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.

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements related to present facts or current conditions or historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, projected costs, expectations regarding the timing and outcome of the strategic review process, the expectations regarding our research and development efforts, the commercial prospects of our consumer product, and the plans and objectives of management, are forward looking statements. These factors also include, but are not limited to, those factors set forth in the sections entitled "Risk Factors," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures about Market Risk," and "Controls and Procedures" in this Quarterly Report on Form 10-Q, all of which you should review carefully. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements are not guarantees of future performance and our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the timing and outcome of the completion of the merger with Salarius Pharmaceuticals, LLC; the costs associated with any pending or threatened litigation; our ability to continue to sell our consumer product; availability of funding sufficient for our foreseeable and unforeseeable operating expenses and capital expenditure requirements; ability to attract, retain and motivate qualified personnel; the inherent uncertainties associated with intellectual property; and other factors discussed in this Quarterly Report on Form 10-Q, our AnnualCurrent Report on Form 10-K for the year ended December 31, 20188-K/A filed on September 18, 2019 with Securities and Exchange Commission ("SEC") and other filings with the Securities and Exchange Commission, or SEC.

As a result of these and other factors, we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

See accompanying notes to condensed consolidated financial statements.

SALARIUS PHARMACEUTICALS, INC.

(Unaudited)

NOTE 1. OrganizationORGANIZATION AND OPERATIONS

Salarius Pharmaceuticals, Inc. (“Salarius” or the “Company”), together with its subsidiaries, Salarius Pharmaceuticals, LLC, Flex Innovation Group LLC, and operations

On January 3, 2019, the CompanyFlex 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 or(the “Merger Agreement”). Pursuant to the Merger Agreement, Merger Sub merged with and into Private Salarius, Pharmaceuticals, LLC, orwith Private Salarius under which the privately held Salarius will merge withcontinuing as a wholly owned subsidiary of Flex Pharma and the Company. At a special meeting on July 12, 2019,surviving company of the merger. The merger was approved by the Company's stockholders and the merger is expected to closecompleted on or about July 19, 2019. Upon completion ofAfter the merger, Flex Pharma was renamed Salarius Pharmaceuticals, Inc. The merger was accounted for as a reverse acquisition with Private Salarius being deemed the businessacquiring company for accounting purposes. See Note 3.

Salarius has no products approved for commercial sale, has not generated any revenue from product sales to date and has suffered recurring losses from operations since its inception. The 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 applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should the Company be unable to continue as a going concern. Salarius will continue as the business of the combined company.

On October 24, 2019, the Company entered into a common stock purchase agreement with Aspire Capital Fund, LLC (“Aspire Capital”), which provides that the Company may offer to Aspire Capital up to an aggregate of $10.9 million of the Company's common shares over 30 months. See Note 10. The Company cannot predict the outcome of the merger or whether andintends to what extent it will resume drug development activities and to what extent it will promote and sell HOTSHOT or other consumer products in the future. Accordingly, it is difficult to predict future cash needs. Management does expect the Company to continue to incur losses for the foreseeable future. The Company's ability to achieve profitability in the future is dependent upon achieving a level of revenues adequate to support the Company's cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raiseobtain additional capital. If the Company raises fundscapital through the sale of equity securities in one or convertiblemore offerings or through issuances of debt securities,instruments. The Company may also consider new collaborations or selectively partnering its technology. However, the issuance of those securities could result in substantial dilution of the stockholders' ownership in the Company. There can be no assurances, however,Company cannot provide any assurance that additional fundingit will be available on terms acceptable to the Company, or at all.

Basis of presentation and use of estimatesPresentation

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts reported inof assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and accompanying notes. On an ongoing basis, the Company's management evaluates its estimates, which include, but are not limited to, estimates related to clinical study accruals, estimates related to inventory realizability, stock-based compensation expense andreported amounts of expenses during the reportedreporting period. The CompanyOn an on-going basis, Salarius’ management evaluates its estimates, including those related to revenue recognition, fair value of tangible and intangible assets, research and development, accrued expenses, contingencies and equity-based compensation. Salarius bases its estimates on historical experience and on various other market-specific or other relevant assumptions that it believesare believed to be reasonable under the circumstances.reasonable. Actual results maycould differ from those estimatesestimates.

Salarius considers all highly liquid securities with original final maturities of three months or assumptions.less from the date of purchase to be cash equivalents.

At September 30, 2019 and December 31, 2018, Salarius held restricted cash of consolidation$0 and $2,903,493 for the Series A Preferred proceeds, respectively.

At September 30, 2019 and December 31, 2018, Salarius also held approximately $2.0 million and $4.1 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 consolidated financial statements includegrant has a mandatory fund matching requirement. As of September 30, 2019, the CPRIT fund matching requirements had not been fully met.

Property and equipment are stated at cost, less accumulated depreciation. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred, while costs of major additions and betterments are capitalized. Upon disposal, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation is recorded,

once assets are placed in service, using the straight-line method over the estimated useful lives of the Company and its wholly owned subsidiaries: TK Pharma, Inc., a Massachusetts Securities Corporation, Flex Innovation Group LLC, a Delaware limited liability companyrespective assets, which contains the Company's consumer-related operations, and Falcon Acquisition Sub, LLC, a Delaware limited liability company established for purposes of the merger. All significant intercompany balances and transactions have been eliminated in consolidation.are as follows:

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 enters intoCompany's Statements of Financial Position.

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 enforceable contract with a customer. The contractasset exceeds its estimated future cash flows, an impairment charge is based on eitherrecognized in the acceptance of standard terms and conditions onamount by which the websites for e-commerce customers, or the execution of terms and conditions contracts with specialty retailers and sports teams. These contracts define each party's rights, payment terms and other contractual terms and conditionscarrying amount of the sale. The Company applies judgment in determiningasset exceeds the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience and, in some circumstances, published credit and financial information pertaining to the customer.

Goodwill is not amortized but is subject to periodic review for impairment. Goodwill is reviewed annually, as of November 30, and approximately $9,000 and $17,000 forwhenever events or changes in circumstances indicate that the three and six months ended June 30, 2018, respectively.

The Company had no customers that representedperforms a one-step test in its evaluation of the carrying value of goodwill, if qualitative factors determine it is necessary to complete a goodwill impairment test. In the evaluation, the fair value of the relevant reporting unit is determined and compared to the carrying value. If the fair value is greater than 10%the carrying value, then the carrying value is deemed to be recoverable, and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value, and a charge is reported in impairment of total revenuegoodwill in the Company’s consolidated statements of operations.

The Company has not identified any events or changes in circumstances that indicate that a potential impairment of goodwill occurred during the three and sixnine months ended JuneSeptember 30, 2019 or the three2019.

Certain assets and six months ended June 30, 2018. All of the Company's revenue was generated from sales within the United States.

Level 1 – Unadjusted1-Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted2-Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets, quoted prices in marketsor liabilities; or other inputs that are not active,observable or inputs which arecan be corroborated by observable directly or indirectly,market data for substantially the full term of the assetassets or liability.liabilities.

Level 3 – Unobservable3-Significant unobservable inputs that reflect the Company’sincluding Salarius’ own assumptions aboutin determining fair value.

The Company believes the assumptions market participants would use in pricingrecorded values of its financial instruments, including cash and cash equivalents, restricted cash, accounts payable and note payable approximate their fair values due to the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.short-term nature of these instruments.

The following tables summarizetable sets forth a summary of changes in the cash equivalentsfair value of Level 3 liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2019:

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 389,488 and 51,926 shares as of JuneSeptember 30, 2019 and 2018, respectively.

The Company had no assets and liabilities presented as discontinued operations as of September 30, 2019 and December 31, 2018:2018.

Prepaid expenses and other current assets accounts payable, accrued expenses and other current liabilities approximate their fair values at June 30, 2019 and December 31, 2018, due to their short-term nature.

The Company held no marketable securities at Junewill 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 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 September 30, 2019, the Company has received an aggregate of $9.6 million from the CPRIT grant and December 31, 2018.

The following table presents inventory:Company presently leases office space under operating lease agreements on a month to month basis.

During the Company's cost structure. In connection with the corporate restructuring plan, the Company reduced its

In December 2018, the BoardCompany agreed to grant an unrelated party 12,907 common shares (91 common units of Private Salarius) to acquire licenses for the DNMT1 inhibitor. The grant was approved employee retention arrangementsin January 2019 and certain increased severance payments relatedthe license was granted in 2018. These common shares were valued at $110,474 based on a third-party valuation report and included in accrued liabilities at December 31, 2018.

Pursuant to the corporate restructuring plan,Merger Agreement (See Note 3), Flex Pharma distributed 1 right per share of common stock to incentivize certain employeesstockholders of record as of the close of business on July 18, 2019. Each right entitles such stockholders to remainreceive 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, throughat 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 potential salenumber 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

During the nine months ended September 30, 2019, the Company had paid $214,000 in retention bonuses, $410,000 in annual bonuses and $185,000 in severance benefits associated with these arrangements. Asgranted a total of June 30, 2019, cash retention benefits totaling approximately $603,000 will be payable8,799 restricted common shares (137 profit interest units of Private Salarius) to the remaining2 employees and certain former employees who continue1 consultant with a vesting period ranging from 9 months to provide service as consultants, upon4 years. These common shares have an aggregated fair value of approximately $83,000 that was calculated using the occurrence of a change in control event, including a sale or merger of the Company. Upon a change in control event and termination without cause, the remaining employees will be eligible for up to approximately $928,000, in the aggregate, of severance benefits.Backsolve method.

During the sixnine months ended JuneSeptember 30, 2019, the Company recognized a reduction in the accrual27,457 shares of common stock for restructuring-related activities of approximately $11,000, which is composed of approximately $3,000 for one-time termination benefit costs and approximately $8,000 for termination benefits under ongoing benefit arrangements for terminated employees as certain benefit payments are no longer expected to occur. Cumulatively, through June 30, 2019, the Company recognized expense for restructuring-related activities of approximately $1,355,000 which is composed of approximately $1,029,000 of termination benefits under ongoing benefit arrangements for terminated employees, approximately $97,000 as one-time termination benefit costs for terminated employees, approximately $214,000 in retention benefits for seven retained employees who had retention bonuses not triggered by a change in control event and approximately $15,000 of other restructuring related costs including consulting and legal fees.

Compensation expense related to consultants outstanding asPrivate Salarius' grants was $47,477 and $52,781 for the nine months ended September 30, 2019 and 2018, respectively. As of JuneSeptember 30, 2019.2019, there was $37,419 of unrecognized compensation cost related to Private Salarius’ non-vested grants.

The following is a summary of restricted common stock activity: