LD Micro Invitational June 9, 2021 David Young, PharmD, PhD Chairman and CEO | --- | --- | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ...

Financial Data and Key Metrics Changes - The company reported a net loss of $2.1 million or $0.14 per share for Q1 2021, compared to a net loss of $874,000 or $0.16 per share for the same period in 2020, indicating an increase in net loss primarily due to higher clinical trial costs [7] - Net cash used in operating activities increased by $1.7 million to $2.2 million in Q1 2021 compared to Q1 2020, attributed to costs related to clinical trials [8] - Research and development expenses totaled $1.5 million in Q1 2021, up from $502,000 in Q1 2020, reflecting increased trial preparations [10] - General and administrative expenses rose to $717,000 in Q1 2021 from $484,000 in Q1 2020, with $308,000 allocated to non-cash compensation costs [11] Business Line Data and Key Metrics Changes - The company is actively working on four drugs: PCS6422 for metastatic colorectal cancer, PCS499 for ulcerative necrobiosis lipoidica, 11T for cancer, and 12852 for gastroparesis, each with significant market potential [23] - PCS6422 is in Phase 1b trials, while PCS499 is in Phase 2b trials, with both drugs targeting large markets exceeding $1 billion [23][27] Market Data and Key Metrics Changes - The potential market for PCS6422, when combined with capecitabine, is estimated to be between $700 million to $1.5 billion for metastatic colorectal cancer, with broader applications potentially leading to multiple billions [27] - PCS499 has a potential market of $600 million to $1.4 billion, as it targets a condition with no approved treatments [33] Company Strategy and Development Direction - The company aims to develop drugs with a high return using a derisked approach, focusing on unmet medical needs and competitive advantages [18][19] - The strategy includes leveraging previous work on drugs to streamline the approval process and ensuring capital efficiency [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving clinical development goals and anticipates increased cash burn as trials progress [72] - The company expects to enroll the first patient in the PCS499 trial within 10 to 45 days and anticipates significant milestones over the next six months [40] Other Important Information - The company raised $10.2 million in a private offering in February 2021, providing additional cash to support studies and overhead through 2023 [9][17] - The company plans to hire additional staff to support drug development and corporate requirements over the next 12 months [17] Q&A Session Summary Question: Update on clinical sites for 6422 and 499 - Management confirmed five U.S. sites for PCS499 and plans to add three to four more, while expecting four to five sites for PCS6422 [46][47] Question: Data expected from interim analysis - For PCS6422, the interim analysis will focus on confirming the dosing regimen and tolerability, while for PCS499, the expectation is to see differences between treated and placebo groups [50][51] Question: Competing drugs for PCS499 - Management discussed off-label drugs like topical steroids and pentoxifylline, noting mixed results and side effects associated with current treatments [66][68] Question: Financial burn rate expectations - Management expects the cash burn rate to increase as clinical trials commence, with some of the current burn attributed to upfront costs for CROs [72][73] Question: Future milestones and updates - Management indicated that updates on patient enrollment and any serious adverse events will be provided in future calls, with the possibility of interim results by early 2022 [76][78]

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, 2021 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) Indicate by check mar ...

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 For the fiscal year ended December 31, 2020 or [ ] Transitional Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter peri ...

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 |