to reflect the conversion of the outstanding common unit, profits interest common unit and Series A Preferred unit of Private Salarius that converted into shares of the Company’s common stock upon the merger, and to reflect the effect of the 25 to 1 reverse stock split of the Company’s common stock which occurred upon the merger.

Principles of Consolidation

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The 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.

Use of Estimates

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

Cash and Cash Equivalents

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

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

Intangibles

Intangible assets that have finite useful lives are amortized over their useful lives, and are reviewed for impairment when warranted by economic conditions. Intangible assets are included in other assets in the Company's Consolidated Balance Sheets.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. During the twelve months ended December 31, 2020 and 2019 impairment charges related to long-lived assets was $0 and $0.11 million, respectively.

Goodwill

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

Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill. If the fair value exceeds the carrying value, no further action is required and no impairment loss is recognized. Additional impairment assessments may be performed on an interim basis if the Company encounters events or changes in circumstances that would indicate that, more likely than not, the carrying value of goodwill has been impaired. There was no impairment of goodwill in 2020 or 2019.

Financial Instruments and Credit Risks

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

Warrants

In conjunction with the reverse merger transaction, the Company issued rights to receive warrants to purchase the Company’s common stock. The Company determines whether the warrants should be classified as a liability or equity. For warrants classified as liabilities, the Company estimates the fair value of the warrants at each reporting

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period using Level 3 inputs with changes in fair value recorded in the Statement of Operations within Change in fair value of warrant liability. The estimates in valuation models are based, in part, on subjective assumptions, including but not limited to stock price volatility, the expected life of the warrants, the risk-free interest rate and the fair value of the common stock underlying the warrants, and could differ materially in the future. The Company will continue to adjust the fair value of the warrant liability at the end of each reporting period for changes in fair value from the prior period until the earlier of the exercise or expiration of the applicable warrant. 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 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. The Company records revenue and a corresponding grants receivable when qualifying costs are incurred before the grants are received.

Research and Development Costs

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

Equity-Based Compensation

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

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 include 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 and (iv) rights entitling holders to receive warrants to purchase the Company's common shares, which have been excluded from the computation of diluted loss per share, was 10,796,149 and 360,234 shares as of December 31, 2020 and 2019, respectively.

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Income Taxes

Income taxes are recorded in accordance with FASB ASC Topic 740, Income Taxes ("ASC 740"), which provides for deferred taxes using an asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that 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 circumstances. As of December 31, 2020 and 2019, 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.

Application of New Accounting Standards

Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The guidance eliminates certain exceptions for recognizing deferred 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 and interim periods in fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement of all expected credit losses for 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 815), and Financial Instruments (Topic 842), 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 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 for public business entities, excluding smaller reporting companies. Early adoption is permitted. As a smaller reporting company, the guidance will be effective for the Company during the first quarter of 2023. The Company is in the process of assessing the impact adoption will have on its consolidated financial statements.

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NOTE 3. REVERSE ACQUISITION AND DISPOSAL

Reverse Acquisition

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

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

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

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

In addition, at the closing of the merger, the Company distributed one 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 shares of the Company’s common stock six months and one day following the closing date of the merger. See Note 7.

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

Flex Pharma market capitalization at closing $ 10,963,526

Fair value of rights to warrants 1,629,095

Fair value of Flex Pharma outstanding options on the merger date 132,227

Total purchase consideration $ 12,724,848

The Company recorded all tangible and intangible assets acquired and liabilities assumed at their preliminary estimated fair values on the merger date. The following represents the allocation of the estimated purchase consideration:

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Fair value of assets acquired

Accounts receivable 15,168

Prepaid expense and other current assets 106,319

Total fair value of assets acquired 14,587,447

Fair value of liabilities assumed

Accounts payable, accrued liabilities and other current liabilities 1,862,599

Total fair value of liabilities assumed 1,862,599

Disposition of HOTSHOT Business

On July 24, 2019, the Company sold specified assets related to the HOTSHOT business to Cliff-Cartwright Corporation, an unrelated party, for cash consideration of $299,135. HOTSHOT was a consumer product that prevents and targets exercise-associated muscle cramps. The Company acquired the HOTSHOT business as a result of the reverse acquisition with Flex Pharma. The transaction was treated as a sale of a business. Details of the transaction are as follows:

Carrying value of tangible assets sold (135,544)

Carrying value of goodwill and intangible assets sold (71,990)

Cost incurred related to the sale (94,861)

Liabilities transferred upon sale 3,260

Total gain on sale of HOTSHOT $ —

The Company had no assets and liabilities presented as discontinued operations as of December 31, 2020 and 2019.

Unaudited Pro Forma Disclosure

The following unaudited pro forma financial information summarizes the results of operations for the twelve months ended December 31, 2020 and 2019 as if the merger and disposal described above had been completed as of January 1, 2019. Pro forma information primarily reflects adjustments relating to the reversal of transaction costs. Assuming that the merger had been completed as of January 1, 2019, the transaction costs would have been expensed in the prior period.

Twelve Months Ended December 31

Net loss per share $ 0.50 $ (3.32)

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NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets at December 31, 2020 and 2019 consisted of the following:

Prepaid clinical trial expenses $ — $ 202,743

Total prepaid expenses and other current assets $ 822,050 $ 955,899

Prepaid insurance is comprised of prepaid directors' and officers' insurance. In July 2020 and 2019, the Company financed their directors' and officers' insurance premium with a short term note, the principal amount of which is approximately $0.9 million, bearing interest at a rate of 2.49% and 4.61%, respectively. The note payable balance was $0.5 million and $0.5 million as of December 31, 2020 and 2019, respectively, and is included within Current Liabilities on the Consolidated Balance Sheets.

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 license to LSD 1. In exchange for the license, the Company issued 2% equity ownership in the Company based on a fully diluted basis at the effective date of the agreement and subject to certain adjustments specified in the agreement, granted revenue sharing rights on any resulting products or processes to commence on first commercial sale, and milestone payments based upon regulatory approval of any resulting product or process as well as on the second anniversary of first commercial sale.

Cancer Prevention and Research Institute of Texas

In June 2016, the Company entered into a Cancer Research Grant Contract with CPRIT. Pursuant to the contract, CPRIT awarded the Company a grant up to $18.7 million to fund development of LSD 1 inhibitor. This is a 3-year grant award originally expired on May 31, 2019. The grant now expires on November 30, 2021 with extensions available.

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 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.

The CPRIT grant is subject to funding conditions including a matching funds requirement where the Company will match 50% of funding from the CPRIT grant. As of December 31, 2020, the Company has received an aggregate of $10.4 million from the CPRIT grant. A portion of the remaining $8.3 million CPRIT grant was for a castration-resistant prostate study (approximately $2.6 million). The Company elected not to pursue the study, and accordingly this amount will no longer be available. During the twelve months ended December 31, 2020, the Company received $0.8 million from CPRIT. At December 31, 2020 and December 31, 2019, the Company had grants receivable of $3.9 million and deferred revenue of $0.5 million, respectively, related to CPRIT contract.

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Lease Agreement

The Company presently leases office space under operating lease agreements on a month to month basis.

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.

The Company believes the recorded values of its financial instruments, including cash and cash equivalents, restricted cash, 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 associated with the Flex Pharma merger measured at fair value on a recurring basis for the twelve months ended December 31, 2020 and 2019:

7. STOCKHOLDERS' EQUITY

The accompanying consolidated statements of stockholders' equity (deficit) and the footnotes to the financial statements have been retroactively adjusted to reflect the equity structure (that is, the number and type of equity interests issued) of Flex Pharma, the legal parent (accounting acquiree) of the merger closed on July 19, 2019, with the retained earnings and other equity balances of Private Salarius before the merger. Private Salarius' equity was restated using the exchange ratio established in the merger agreement to reflect the number of shares of Flex Pharma issued in the merger. Concurrent with the merger, the Company's shareholders approved a 1-for-25 reverse stock split, which became effective on July 19, 2019. Total shares owned by Flex Pharma pre-merger shareholders (net of fractional shares paid in cash) was 722,568 shares after reverse stock-split.

Preferred Stock and Common Stock

On February 11, 2020, the Company completed a public offering with total gross proceeds of approximately $11.0 million, which includes the full exercise of the underwriter's over-allotment option to purchase an additional 1,252,173 shares and warrants prior to deducting underwriting discounts and commissions and offering expenses payable by Salarius (the “February Offering”). The February 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 one share of common stock and a five-year warrant to purchase one share of common stock at an exercise price of $1.15 per share, and 1,246,519 Class B units, priced at a public offering price of $1.15 per unit, with each unit consisting of one share of Series A convertible preferred stock and a five-year warrant to purchase one share of common stock with and exercise price of $1.15 per share. A total of 8,343,480 shares of common stock, 1,246,519 shares of Series A convertible preferred stock, and warrants to purchase up to 9,599,999 shares of common stock were issued in the offering, including the

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full exercise of the over-allotment option. The convertible preferred stock issued in this transaction includes a beneficial ownership limitation on conversion, but has no dividend rights (except to the extent that dividends are also paid on the common stock). The conversion price of the Series A convertible preferred stock issued in the February Offering as well as the exercise price of the warrants are fixed and do not contain any variable pricing features or any price based anti-dilutive features.

As of December 31, 2020, all 1,246,519 shares of Series A convertible preferred stock were converted to common stock.

On August 3, 2020, the Company completed a public offering with total gross proceeds of approximately $6.2 million, which includes the full exercise of the underwriter's over-allotment option to purchase an additional 669,181 shares prior to deducting underwriting discounts and commissions and offering expenses payable by Salarius. A total of 5,130,390 common shares of common stock were issued in the offering, priced at a public offering price of $1.20 per share.

During the twelve months ended December 31, 2019, the Company issued 960,489 common shares (4,035 Series A preferred units and 350 profit interest units of Private Salarius) for $4,377,591 (net of offering cost of $10,617) of which, $2,869,412 was received in advance, in 2018.

On October 24, 2019, the Company entered into a common stock purchase agreement with Aspire Capital, which provides that the Company may offer under certain conditions to Aspire Capital up to an aggregate of $10.9 million of the Company's common shares over 30 months. During the twelve months ended December 31, 2019, the Company issued 750,861 common shares to Aspire Capital, 101,810 shares were issued in consideration for entering into the purchase agreement, and 649,051 shares were issued for cash. The agreement with Aspire Capital expired during the year ended December 31, 2020.

Right to Warrants

Pursuant to the Merger Agreement (see Note 3), Flex Pharma distributed one right per share of common stock to stockholders of record as of the close of business on July 18, 2019. Each right entitled such stockholders to receive a warrant to purchase the Company's common shares on January 20, 2020. These warrants are exercisable, in the aggregate, into 142,711 shares of the Company's common stock with a 5-year term from January 20, 2020, and 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 as the Company believes the value will closely approximate the value from the binomial asset pricing model that consisted of a conditional probability weighted expected return method that values the Company’s equity securities assuming various possible future outcomes to estimate the allocation of value within one or more of the scenarios. Using this method, unobservable inputs included the Company’s equity value, expected timing of possible outcomes, risk free interest rates and stock

price volatility.

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

Expected life (years) 4.06 years 5.06 years

Expected dividend — % — %

Wedbush Warrant

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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 December 31, 2020, all warrants issued to Wedbush were outstanding.

Warrant Inducement

As discussed above, on February 11, 2020, the Company consummated a registered public offering of 7,101,307 Class A units and 1,246,519 Class B units. Each Class A unit consisted of one share of the Company’s common stock, par value $0.0001 per share, and a five-year warrant to purchase one share of common stock at an exercise price of $1.15 per share (each a “Warrant”). Each Class B unit consisted of one share of the Company’s Series A convertible preferred stock, par value $0.0001 per share, and a Warrant. On December 11, 2020, the Company entered into warrant exercise inducement offer letters (“Inducement Letters”) with 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.

This issuance of Inducement Warrants increased the fair value to these certain warrant holders by approximately $0.4 million. This increase in fair value is recorded in additional paid in capital due to the accumulated deficit and it increased the net loss available to common shareholders on the consolidated statement of operations.

8. EQUITY-BASED COMPENSATION

Equity Incentive Plans

The Company has granted options to employees, directors, and consultants under the Salarius Pharmaceuticals, Inc. 2015 Equity Incentive Plan as amended and restated effective as of June 19, 2020 (the "2015 Plan"). On July 19, 2019, the Company completed a merger with Flex Pharma and Flex Pharma had fully vested options to purchase 90,279 common shares outstanding as of the date of the merger and 34,385 of these options continue to be exercisable as of December 31, 2020. 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 December 31, 2020 and 2019, there were 108,348 and 25,145 shares, respectively, remaining available for the grant of stock awards under the 2015 Plan.

The Company has awarded stock options to its employees, directors and consultants, 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 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 of $1,196,469 and $642,360 respectively, has been estimated with the following assumptions for the year ended December 31, 2020 and 2019:

Expected life (years) 5-6 years 5.79

Expected dividend yield 0.00% 0.00%

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The following table summarizes stock option activity for employees and non-employees for the twelve months ended December 31, 2020 and 2019:

Outstanding at December 31, 2018 — $ — — $ —

Exercised — —

Forfeited — —

Expired — —

Exercised —

As of December 31, 2020 and 2019, there was approximately $1.34 million and $0.5 million of total unrecognized compensation cost, respectively, 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 1.65 years.

On September 10, 2019, the Company granted 101,082 stock options, in the aggregate, to certain employees, directors and a consultant. These awards vest monthly over 3 months to 4 years as continuous services are provided, and expense is being recognized over this period.

During the year ended December 31, 2020, the Company granted 1,468,118 stock options, in the aggregate, to certain employees and directors. These award vest over 4.5 months to 4 years as continuous services are provided, and expense is being recognized over this period.

During the year ended December 31, 2020, the Company granted 24,145 shares common stock to its Employee Stock Purchase Plan ("ESPP") participants. Fair value of the grants are valued using the Black-Scholes option pricing model and compensation cost is recognized based on the resulting value over the derived service period.

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9. INCOME TAX

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized differently in the financial statements and tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of liabilities and assets using enacted tax rates and laws in effect in the years in which the differences are expected to reverse. Deferred tax assets are evaluated for realization based on a more-likely-than-not criteria in determining if a valuation allowance should be provided. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during periods in which those temporary differences become deductible.

As of December 31, 2020 and 2019, the Company had deferred tax assets of $2.8 million and $1 million, respectively, against which a full valuation allowance had been recorded. The change in the valuation allowance for the year ended December 31, 2020 was an increase of $1.9 million. The increase in the valuation allowance for the year ended December 31, 2020 was mainly attributable to increases in net operating losses and capitalization of research and development expenses, which resulted in an increase in the deferred tax assets with a corresponding valuation allowance. Significant components of the Company’s deferred tax assets at December 31, 2020 and 2019 were as follows:

December 31

Capitalized R&D Expenses $ 1,725,015 $ —

Net deferred tax assets (liabilities) $ — $ —

A reconciliation of the federal statutory tax rate and the effective tax rates for the year ended December 31, 2020 is as follows:

December 31

Federal Tax at Statutory Rate 21.00 % 21.00 %

Other items (0.40) % — %

R&D Credit 4.42 % — %

Effective Tax Rate — % — %

The Company had approximately $3.2 million and $4.2 million of Federal gross net operating loss (“NOL”) carryforwards as of December 31, 2020 and 2019, respectively. Due to the change in ownership provisions of the Internal Revenue Code, the availability of the Company’s net operating loss carry forwards and R&D credits could be subject to annual limitations against taxable income in future periods, which could substantially limit the eventual

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utilization of such carry forwards. The Company has not analyzed the historical or potential impact of its equity financings on beneficial ownership and therefore no determination has been made whether the net operating loss carry forward is subject to any Internal Revenue Code Section 382 limitation. To the extent there is a limitation, there could be a reduction in the deferred tax asset with an offsetting reduction in the valuation allowance.

The Federal net operating loss carryforward of $3.2 million have an indefinite life, while the R&D credits of $0.33 million begin to expire in 2039.

10. PAYROLL PROTECTION PROGRAM

On April 13, 2020, the Company was granted a loan of approximately $0.18 million from the Paycheck Protection Program ("PPP") established under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). The loan matures on April 13, 2022 and bears interest at a rate of 1% per annum. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The proceeds of the loan were used in full to pay for payroll disbursement after it was received, which the Company expects to comply with the PPP eligibility and loan forgiveness criteria. As such, the loan was accounted as a government grant. The Company will continually reassess its ability to meet the forgiveness conditions, and it may have to reverse income if it can no longer support a conclusion that it expects to meet the conditions.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. We continue to examine the impact of the CARES Act. Currently, we are unable to determine the impact, if any, that the CARES Act will have on our business, financial condition or results of operations.

11. SUBSEQUENT EVENTS

On March 8, 2021 the Company completed a public offering of common stock with total gross proceeds of $23 million and issued 16,806,722 shares of common stock.

On February 11, 2021, the Company completed an At the Marketing Offering ("ATM offering") with total gross proceeds of approximately $6.3 million. Total common shares sold in the ATM offering were 2,820,490, with an average selling price of $2.24 per share.

During the subsequent period, the Company received approximately $1.5 million from warrants exercised for cash.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

As of December 31, 2020, our management, including our principal executive officer and principal financial officer, had evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) pursuant to Rule 13a-15(b) under the Exchange Act. Based upon and as of the date of the evaluation, our principal executive officer and principal financial officer concluded that

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information required to be disclosed is recorded, processed, summarized and reported within the specified periods and is accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow for timely decisions regarding required disclosure of material information required to be included in our periodic SEC reports. In connection with the audit of our consolidated financial statements as of and for the years ended December 31, 2017 and 2018, we identified a material weakness in our internal control over financial reporting related to the failure to evaluate or identify the accounting implication of various transactions which was mainly due to the lack of accounting personnel with necessary knowledge and experience related to financial reporting. During the year ended December 31, 2019, we designed and implemented processes and internal controls to remediate this material weakness. We engaged consultants and added accounting personnel, including a Chief Financial Officer and Controller, with necessary knowledge and experience. With the oversight of senior management and our audit committee, we have taken steps to remediate the underlying causes of the material weakness. Based on the foregoing, our management determined that our disclosure controls and procedures were effective as of December 31, 2020.

No change in our company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework in Internal Control—Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

Item 9B. Other Information

Management Changes

On March 18, 2020, Mr. Scott Jordan, who currently serves as our Chief Business Officer, notified us of his intention to resign, effective April 30, 2020. Mr. Jordan's resignation is not the result of any disagreement with our board of directors or the Company on any matter relating to its operations, policies or practices.

In addition, on March 18, 2020, we entered into a Separation and Release Agreement (the "Separation Agreement") with Mr. Jordan in connection with his resignation. Pursuant to the Separation Agreement, Mr. Jordan will receive benefits and payments related to his resignation consisting of (i) a severance payment equal to eleven months of Mr. Jordan's current base salary and (ii) reimbursements for health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 until the earlier of (x) eleven months from the effective date of Mr. Jordan's resignation and (y) the date Mr. Jordan becomes covered under another employer group health plan.

On March 9, 2020, we entered into a Consulting Agreement (the "Consulting Agreement") with Mr. Bruce McCreedy who currently serves as a director on our board of directors. Pursuant to the terms of the Consulting Agreement, Mr. McCreedy served as our interim Chief Scientific Officer from the date of the agreement until September 30, 2020.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item will be set forth under the captions “Election of Directors – Nominees for Election for a Three-Year Term Until the 2021 Annual Meeting,” “Election of Directors – Directors Continuing in Office Until the 2022 Annual Meeting,” “Election of Directors – Directors Continuing in Office Until the 2023 Annual Meeting,” “Executive Officers,” “Information Regarding the Board of Directors and Corporate Governance – Code of Ethics,” “Information Regarding the Board of Directors and Corporate Governance – Information Regarding Committees of the Board of Directors – Audit Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement to be filed with the SEC, in connection with our 2020 annual meeting of stockholders (the “Proxy Statement”), which is expected to be filed not later than 120 days after the end of our

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fiscal year ended December 31, 2020, and is incorporated in this report by reference. Certain information required by this item concerning executive officers is set forth in Part I of this report under the caption “Executive Officers of the Registrant” and is incorporated herein by reference.

Item 11. Executive Compensation

The information required by this item will be set forth under the captions “Executive and Director Compensation”, “Corporate Governance — Compensation Committee Interlocks and Insider Participation” and “Information Regarding the Board of Directors and Corporate Governance — Non-Employee Director Compensation” in the Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” and “Executive and Director Compensation — Equity Compensation Plan Information” in the Proxy Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be set forth under the captions “Certain Related-Person Transactions” and “Corporate Governance — Director Independence” in the Proxy Statement and is incorporated herein by reference.

Item 14. Principle Accounting Fees and Services

The information required by this item will be set forth under the caption “Ratification of the Selection of Independent Registered Public Accounting Firm — Principal Accountant Fees and Services” in the Proxy and is incorporated herein by reference.

Table of Contents

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)(1) Financial Statements.

The response to this portion of Item 15 is set forth under Part II, Item 8 above.

(a)(2) Financial Statement Schedules.

We have omitted these schedules because they are not required, or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.

(a)(3) Exhibits.

Exhibit Number Exhibit Title Filed with this Form 10-K Incorporated by Reference

Form File No. Date Filed

Table of Contents

4.11 Description of Registrant's Securities x

Table of Contents

23.1 Consent of Ernst & Young LLP X

24.1 Power of attorney (included on Signature Page) X

101.INS XBRL Instance Document X

101.SCH XBRL Schema Document X

101.CAL XBRL Calculation Linkbase Document X

101.DEF XBRL Definition Linkbase Document X

101.LAB XBRL Label Linkbase Document X

101.PRE XBRL Presentation Linkbase Document X

+ Management contract or compensatory plans or arrangements.

Item 16. Form 10-K Summary

Table of Contents

None.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

March 18, 2021 SALARIUS PHARMACEUTICALS, INC.

By: /s/ David J. Arthur

David J. Arthur

President & Chief Executive Officer

Each of the undersigned officers and directors of Salarius Pharmaceuticals, Inc., hereby constitutes and appoints David J. Arthur and Mark J. Rosenblum, their true and lawful attorney-in-fact and agent, for them and in their name, place and stead, in any and all capacities, to sign their name to any and all amendments to this Report on Form 10-K, and other related documents, and to cause the same to be filed with the Securities and Exchange Commission, granting unto said attorneys, full power and authority to do and perform any act and thing necessary and proper to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present, and the undersigned for himself hereby ratifies and confirms all that said attorney shall lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

SIGNATURE TITLE DATE

/s/ William K. McVicar William K. McVicar Chairman of the Board March 18, 2021

/s/ Tess Burleson Tess Burleson Director March 18, 2021

/s/ Arnold HanishArnold Hanish Director March 18, 2021

/s/ Paul Lammers Paul Lammers Director March 18, 2021

/s/ Jon Lieber Jon Lieber Director March 18, 2021

Decoy Therapeutics Inc. DCOY US Equity

DCOY · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principle Accounting Fees and Services

Item 15. Exhibits, Financial Statement Schedules

Item 16. Form 10-K Summary

Decoy Therapeutics Inc. DCOY US Equity☆

DCOY · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principle Accounting Fees and Services

Item 15. Exhibits, Financial Statement Schedules

Item 16. Form 10-K Summary

Decoy Therapeutics Inc. DCOY US Equity