PART 1: FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=ITEM%201%3A%20FINANCIAL%20STATEMENTS) The company reported a net loss of **$4.7 million** for the nine months ended September 30, 2020, with total assets decreasing and liabilities increasing, while a subsequent **$17.1 million** public offering significantly improved liquidity [Condensed Consolidated Balance Sheets](index=4&type=section&id=Processa%20Pharmaceuticals%2C%20Inc.%20Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$9.6 million** by September 30, 2020, from **$10.9 million** at year-end 2019, while total liabilities increased to **$4.1 million**, leading to a decline in stockholders' equity Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | September 30, 2020 ($) | December 31, 2019 ($) | | :--- | :--- | :--- | | **Total Current Assets** | $375,888 | $1,007,141 | | **Total Assets** | **$9,589,176** | **$10,883,134** | | **Total Current Liabilities** | $2,657,872 | $1,191,564 | | **Total Liabilities** | **$4,061,947** | **$2,870,584** | | **Total Stockholders' Equity** | **$5,527,229** | **$8,012,550** | - Subsequent to the quarter end, on October 6, 2020, the company closed an underwritten public offering, raising net proceeds of approximately **$17.1 million**[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Processa%20Pharmaceuticals%2C%20Inc.%20Condensed%20Consolidated%20Statements%20of%20Operations) The net loss for the nine months ended September 30, 2020, significantly increased to **$4.68 million** from **$2.58 million** in the prior year, primarily due to a **$2.0 million** expense for in-process R&D acquisition Statement of Operations Summary (Unaudited) | Metric | Nine Months Ended Sep 30, 2020 ($) | Nine Months Ended Sep 30, 2019 ($) | | :--- | :--- | :--- | | Research and development expenses | $1,461,416 | $1,804,169 | | Acquisition of in-process R&D | $2,000,000 | $0 | | General and administrative expenses | $1,282,239 | $1,219,329 | | **Operating Loss** | **($4,743,655)** | **($3,023,498)** | | **Net Loss** | **($4,679,035)** | **($2,583,433)** | | **Net Loss per Share** | **($0.84)** | **($0.47)** | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Processa%20Pharmaceuticals%2C%20Inc.%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity decreased from **$8.01 million** to **$5.53 million** by September 30, 2020, primarily due to the **$4.68 million** net loss, partially offset by **$2.0 million** in stock issued for a license and **$0.36 million** in stock-based compensation - For the nine months ended September 30, 2020, total stockholders' equity decreased by **$2,485,321**, from **$8,012,550** to **$5,527,229**[15](index=15&type=chunk) - Key non-cash equity activities included issuing **250,000 shares** valued at **$2.0 million** for the Yuhan license agreement and recognizing **$357,039** in stock-based compensation[15](index=15&type=chunk)[69](index=69&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Processa%20Pharmaceuticals%2C%20Inc.%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities decreased to **$0.87 million** for the nine months ended September 30, 2020, while financing activities provided **$0.50 million**, resulting in a **$0.37 million** overall decrease in cash and cash equivalents Cash Flow Summary (Unaudited) | Activity | Nine Months Ended Sep 30, 2020 ($) | Nine Months Ended Sep 30, 2019 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($867,839) | ($2,136,659) | | Net cash provided by financing activities | $501,731 | $900,000 | | **Net Decrease in Cash** | **($366,108)** | **($1,236,659)** | | **Cash and Cash Equivalents – End of Period** | **$325,428** | **$504,302** | - A significant non-cash activity was the issuance of **$2.0 million** in common stock for the acquisition of in-process research and development related to the Yuhan License Agreement[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's drug development focus, including lead candidate **PCS499** and newly licensed assets, highlighting key financial events such as license acquisitions, a **$700,000** line of credit draw, a **$162,459** PPP loan, and a subsequent **$17.1 million** public offering expected to fund operations into Q4 2022 - The lead product, **PCS499**, has completed the patient portion of its **Phase 2A** trial for Necrobiosis Lipoidica (NL), and a **Phase 2B** trial is planned to begin in **2021**[20](index=20&type=chunk)[27](index=27&type=chunk) - In **Q3 2020**, the company acquired an exclusive license for **PCS12852** from Yuhan Corporation for **$2 million** in stock, which was immediately expensed as in-process R&D[28](index=28&type=chunk)[29](index=29&type=chunk) - Contingent license agreements for **PCS6422** (from Elion) and **PCS11T** (from Aposense) were executed, with conditions met subsequent to the quarter-end following a successful public offering and Nasdaq up-listing on **October 6, 2020**[34](index=34&type=chunk)[42](index=42&type=chunk)[96](index=96&type=chunk)[91](index=91&type=chunk) - On **October 6, 2020**, the company closed a public offering with net proceeds of approximately **$17.1 million**, which is expected to fund operations into the **fourth quarter of 2022**[50](index=50&type=chunk)[82](index=82&type=chunk)[106](index=106&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's clinical-stage focus and in-licensing strategy, noting a net loss increase to **$4.7 million** for the nine months ended September 30, 2020, primarily due to a **$2.0 million** R&D acquisition, with a subsequent **$17.1 million** public offering improving liquidity into Q4 2022 [Overview and Strategy](index=23&type=section&id=Overview%20and%20Strategy) The company, a clinical-stage biopharmaceutical firm, focuses on in-licensing drugs with existing clinical evidence to de-risk development, with its portfolio including lead candidate **PCS499** and newly acquired assets **PCS12852** and **PCS6422** - The company's strategy is to in-license clinical-stage drugs that have some existing clinical evidence, aiming to achieve significant clinical milestones within **2-4 years**[111](index=111&type=chunk)[112](index=112&type=chunk)[118](index=118&type=chunk) - The **Phase 2A** trial for lead product **PCS499** in Necrobiosis Lipoidica (NL) is complete, with a randomized, placebo-controlled **Phase 2B** trial planned to begin recruiting in **2021**[110](index=110&type=chunk)[122](index=122&type=chunk) - In **Q3 2020**, the company acquired exclusive licenses for **PCS12852** from Yuhan Corporation and **PCS6422** from Elion Oncology, Inc. to expand its pipeline[123](index=123&type=chunk)[126](index=126&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) For the nine months ended September 30, 2020, R&D expenses decreased to **$1.5 million** but were offset by a new **$2.0 million** in-process R&D acquisition, leading to a widened net loss of **$4.7 million** from **$2.6 million** in the prior year Comparison of Operating Results (Nine Months Ended Sep 30) | Expense Category | 2020 ($) | 2019 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Research and development | $1,461,416 | $1,804,169 | ($342,573) | | Acquisition of in-process R&D | $2,000,000 | $0 | $2,000,000 | | General and administrative | $1,282,239 | $1,219,329 | $62,910 | | **Net Loss** | **($4,679,035)** | **($2,583,433)** | **($2,095,602)** | - The decrease in R&D expenses was due to lower costs for salaries and benefits (**$153,915 decrease**) and preclinical/clinical trials (**$188,838 decrease**)[137](index=137&type=chunk) - A **$2.0 million** expense was recorded for the acquisition of in-process research and development in connection with the Yuhan License Agreement[143](index=143&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity significantly improved with a **$17.1 million** public offering on **October 6, 2020**, expected to fund operations into Q4 2022, following prior funding from a **$700,000** related-party line of credit and a **$162,459** PPP loan - On **October 6, 2020**, the company closed an underwritten public offering with net proceeds of approximately **$17.1 million**[153](index=153&type=chunk)[155](index=155&type=chunk) - Management believes the post-offering funds are sufficient to meet capital requirements into the **fourth quarter of 2022**[155](index=155&type=chunk) - Prior to the offering, operations were funded by a **$700,000** line of credit from a related party (DKBK), a **$162,459** PPP loan, and deferral of certain employee salaries[156](index=156&type=chunk) Cash Flow Summary (Nine Months Ended Sep 30) | Activity | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($867,839) | ($2,136,659) | | Net cash provided by financing activities | $501,731 | $900,000 | [Critical Accounting Policies and Use of Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) The company confirms no changes to its critical accounting policies from its most recent Form 10-K, which require significant management estimates and judgments for areas like stock-based compensation and acquired assets - There have been **no changes** in the company's critical accounting policies from its most recent Annual Report on Form 10-K[168](index=168&type=chunk) - The preparation of financial statements requires management to make **estimates and judgments** that affect reported amounts of assets, liabilities, revenues, and expenses[166](index=166&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section is not applicable as the company qualifies as a smaller reporting company - As a **smaller reporting company**, Processa Pharmaceuticals is not required to provide this information[170](index=170&type=chunk) [Controls and Procedures](index=32&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were **not effective** as of September 30, 2020, due to ongoing material weaknesses like inadequate segregation of duties, with remediation efforts underway - Management concluded that disclosure controls and procedures were **not effective** as of **September 30, 2020**[171](index=171&type=chunk) - Ongoing material weaknesses include **inadequate segregation of duties** and **insufficient documentation** of policies and procedures for financial reporting[172](index=172&type=chunk) - The company is continuing to take **remediation actions** to rectify these control deficiencies[174](index=174&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=33&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently a party to any material legal proceedings - The company is **not currently a party** to any **material legal proceedings**[176](index=176&type=chunk) [Risk Factors](index=33&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company highlights significant risks, including potential disruptions from the **COVID-19 pandemic**, the uncertain forgiveness of its **$162,459 PPP loan**, and the risk of **in-license agreement termination** due to unmet milestones - The **COVID-19 pandemic** poses a **significant risk** of disrupting operations, clinical studies, and access to capital[178](index=178&type=chunk) - The company received a **$162,459 PPP loan** in **May 2020**, which is subject to review and may **not be fully forgiven**[179](index=179&type=chunk) - In-license agreements are subject to **termination** if the company breaches **material terms**, including failure to meet **due diligence milestones** for product development[182](index=182&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) In September 2020, the company issued **250,000 shares** of common stock to Yuhan Corporation as part of a license agreement, exempt from registration under Section 4(a)(2) of the Securities Act - In **September 2020**, the company issued **250,000 shares** of common stock to Yuhan Corporation in connection with a license agreement, exempt from registration under **Section 4(a)(2)** of the Securities Act[183](index=183&type=chunk) [Defaults Upon Senior Securities](index=34&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reports no defaults upon its senior securities during the period - None reported[186](index=186&type=chunk) [Mine Safety Disclosures](index=35&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[187](index=187&type=chunk) [Other Information](index=35&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The company reports no other information for the period - None reported[188](index=188&type=chunk) [Exhibits](index=35&type=section&id=ITEM%206.%20EXHIBITS) The report lists all exhibits filed with the Form 10-Q, including key license agreements with Yuhan Corporation and Elion Oncology, Inc., and Sarbanes-Oxley certifications - Filed exhibits include license agreements with **Yuhan Corporation** and **Elion Oncology, Inc.**, as well as required officer certifications under **Sarbanes-Oxley Sections 302 and 906**[189](index=189&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission File Number 333-184948 Processa Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Delaware 45-1539785 (S ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission File Number 333-184948 Processa Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Delaware 45-1539785 ( ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 7380 Coca Cola Drive, Suite 106, Hanover, Maryland 21076 (Address of principal executive offices) For the fiscal year ended December 31, 2019 or [ ] Transitional Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 333-184948 Processa Pharmaceuticals, Inc. (Exact name of registrant as specified in its c ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission File Number 333-184948 Processa Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Delaware 45-15397 ...

[PART 1: FINANCIAL INFORMATION](index=3&type=section&id=PART%201%3A%20FINANCIAL%20INFORMATION) This section presents unaudited condensed consolidated financial statements and management's financial discussion and analysis [ITEM 1: FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201%3A%20FINANCIAL%20STATEMENTS) This section presents unaudited condensed consolidated financial statements and notes for periods ended June 30, 2019 and 2018 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric | June 30, 2019 | December 31, 2018 | | :-------------------------- | :-------------- | :------------------ | | Cash and cash equivalents | $721,985 | $1,740,961 | | Total Current Assets | $989,907 | $2,020,376 | | Total Assets | $11,305,628 | $12,481,068 | | Total Current Liabilities | $783,436 | $645,704 | | Total Liabilities | $2,803,558 | $2,780,050 | | Total Stockholders' Equity | $8,502,070 | $9,701,018 | - Cash and cash equivalents decreased by approximately **$1.02 million** from December 31, 2018, to June 30, 2019[10](index=10&type=chunk) - Total assets decreased by approximately **$1.18 million**, while total liabilities saw a slight increase of about **$23.5K**[10](index=10&type=chunk) - Stockholders' equity decreased by approximately **$1.2 million**, primarily due to the accumulated deficit[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net loss over specific reporting periods | Metric (Unaudited) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development expenses | $726,904 | $1,077,643 | $1,211,655 | $1,865,921 | | General and administrative expenses | $410,072 | $350,581 | $807,837 | $853,918 | | Total operating expenses | $1,136,976 | $1,428,224 | $2,019,492 | $2,719,839 | | Operating Loss | $(1,136,976) | $(1,428,224) | $(2,019,492) | $(2,719,839) | | Net Loss | $(969,078) | $(1,206,074) | $(1,719,910) | $(2,302,870) | | Net Loss per Common Share | $(0.03) | $(0.03) | $(0.04) | $(0.06) | - Net loss for the three months ended June 30, 2019, decreased by **$236,996** compared to the same period in 2018, primarily due to lower operating expenses and reduced interest expense[12](index=12&type=chunk) - For the six months ended June 30, 2019, net loss decreased by **$582,960**, driven by a significant reduction in research and development expenses and interest expense[12](index=12&type=chunk) [Condensed Consolidated Statement of Changes in Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders%27%20Equity) This statement tracks changes in equity components, including common stock, additional paid-in capital, and accumulated deficit | Metric | Balance, January 1, 2019 | Stock-based compensation | Payments by investor for clinical trial costs | Net loss | Balance, June 30, 2019 | | :----------------------- | :----------------------- | :----------------------- | :-------------------------------------------- | :------- | :--------------------- | | Common Stock Amount | $3,867 | - | - | - | $3,867 | | Additional Paid-In Capital | $19,121,285 | $125,035 | - | - | $19,246,320 | | Subscription Receivable | $(1,800,000) | - | $395,927 | - | $(1,404,073) | | Accumulated Deficit | $(7,624,134) | - | - | $(1,719,910) | $(9,344,044) | | Total Stockholders' Equity | $9,701,018 | $125,035 | $395,927 | $(1,719,910) | $8,502,070 | - Total stockholders' equity decreased from **$9.7 million** at January 1, 2019, to **$8.5 million** at June 30, 2019, primarily due to a net loss of **$1.7 million**[15](index=15&type=chunk) - Stock-based compensation added **$125,035** to additional paid-in capital during the six months ended June 30, 2019[15](index=15&type=chunk) - Payments made directly by an investor for clinical trial costs reduced the subscription receivable by **$395,927**[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement reports cash generated and used across operating, investing, and financing activities | Cash Flow Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(1,018,976) | $(2,233,186) | | Net cash used in investing activities | $- | $(497,782) | | Net cash provided by financing activities | $- | $2,733,992 | | Net (Decrease)/Increase in Cash | $(1,018,976) | $3,024 | | Cash and Cash Equivalents – End of Period | $721,985 | $2,850,453 | - Net cash used in operating activities significantly decreased from **$2.23 million** in H1 2018 to **$1.02 million** in H1 2019, primarily due to reduced net loss and direct payments by an investor for clinical trial expenses[17](index=17&type=chunk)[109](index=109&type=chunk) - No cash flows from investing or financing activities were reported for the six months ended June 30, 2019, compared to significant activities in the prior year period[17](index=17&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) - The company reported a net decrease in cash and cash equivalents of **$1,018,976** for the six months ended June 30, 2019[17](index=17&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide additional information and explanations for financial statement figures and significant accounting policies - Processa Pharmaceuticals, Inc. is an emerging clinical stage biopharmaceutical company focused on developing drug products for high unmet medical needs, with PCS-499 for Necrobiosis Lipoidica (NL) as its lead product[23](index=23&type=chunk)[24](index=24&type=chunk) - The company's financial statements are prepared under the going concern assumption, but substantial doubt exists about its ability to continue as a going concern due to recurring losses, negative cash flow, and the need for additional funding[30](index=30&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - PCS-499 received orphan-drug designation from the FDA for NL on June 22, 2018, and the Phase 2a clinical trial for NL is fully enrolled as of August 2, 2019, with no serious adverse events reported at the highest dose[25](index=25&type=chunk)[79](index=79&type=chunk) - The adoption of ASC 842, Leases, on January 1, 2019, resulted in the recognition of a right-of-use asset of **$293,198** and lease obligations of **$303,161**, without a material impact on the statement of operations[46](index=46&type=chunk) - Subsequent to June 30, 2019, the company raised **$435,000** from the sale of 8% Senior Convertible Notes and converted **$259,830** of existing Senior Convertible Notes into common stock and warrants[65](index=65&type=chunk)[66](index=66&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=16&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial condition, operating results, liquidity, capital resources, and the going concern status [Overview](index=16&type=section&id=Overview) This section introduces the company's drug development business and its financial history - Processa Pharmaceuticals is an emerging pharmaceutical company focused on developing drug products for high unmet medical needs, with one product (PCS-499) currently in development for multiple indications[69](index=69&type=chunk) - The company acquired Promet Therapeutics, LLC in October 2017, which was accounted for as a reverse acquisition, and has focused on acquiring rights to PCS-499, business planning, capital raising, and clinical trials since its formation in March 2011[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) - Processa has no approved drug candidates or revenue from drug sales and has incurred operating losses since inception, with an accumulated deficit of **$9.3 million** as of June 30, 2019[72](index=72&type=chunk) [Going Concern and Management's Plan](index=17&type=section&id=Going%20Concern%20and%20Management%27s%20Plan) This section addresses the company's ability to continue operations, outlining financial challenges and funding strategies - The company's ability to continue as a going concern is in substantial doubt due to product development risks, limited working capital, recurring losses, negative cash flow, and the need for future capital[74](index=74&type=chunk)[77](index=77&type=chunk) - Management is raising additional funds through private sales of 8% Senior Convertible Notes, having received **$435,000** subsequent to June 30, 2019, and has delayed some cash outflows by deferring salaries[73](index=73&type=chunk) - For the six months ended June 30, 2019, the company incurred a net loss of **$1.7 million** and used **$1.0 million** in net cash from operating activities[75](index=75&type=chunk) - Failure to secure adequate additional capital could lead to significant delays, scaling back, or discontinuation of product development, adversely affecting the business[76](index=76&type=chunk) [Status of our Phase 2a Clinical Trial in Necrobiosis Lipoidica](index=18&type=section&id=Status%20of%20our%20Phase%202a%20Clinical%20Trial%20in%20Necrobiosis%20Lipoidica) This section updates on the progress and safety findings of the PCS-499 Phase 2a clinical trial for Necrobiosis Lipoidica - PCS-499, an oral tablet, is the lead product for Necrobiosis Lipoidica (NL), a chronic, disfiguring skin condition with no approved FDA treatments, affecting **74,000-185,000** people in the US[78](index=78&type=chunk) - PCS-499 received orphan-drug designation for NL in June 2018, and the IND for the Phase 2a safety-dose tolerability trial was cleared in September 2018[79](index=79&type=chunk) - The Phase 2a clinical trial for NL dosed its first patient on January 29, 2019, and is anticipated to be fully enrolled by late August 2019, with the highest dose (**1.8 grams/day**) appearing well tolerated with only mild adverse events[79](index=79&type=chunk) - Management plans to request a meeting with the FDA before the end of 2019 to discuss the next clinical trial for PCS-499[81](index=81&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, focusing on changes in operating expenses and net loss | Metric (Unaudited) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Change (3M) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Change (6M) | | :---------------------------------- | :------------------------------- | :------------------------------- | :---------- | :----------------------------- | :----------------------------- | :---------- | | Research and development expenses | $726,904 | $1,077,643 | $(350,739) | $1,211,655 | $1,865,921 | $(654,266) | | General and administrative expenses | $410,072 | $350,581 | $59,491 | $807,837 | $853,918 | $(46,081) | | Total operating expenses | $1,136,976 | $1,428,224 | $(291,248) | $2,019,492 | $2,719,839 | $(700,347) | | Net Loss | $969,078 | $1,206,074 | $(236,996) | $1,719,910 | $2,302,870 | $(582,960) | - Research and development expenses decreased by **$350,739** for the three months and **$654,266** for the six months ended June 30, 2019, primarily due to lower preclinical, clinical trial, and other costs compared to the prior year, which included a Phase 1 trial and new manufacturing site establishment[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk) - General and administrative expenses increased by **$59,491** for the three months ended June 30, 2019, due to increased payroll (including stock-based compensation) and tax expenses, partially offset by reduced professional fees[92](index=92&type=chunk) - For the six months ended June 30, 2019, general and administrative expenses decreased by **$46,081**, mainly due to the absence of a **$144,000** cybersecurity fraud loss incurred in H1 2018 and reductions in professional fees, despite increases in payroll and administrative costs[93](index=93&type=chunk) - Interest expense significantly decreased due to the conversion of most Senior Convertible Notes in May 2018, with the remaining **$230,000** converted subsequent to June 30, 2019[95](index=95&type=chunk) [Financial Condition](index=22&type=section&id=Financial%20Condition) This section assesses the company's financial position, including cash, assets, liabilities, and equity - As of June 30, 2019, the company had **$721,985** in cash and a remaining **$1.4 million** commitment from PoC Capital for its Phase 2a clinical trial[98](index=98&type=chunk) - Total assets decreased by approximately **$1.2 million** to **$11.3 million** at June 30, 2019, from **$12.5 million** at December 31, 2018, primarily due to operating costs offset by the recognition of right-of-use assets[99](index=99&type=chunk) - Total liabilities (excluding deferred income taxes) increased by **$324,409** to **$970,113**, mainly due to accrued expenses and the recognition of operating lease liabilities[100](index=100&type=chunk) - The remaining **$230,000** of Senior Convertible Notes outstanding at June 30, 2019, were converted into common stock and warrants on July 2, 2019[101](index=101&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet short-term obligations and strategies for securing ongoing funding - The company funds its operations primarily through private placements of equity and senior secured convertible notes[103](index=103&type=chunk) - As of June 30, 2019, cash and cash equivalents were **$721,985**, down from **$1.7 million** at December 31, 2018[104](index=104&type=chunk) - A Clinical Trial Funding commitment of **$1.8 million**, with **$1.4 million** unused as of June 30, 2019, is expected to fund the current Phase 2a clinical trial[104](index=104&type=chunk) - Substantial doubt exists about the company's ability to continue as a going concern without additional capital, which may be sought through equity offerings, debt financings, or strategic collaborations[104](index=104&type=chunk)[107](index=107&type=chunk) [Cash Flows](index=23&type=section&id=Cash%20Flows) This section analyzes cash sources and uses from operating, investing, and financing activities | Cash Flow Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(1,018,976) | $(2,233,186) | | Net cash used in investing activities | $- | $(497,782) | | Net cash provided by financing activities | $- | $2,733,992 | | Net increase in cash and cash equivalents | $(1,018,976) | $3,024 | - Net cash used in operating activities decreased by over **$1.2 million** in H1 2019 compared to H1 2018, primarily due to a lower net loss and direct payments by PoC Capital for clinical trial expenses[109](index=109&type=chunk) - No cash flows from investing or financing activities occurred in H1 2019, contrasting with H1 2018 which saw cash used for CDs and intangible asset acquisition, and cash provided by financing activities[111](index=111&type=chunk)[112](index=112&type=chunk) - The company anticipates continued negative cash flows from operating activities due to ongoing R&D and G&A costs, as it does not currently sell pharmaceutical products[110](index=110&type=chunk) [Contractual Obligations and Commitments](index=24&type=section&id=Contractual%20Obligations%20and%20Commitments) This section confirms no significant changes to the company's contractual obligations since the last annual report - There have been no significant changes to the contractual obligations reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018[113](index=113&type=chunk) [Off Balance Sheet Arrangements](index=24&type=section&id=Off%20Balance%20Sheet%20Arrangements) This section states that the company had no off-balance sheet arrangements as of the reporting date - As of June 30, 2019, the company did not have any off-balance sheet arrangements[114](index=114&type=chunk) [Critical Accounting Policies and Use of Estimates](index=24&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) This section confirms critical accounting policies remain consistent with the most recent annual report - The company's critical accounting policies, as described in its most recent Annual Report on Form 10-K, remain unchanged[116](index=116&type=chunk)[117](index=117&type=chunk) [Recently Issued Accounting Pronouncements](index=25&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section discusses the adoption of new accounting standards, specifically ASC 842 on Leases, and its impact - The company adopted ASC 842, Leases, on January 1, 2019, recognizing right-of-use assets and lease liabilities on the balance sheet[46](index=46&type=chunk)[118](index=118&type=chunk) [Emerging Growth Company](index=25&type=section&id=Emerging%20Growth%20Company) This section clarifies the company's emerging growth status and its election regarding accounting standard compliance - The company is an 'emerging growth company' under the JOBS Act but has irrevocably elected not to use the extended transition period for complying with new or revised financial accounting standards, thus adhering to the same standards as other public companies[119](index=119&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=25&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This item is not applicable to the company as a smaller reporting company - Item 3 is not applicable to the company as a smaller reporting company and has been omitted[120](index=120&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=25&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Disclosure controls were ineffective as of June 30, 2019, due to unrectified material weaknesses in internal control - Disclosure controls and procedures were evaluated and concluded to be not effective as of June 30, 2019[121](index=121&type=chunk) - Material weaknesses identified in the 2018 Annual Report on Form 10-K, including entity level controls, inadequate segregation of duties, and insufficient documentation of policies and procedures, continue to be present[122](index=122&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2019, and remediation actions are ongoing[123](index=123&type=chunk) [PART II. OTHER INFORMATION](index=26&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, unregistered sales of equity, defaults, and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=26&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any material legal proceedings - The company is currently not a party to any material legal proceedings[125](index=125&type=chunk) [ITEM 1A. RISK FACTORS](index=26&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - There are no material changes to the Company's risk factors as described in Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018[126](index=126&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=26&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the conversion of Senior Convertible Notes into common stock and warrants, with no public offerings or share repurchases - On July 2, 2019, **$259,000** of principal and accrued interest from Senior Convertible Notes were converted into **126,741** shares of common stock and **126,741** stock purchase warrants, following the release of a cease trade order by the Alberta Securities Commission[127](index=127&type=chunk) - The shares and warrants were issued under exemptions provided in Section 4(a)(2) of the Securities Act of 1933 and Regulation S[127](index=127&type=chunk) - The company did not have any proceeds from public offerings of common stock or repurchase any shares during the six months ended June 30, 2019[128](index=128&type=chunk)[129](index=129&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=26&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reported no defaults upon senior securities - There were no defaults upon senior securities[130](index=130&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=26&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[131](index=131&type=chunk) [ITEM 5. OTHER INFORMATION](index=26&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No other information is reported in this section - No other information is reported[132](index=132&type=chunk) [ITEM 6. EXHIBITS](index=26&type=section&id=ITEM%206.%20EXHIBITS) This section lists exhibits filed with the Form 10-Q, including corporate documents, officer certifications, and XBRL files | SEC Ref. No. | Title of Document | | :----------- | :------------------------------------------------------------------- | | 3 | Fourth Amended and Restated Certificate of Incorporation of Processa Pharmaceuticals, Inc. | | 31.1* | Rule 153-14(a) Certification by Principal Executive Officer | | 31.2* | Rule 153-14(a) Certification by Principal Financial Officer | | 32.1*++ | Section 1350 Certification of Principal Executive Officer and Principal Financial Officer | | 99.1 | XBRL Files |

[PART 1: FINANCIAL INFORMATION](index=3&type=section&id=PART%201%3A%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the company [ITEM 1: FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201%3A%20FINANCIAL%20STATEMENTS) This section presents Processa Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements and notes for Q1 2019 and 2018 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets | Metric | March 31, 2019 | December 31, 2018 | | :-------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $1,248,532 | $1,740,961 | | Total Current Assets | $1,542,897 | $2,020,376 | | Total Assets | $12,077,897 | $12,481,068 | | Total Current Liabilities | $724,724 | $645,704 | | Total Liabilities | $2,954,152 | $2,780,050 | | Total Stockholders' Equity | $9,123,745 | $9,701,018 | - Total assets decreased by approximately **$400,000** to **$12.1 million** at March 31, 2019, from **$12.5 million** at December 31, 2018, primarily due to operating costs, partially offset by the recognition of right-of-use assets and tax effects[87](index=87&type=chunk) - Total liabilities increased by **$304,401** to **$950,105** at March 31, 2019, from **$645,704** at December 31, 2018, mainly due to accrued expenses for PCS-499 development and Phase 2a clinical trial, and the recognition of operating lease liabilities[88](index=88&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, including revenues, expenses, and net loss for the reporting periods Operating Expenses (Three Months Ended March 31) | Operating Expenses (Three Months Ended March 31) | 2019 | 2018 | | :----------------------------------------------- | :---------- | :---------- | | Research and development | $484,750 | $821,388 | | General and administrative | $397,766 | $470,228 | | Operating Loss | $(882,516) | $(1,291,616)| | Net Loss | $(750,832) | $(1,096,798)| | Net Loss Per Common Share - Basic and Diluted | $(0.02) | $(0.03) | - Net loss decreased by **$345,966**, from **$(1,096,798)** in Q1 2018 to **$(750,832)** in Q1 2019, primarily due to reduced research and development expenses and a lower interest expense[13](index=13&type=chunk)[71](index=71&type=chunk) [Condensed Consolidated Statement of Changes in Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders%27%20Equity) This section outlines changes in the company's equity, reflecting net loss, stock-based compensation, and investor contributions Stockholders' Equity Changes | Item | Balance at Jan 1, 2019 | Stock based compensation | Payments by investor for clinical trial costs | Net loss | Balance at Mar 31, 2019 | | :-------------------------------- | :--------------------- | :----------------------- | :-------------------------------------------- | :------- | :---------------------- | | Additional Paid-In Capital | $19,121,285 | $58,559 | - | - | $19,179,844 | | Stock Subscription Receivable | $(1,800,000) | - | $115,000 | - | $(1,685,000) | | Accumulated Deficit | $(7,624,134) | - | - | $(750,832)| $(8,374,966) | | Total Stockholders' Equity | $9,701,018 | $58,559 | $115,000 | $(750,832)| $9,123,745 | - Stockholders' equity decreased from **$9,701,018** at January 1, 2019, to **$9,123,745** at March 31, 2019, mainly due to the net loss of **$750,832**, partially offset by stock-based compensation and investor payments for clinical trial costs[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities Cash Flows (Three Months Ended March 31) | Cash Flows (Three Months Ended March 31) | 2019 | 2018 | | :--------------------------------------- | :---------- | :---------- | | Net cash used in operating activities | $(492,429) | $(1,069,008)| | Net cash used in investing activities | $0 | $(1,782) | | Net cash provided by financing activities| $0 | $0 | | Net Decrease in Cash | $(492,429) | $(1,070,790)| | Cash and Cash Equivalents – End of Period| $1,248,532 | $1,776,639 | - Net cash used in operating activities decreased significantly from **$1,069,008** in Q1 2018 to **$492,429** in Q1 2019, primarily due to a lower net loss and direct payments by an investor for clinical trial costs[96](index=96&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [Note 1 – Organization and Summary of Significant Accounting Policies](index=8&type=section&id=Note%201%20%E2%80%93%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes the company's business, its lead product, going concern issues, and significant accounting policy adoptions - Processa Pharmaceuticals, Inc. is an emerging clinical stage biopharmaceutical company focused on developing drug products for high unmet medical needs, with **PCS-499** as its lead product for Necrobiosis Lipoidica (NL)[23](index=23&type=chunk)[24](index=24&type=chunk) - The company dosed its first NL patient in a Phase 2a clinical trial on January 29, 2019, and as of May 1, 2019, nine patients were enrolled, with eight receiving **1.8 gm of PCS-499 daily** without dose-limiting side effects[24](index=24&type=chunk)[70](index=70&type=chunk) - Substantial doubt exists about the company's ability to continue as a going concern due to recurring losses, negative cash flow, and the need to raise additional capital by the end of Q2 2019 to fund future operations beyond the current Phase 2a trial[29](index=29&type=chunk)[31](index=31&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - The company adopted **ASC 842, Leases**, on January 1, 2019, resulting in the recognition of a right-of-use asset of **$293,198** and lease obligations of **$303,161**, without a material impact on the statement of operations[44](index=44&type=chunk)[45](index=45&type=chunk) [Note 2 – Intangible Assets](index=12&type=section&id=Note%202%20%E2%80%93%20Intangible%20Assets) This note details the company's intangible assets, including gross amounts, accumulated amortization, and net values Intangible Assets | Intangible Assets | March 31, 2019 | December 31, 2018 | | :------------------------ | :------------- | :---------------- | | Gross intangible assets | $11,059,429 | $11,059,429 | | Less: accumulated amortization | $(820,479) | $(621,647) | | Total intangible assets, net | $10,238,950 | $10,437,782 | - Amortization expense for intangible assets was **$198,832** for the three months ended March 31, 2019, a significant increase from **$25,435** in the same period of 2018, and is included in research and development expense[46](index=46&type=chunk) [Note 3 – Income Taxes](index=12&type=section&id=Note%203%20%E2%80%93%20Income%20Taxes) This note explains the income tax benefit recognized and the deferred tax liability related to acquired intangible assets - An income tax benefit of **$130,299** was recognized for the three months ended March 31, 2019, stemming from the recording and amortization of a deferred tax liability of **$3,037,147** related to the acquisition of CoNCERT's license and 'Know-How'[13](index=13&type=chunk)[50](index=50&type=chunk)[85](index=85&type=chunk) - The deferred tax liability was created due to a temporary difference between the financial reporting basis (**$11,038,929**) and the nominal tax basis (**$1,782**) of the acquired intangible assets[49](index=49&type=chunk)[85](index=85&type=chunk) [Note 4 - Stock-based Compensation](index=12&type=section&id=Note%204%20-%20Stock-based%20Compensation) This note details the stock-based compensation expense recorded for the reporting period - Stock-based compensation expense of **$58,559** was recorded for the three months ended March 31, 2019, as general and administrative expense, with no expense recorded in the comparable 2018 period[51](index=51&type=chunk) [Note 5 – Senior Convertible Notes](index=13&type=section&id=Note%205%20%E2%80%93%20Senior%20Convertible%20Notes) This note discusses the outstanding senior convertible notes and their potential repayment obligations - The company has **$230,000** in Senior Convertible Notes outstanding, which cannot be converted until the Alberta Securities Commission permits the issuance of common stock units to Canadian holders, otherwise, the principal and accrued interest (approx. **$255,000**) will need to be repaid[52](index=52&type=chunk)[89](index=89&type=chunk) [Note 6 – Net Loss per Share of Common Stock](index=13&type=section&id=Note%206%20%E2%80%93%20Net%20Loss%20per%20Share%20of%20Common%20Stock) This note presents the calculation of basic and diluted net loss per share and discusses potentially dilutive securities Net Loss per Share (Three Months Ended March 31) | Metric (Three Months Ended March 31) | 2019 | 2018 | | :----------------------------------- | :------ | :------ | | Net loss | $(750,832)| $(1,096,798)| | Weighted-average common shares | 38,674,265| 35,272,626| | Basic and diluted net loss per share | $(0.02) | $(0.03) | Potentially Dilutive Securities (March 31) | Potentially Dilutive Securities (March 31) | 2019 | 2018 | | :----------------------------------------- | :-------- | :-------- | | Stock options and purchase warrants | 3,917,763 | - | | Senior convertible notes | 124,789 | 1,305,577 | - Potentially dilutive securities, including stock options, warrants, and senior convertible notes, were excluded from diluted net loss per share computation as their effect would have been anti-dilutive due to the net loss[42](index=42&type=chunk)[53](index=53&type=chunk)[55](index=55&type=chunk) [Note 7 - Operating Leases](index=13&type=section&id=Note%207%20-%20Operating%20Leases) This note details lease costs for office space and equipment, along with future lease liability maturities - Lease costs for office space and equipment totaled **$24,563** for the three months ended March 31, 2019, down from **$27,981** in the prior year[57](index=57&type=chunk) Lease Liabilities Maturities (as of March 31, 2019) | Lease Liabilities Maturities (as of March 31, 2019) | Amount ($) |\n| :------------------------------------------------ | :------ | | 2019 | $73,508 |\n| 2020 | $92,603 |\n| 2021 | $90,495 |\n| 2022 | $69,741 |\n| Total lease payments | $326,347|\n| Present value of lease liabilities | $283,885| [Note 8 – Related Party Transactions](index=14&type=section&id=Note%208%20%E2%80%93%20Related%20Party%20Transactions) This note discloses amounts due from related party CorLyst, LLC for shared operational costs - Amounts due from related party CorLyst, LLC, for shared payroll, healthcare, and rent costs increased to **$47,165** at March 31, 2019, from **$21,583** at December 31, 2018[58](index=58&type=chunk) [Note 9 – Commitments and Contingencies](index=14&type=section&id=Note%209%20%E2%80%93%20Commitments%20and%20Contingencies) This note outlines the company's purchase obligations related to contracts with research organizations and subcontractors - The company had purchase obligations of approximately **$23,000** at March 31, 2019, related to contracts with contract research organizations and subcontractors[59](index=59&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION](index=15&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATION) This section provides management's analysis of the company's financial condition, operational results, liquidity, and future outlook [Forward Looking Statements](index=15&type=section&id=Forward%20Looking%20Statements) This section highlights that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including limited operating history, funding ability, regulatory approvals, competition, intellectual property protection, and the ability to continue as a going concern[60](index=60&type=chunk) [Overview](index=15&type=section&id=Overview) This section provides a general description of the company's business, its focus, and historical financial performance - Processa Pharmaceuticals is an emerging pharmaceutical company focused on clinical development of drug products for unmet medical needs, with one product currently in development for multiple indications[62](index=62&type=chunk) - The company acquired Promet Therapeutics, LLC in October 2017, which was accounted for as a reverse acquisition, and has incurred operating losses since inception, with an accumulated deficit of **$8.4 million** as of March 31, 2019[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) [Going Concern and Management's Plan](index=16&type=section&id=Going%20Concern%20and%20Management%27s%20Plan) This section addresses the company's going concern status and outlines management's strategies to secure future funding - Substantial doubt exists about the company's ability to continue as a going concern due to limited working capital, recurring losses, negative cash flow, and the absence of revenue or immediate sales prospects[66](index=66&type=chunk)[67](index=67&type=chunk)[69](index=69&type=chunk) - The company plans to raise additional funds in the first half of 2019 and is exploring alternative revenue streams to offset expenses, but there is no assurance of securing adequate funds[68](index=68&type=chunk) [Status of our Phase 2a Clinical Trial in Necrobiosis Lipoidica](index=17&type=section&id=Status%20of%20our%20Phase%202a%20Clinical%20Trial%20in%20Necrobiosis%20Lipoidica) This section updates on the progress of the **PCS-499** Phase 2a clinical trial for Necrobiosis Lipoidica, including patient enrollment - **PCS-499** received orphan-drug designation for Necrobiosis Lipoidica (NL) in June 2018, and the FDA cleared its IND in September 2018 for a Phase 2a safety-dose tolerability trial[70](index=70&type=chunk) - The first NL patient was dosed on January 29, 2019, and as of May 1, 2019, nine patients were enrolled, with eight receiving **1.8 gm of PCS-499 daily** without dose-limiting side effects[70](index=70&type=chunk) - The company anticipates enrolling all **12 planned patients** by June 2019 and expects to request an FDA meeting before the end of 2019 to discuss further development, including the next clinical trial[70](index=70&type=chunk) [Results of Operations](index=17&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, detailing revenues, expenses, and other income/loss components [Revenues](index=17&type=section&id=Revenues) This section states the company currently has no revenue or immediate sales prospects - The company currently has no revenue under contract or any immediate sales prospects[72](index=72&type=chunk) [Research and Development Expenses](index=17&type=section&id=Research%20and%20Development%20Expenses) This section details changes in research and development costs, including amortization and clinical trial expenses R&D Expenses (Three Months Ended March 31) | R&D Expenses (Three Months Ended March 31) | 2019 | 2018 | | :----------------------------------------- | :---------- | :---------- | | Amortization of intangible assets | $198,832 | $25,435 | | Research and development salaries and benefits | $158,855 | $165,512 | | Preclinical, clinical trial and other costs | $127,063 | $630,441 | | Total | $484,750 | $821,388 | - Total research and development costs decreased by **$336,638** in Q1 2019 compared to Q1 2018, primarily due to a **$503,378** reduction in preclinical, clinical trial, and other costs, despite an increase in amortization expense[75](index=75&type=chunk)[76](index=76&type=chunk) - R&D costs are anticipated to increase in the future with ongoing Phase 2a clinical trial activities for NL, with an estimated **$395,000** to be spent in the remainder of 2019 and **$711,000** through 2021 to complete the current trial[77](index=77&type=chunk) [General and Administrative Expenses](index=19&type=section&id=General%20and%20Administrative%20Expenses) This section analyzes the changes in general and administrative expenses, including payroll and professional fees - General and administrative expenses decreased by **$72,462** to **$397,766** in Q1 2019, primarily due to a cybersecurity fraud loss of approximately **$144,000** in Q1 2018 that did not recur, and reductions in professional fees, rent, and maintenance[81](index=81&type=chunk) - This decrease was partially offset by an increase of approximately **$98,000** in payroll and related costs, including **$58,559** in stock-based compensation, as the company built its finance team[81](index=81&type=chunk) [Interest Expense](index=19&type=section&id=Interest%20Expense) This section explains the significant decrease in interest expense due to the conversion of senior convertible notes - Interest expense significantly decreased from **$87,740** in Q1 2018 to **$4,600** in Q1 2019, mainly due to the conversion of **$2.35 million** of Senior Convertible Notes into common stock and warrants in May 2018[83](index=83&type=chunk) [Interest Income](index=19&type=section&id=Interest%20Income) This section reports the increase in interest income from money market funds and certificates of deposit - Interest income increased from **$1,024** in Q1 2018 to **$5,985** in Q1 2019, representing interest earned on money market funds and certificates of deposit[84](index=84&type=chunk) [Income Tax Benefit](index=19&type=section&id=Income%20Tax%20Benefit) This section details the income tax benefit recognized from the amortization of a deferred tax liability - An income tax benefit of **$130,299** was recognized in Q1 2019, resulting from the recording and amortization of a deferred tax liability created by the acquisition of CoNCERT's license and 'Know-How'[85](index=85&type=chunk) [Financial Condition](index=19&type=section&id=Financial%20Condition) This section summarizes the company's financial position, including cash, assets, liabilities, and funding commitments - As of March 31, 2019, the company had **$1,248,532** in cash and a **$1.7 million** commitment from PoC Capital to fund its Phase 2a clinical trial for NL[86](index=86&type=chunk) - Total assets decreased by approximately **$400,000** to **$12.1 million**, while total liabilities (excluding deferred income taxes) increased by **$304,401** to **$950,105**, primarily due to accrued expenses and operating lease liabilities[87](index=87&type=chunk)[88](index=88&type=chunk) - The company still has **$230,000** in Senior Convertible Notes outstanding, which require repayment if the Alberta Securities Commission does not permit their conversion into common stock units[89](index=89&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet short-term obligations and its plans for securing future funding - The company's cash and cash equivalents were **$1.2 million** at March 31, 2019, down from **$1.7 million** at December 31, 2018, with **$1.7 million** of a **$1.8 million** clinical trial funding commitment remaining unused[91](index=91&type=chunk) - Additional capital is needed before the end of Q2 2019 to fund future operations beyond the current Phase 2a trial, as current resources are deemed adequate only for the ongoing trial[93](index=93&type=chunk) - Future funding may be sought through equity offerings, debt financings, collaborations, or licensing arrangements, which could lead to dilution for existing stockholders or restrictive covenants[94](index=94&type=chunk) [Cash Flows](index=21&type=section&id=Cash%20Flows) This section analyzes the company's cash movements across operating, investing, and financing activities [Net cash used in operating activities](index=21&type=section&id=Net%20cash%20used%20in%20operating%20activities) This section details the decrease in cash used for operations, driven by lower net loss and direct investor payments - Net cash used in operating activities decreased from **$1,069,008** in Q1 2018 to **$492,429** in Q1 2019, driven by a lower net loss and direct payments by PoC Capital to the CRO[96](index=96&type=chunk) - Operating activities are expected to continue generating negative cash flows due to ongoing R&D efforts and G&A costs, which are anticipated to increase[97](index=97&type=chunk) [Net cash used in investing activities](index=21&type=section&id=Net%20cash%20used%20in%20investing%20activities) This section reports no significant cash flows from investing activities in the current period - There were no cash sources or uses for investing activities during the three months ended March 31, 2019, compared to **$1,782** used in Q1 2018 for intangible asset transaction costs[98](index=98&type=chunk) [Net cash provided by (used in) financing activities](index=21&type=section&id=Net%20cash%20provided%20by%20%28used%20in%29%20financing%20activities) This section indicates no financing activities occurred during the current or prior reporting periods - No financing activities occurred during the three months ended March 31, 2019 or 2018[99](index=99&type=chunk) [Contractual Obligations and Commitments](index=22&type=section&id=Contractual%20Obligations%20and%20Commitments) This section confirms no significant changes to the company's contractual obligations since the last annual report - There have been no significant changes to the contractual obligations reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018[100](index=100&type=chunk) [Off Balance Sheet Arrangements](index=22&type=section&id=Off%20Balance%20Sheet%20Arrangements) This section states that the company did not have any off-balance sheet arrangements as of the reporting date - As of March 31, 2019, the company did not have any off-balance sheet arrangements[101](index=101&type=chunk) [Critical Accounting Policies and Use of Estimates](index=22&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) This section confirms no changes to the company's critical accounting policies since its most recent annual report - There have been no changes in the company's critical accounting policies from its most recent Annual Report on Form 10-K[104](index=104&type=chunk) [Recently Issued Accounting Pronouncements](index=22&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to Note 1 for details on recently adopted accounting standards - Refer to Note 1 in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for details on recently adopted accounting standards[105](index=105&type=chunk) [Emerging Growth Company](index=22&type=section&id=Emerging%20Growth%20Company) This section clarifies the company's status as an emerging growth company and its election regarding accounting standards - The company is an 'emerging growth company' but has irrevocably elected not to use the extended transition period for complying with new or revised financial accounting standards, thus adhering to the same standards as other public companies[106](index=106&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=22&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This item is not applicable to the company as it qualifies as a smaller reporting company - Item 3 is not applicable to the company as it is a smaller reporting company[107](index=107&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=23&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section addresses the effectiveness of disclosure controls, internal control over financial reporting, and ongoing remediation efforts [Disclosure Controls and Procedures](index=23&type=section&id=Disclosure%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and identified material weaknesses - Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2019, due to material weaknesses identified in the 2018 Annual Report on Form 10-K[108](index=108&type=chunk)[109](index=109&type=chunk) - Material weaknesses include certain entity-level controls, inadequate segregation of duties, and insufficient documentation of policies and procedures for transaction processing, accounting, and financial reporting[109](index=109&type=chunk) [Changes in Internal Control over Financial Reporting](index=23&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports no material changes in internal control over financial reporting during the quarter - There have been no material changes in internal control over financial reporting during Q1 2019, and the company is continuing remediation actions to rectify control deficiencies[110](index=110&type=chunk) [PART II. OTHER INFORMATION](index=23&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, and other miscellaneous disclosures [ITEM 1. LEGAL PROCEEDINGS](index=23&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[112](index=112&type=chunk) [ITEM 1A. RISK FACTORS](index=23&type=section&id=ITEM%201A.%20RISK%20FACTORS) There are no material changes to the company's risk factors as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - There are no material changes to the company's risk factors as described in Item 1A of the Annual Report on Form 10-K for the fiscal year ended December 31, 2018[113](index=113&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=23&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company did not have any unregistered sales of equity securities, use of proceeds from public offerings, or issuer purchases of equity securities during the three months ended March 31, 2019 - The company did not have any sales of unregistered securities during the three months ended March 31, 2019[114](index=114&type=chunk) - There was no use of proceeds from a public offering of common stock[115](index=115&type=chunk) - The company did not repurchase any shares of its common stock during the three months ended March 31, 2019[116](index=116&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=24&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[117](index=117&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=24&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[118](index=118&type=chunk) [ITEM 5. OTHER INFORMATION](index=24&type=section&id=ITEM%205.%20OTHER%20INFORMATION) There is no other information to report under this item - No other information is reported under this item[119](index=119&type=chunk) [ITEM 6. EXHIBITS](index=24&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and XBRL files Exhibits Filed | SEC Ref. No. | Title of Document | | :----------- | :----------------------------------------------------------- | | 31.1* | Rule 153-14(a) Certification by Principal Executive Officer | | 31.2* | Rule 153-14(a) Certification by Principal Financial Officer | | 32.1*++ | Section 1350 Certification of Principal Executive Officer and Principal Financial Officer | | 99.1 | XBRL Files |

FORM 10-K [X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2018 or UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ ] Transitional Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 333-184948 Processa Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Delaware 45-1539785 (State or other jurisdiction (IRS Employer of incorporation) Identific ...