Processa Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

Note 1 –Organization and Summary of Significant Accounting Policies

Organization

We are a clinical-stage biopharmaceutical company focused on incorporating our Regulatory Science Approach into the development of our Next Generation Cancer therapy (“NGC”) drugs to improve the safety and efficacy of cancer treatment. Our NGC drugs are modifications of existing FDA-approved oncology drugs resulting in an alteration of the metabolism and/or distribution while maintaining the well-known and established existing mechanisms of killing the cancer cells. By modifying the NGC drugs in this manner, we believe our NGC treatments will provide improved safety-efficacy profiles when compared to their currently marketed counterparts.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions of the Securities and Exchange Commission (“SEC”) on Form 10-Q and Article 8 of Regulation S-X.

Accordingly, they do not include all the information and disclosures required by U.S. GAAP for complete financial statements. All material intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position and of the results of operations and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year.

Liquidity

Our consolidated financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. We have incurred losses since inception, currently devoting substantially all our efforts toward research and development of our NGC drug product candidates, including conducting clinical trials and providing general and administrative support for these operations, and have an accumulated deficit of $94.0 million at June 30, 2025. During the six months ended June 30, 2025, we generated a net loss of $6.8 million and used $5.0 million in net cash for operating activities from continuing operations. To date, none of our drug candidates have been approved for sale, and therefore we have not generated any product revenue and do not expect positive cash flow from operations in the foreseeable future. We expect that we will continue to be dependent upon equity and/or debt financing until we are able to generate positive cash flows from its operations.

On January 29, 2025, we closed a public offering where we sold 1,030,972 shares of our common stock, pre-funded warrants to purchase up to 7,019,700 shares of our common stock, and accompanying Series A warrants to purchase up to 8,050,672 shares of our common stock (the “Series A Warrants”) and Series B warrants to purchase up to 4,025,336 shares of our common stock (the “Series B Warrants”) for net proceeds of $4.4 million, after deducting placement agent fees and offering-related expenses (see Note 2 for additional details). On June 18, 2025, we closed another public offering where we sold 14,310,000 shares of common stock, pre-funded warrants to purchase up to 13,690,000 shares of common stock, and common warrants to purchase up to 28,000,000 shares of common stock for net proceeds of $6.2 million, after deducting placement agent fees and offering-related expenses (see Note 2 for additional details). As of June 30, 2025, all Pre-Funded Warrants from both public offerings were exercised. During the six months ended June 30, 2025, we also received $100,000 for the exercise of warrants to purchase 400,000 shares of common stock from the June PO.

On August 4, 2025, we entered into a Securities Purchase Agreement with an accredited investor and sold 5,467,181 shares for $1.3 million in gross proceeds. We also sold 4,597,612 shares for $1.1 million in gross proceeds under our ATM agreement. Following these investments, we are exploring options to pursue a cryptocurrency treasury strategy.

At June 30, 2025, we had cash and cash equivalents totaling $6.9 million. Based on our current business plans, we believe these funds, together with the $2.4 million in gross proceeds we received in August 2025, will satisfy our capital needs into the first quarter of 2026. Our ability to execute our longer-term operating plans, including future preclinical studies and clinical trials for our portfolio of drugs depend on our ability to obtain additional funding from the sale of equity and/or debt securities, a strategic transaction or other funding transactions.

We plan to raise additional funds in the future through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements, but will only do so if the terms are acceptable to us. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of, or suspend our current or planned future clinical trial plans, or research and development programs. This may also cause us to not meet obligations contained in certain of our license agreements and put these assets at risk. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures. There can be no assurance that future funding will be available when needed.

Absent additional funding, we believe that our cash and cash equivalents will not be sufficient to fund our operations for a period of one year or more after the date that these consolidated financial statements are available to be issued based on the timing and amount of our projected net loss from continuing operations and cash to be used in operating activities during that period of time. As a result, substantial doubt exists about our ability to continue as a going concern within one year after the date that these consolidated financial statements are available to be issued. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be different should we be unable to continue as a going concern based on the outcome of these uncertainties described above.

Use of Estimates

In preparing our condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC, we make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to preclinical and clinical trial expenses, stock-based compensation, intangible assets, future milestone payments and income taxes. These estimates and assumptions are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. While we believe the estimates to be reasonable, actual results could differ materially from those estimates and could impact future results of operations and cash flows.

Income Taxes

We account for income taxes in accordance with ASC Topic 740,Income Taxes. Deferred income taxes are recorded for the expected tax consequences of temporary differences between the basis of assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. At June 30, 2025 and December 31, 2024, we recorded a valuation allowance equal to the full recorded amount of our net deferred tax assets since it is more-likely-than-not that such benefits will not be realized. The valuation allowance is reviewed quarterly and is maintained until sufficient positive evidence exists to support its reversal.

Under ASC 740-270Income Taxes – Interim Reporting, we are required to project our annual federal and state effective income tax rate and apply it to the year-to-date ordinary operating tax basis loss before income taxes. Based on the projection, no current income tax benefit or expense is expected for 2025 and the foreseeable future since we expect to generate taxable net operating losses.

Concentration of Credit Risk

Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of our cash and cash equivalents. We utilize only well-established banks and financial institutions with high credit ratings. Balances on deposit are insured by the Federal Deposit Insurance Corporation (FDIC) up to specified limits. Total cash held by our banks at June 30, 2025, exceeded FDIC limits.

Recent Accounting Pronouncements

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our condensed consolidated financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our condensed consolidated financial position or results of operations.

Note 2 –Stockholders’ Equity

Common Stock

During the six months ended June 30, 2025, we issued the following shares of common stock:

Note 3 –Stock-based Compensation

On June 19, 2019, our stockholders approved, and we adopted, the Processa Pharmaceuticals Inc. 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). The 2019 Plan allows us, under the direction of our Board of Directors or a committee thereof, to make grants of stock options, restricted and unrestricted stock and other stock-based awards to employees, including our executive officers, consultants and directors. The 2019 Plan provides for the aggregate issuance of 800,000 shares of our common stock. At June 30, 2025, we have 357,420 shares available for future grants.

Stock Compensation Expense

We recorded stock-based compensation expense for the three and six months ended June 30, 2025 and 2024 as follows:

Stock Options

No stock options to purchase shares of common stock were forfeited or expired during the six months ended June 30, 2025. At June 30, 2025, we had outstanding and exercisable options for the purchase of 2,747 shares with a weighted average exercise price of $409.09 and a weighted average remaining contractual life of 3.2 years. At June 30, 2025, we did not have any unrecognized stock-based compensation expense related to our granted stock options.

Restricted Stock Units

Activity with respect to our Restricted Stock Units (“RSUs”) during the six months ended June 30, 2025 was as follows:

At June 30, 2025, unrecognized stock-based compensation expense of approximately $148,000 for RSUs is expected to be fully recognized over a weighted average period of 0.7 years. The unrecognized expense excludes approximately $253,000 of expense related to certain grants of RSUs with performance milestones that are being accounted for as though the performance milestones are not probable of occurring at this time.

Holders of our vested RSUs will be issued shares of our common stock upon meeting the distribution restrictions contained in their Restricted Stock Unit Award Agreement. The distribution restrictions are different (longer) than the vesting schedule, imposing an additional restriction on the holder. While certain employees may hold fully vested RSUs, the individual does not hold any shares or have any rights of a stockholder until the distribution restrictions are met. Upon distribution to the employee, each RSU converts into one share of our common stock. The RSUs contain dividend equivalent rights.

Warrants

During the six months ended June 30, 2025, we sold 7,019,700 pre-funded warrants, and accompanying Series A Warrants to purchase up to 8,050,672 shares of our common stock and Series B Warrants to purchase up to 4,025,336 shares of our common stock in the January PO. We also sold 13,690,000 pre-funded warrants and accompanying common warrants to purchase up to 28,000,000 shares of common stock, as well as issued placement agent warrants to purchase up to 1,120,000 shares of common stock in the June PO. During the six months ended June 30, 2025, warrants to purchase 400,000 shares of common stock from the June PO and all pre-funded warrants from the January PO and June PO were exercised.

At June 30, 2025, we had outstanding exercisable stock purchase warrants excluding the Series A and B Warrants for the purchase of 30,495,784 shares with a weighted average exercise price of $0.35 and a weighted average remaining contractual life of 4.9 years. We have excluded the Series A and B Warrants sold under the January PO from the calculation of the weighted average remaining contractual life since we did not receive stockholder approval for these warrants until July 18, 2025.

We did not have any unrecognized stock-based compensation expense related to our granted stock purchase warrants at June 30, 2025.

Note 4 – Net Loss per Share of Common Stock

Net Loss Per Share

Basic net loss per share is computed by dividing our net loss available to common stockholders by the weighted average number of shares of common stock outstanding (which includes vested RSUs and unexercised pre-funded warrants) during the period. Diluted loss per share is computed by dividing our net loss available to common stockholders by the diluted weighted average number of shares of common stock (which includes the potentially dilutive effect of stock options, unvested RSUs and warrants) during the period. Since we experienced a net loss for both periods presented, basic and diluted net loss per share are the same. As such, diluted loss per share for the three and six months ended June 30, 2025 and 2024 excludes the impact of potentially dilutive common shares since those shares would have an anti-dilutive effect on net loss per share.

The computation of net loss per share for the three and six months ended June 30, 2025 and 2024 was as follows:

We have excluded the following potentially dilutive securities from the calculation of diluted net loss per share since they would have had an anti-dilutive effect:

We have not included any potential impact of the Series A and B Warrants from the January PO since they were subject to shareholder approval as of June 30, 2025.

Note 5 –Leases

We lease our office space under an operating lease agreement. This lease does not have significant rent escalation, concessions, leasehold improvement incentives, or other build-out clauses. Further, the lease does not contain contingent rent provisions. Our office space lease includes both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs), which are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases. We also lease office equipment under a financing lease. Our leases do not provide an implicit rate and, as such, we have used our incremental borrowing rate of 8% in determining the present value of the lease payments based on the information available at the lease commencement date.

Lease costs included in our condensed consolidated statements of operations totaled $22,461 for both three months ending June 30, 2025 and 2024 and $44,922 for both six months ending June 30, 2025 and 2024. The weighted average remaining lease terms and discount rate for our operating leases were as follows at June 30, 2025:

Annual lease liabilities for the operating lease were as follows at June 30, 2025:

Annual lease liabilities for the financing lease were as follows at June 30, 2025:

Note 6 –Related Party Transactions

CorLyst, LLC (“CorLyst”) reimburses us for shared costs related to payroll, health insurance and rent based on actual costs incurred, which are recognized as a reduction of our general and administrative operating expenses being reimbursed in our condensed consolidated statement of operations. Included in our general and administrative expenses is approximately $31,000 and $27,000 of reimbursements from CorLyst during the three months ended June 30, 2025 and 2024, respectively, and $60,000 and $50,000 for the six months ended June 30, 2025 and 2024. At June 30, 2025, we included approximately $29,000 due from CorLyst as a current asset in Prepaid and Other. Our President, Research and Development is the CEO of CorLyst, and CorLyst is a stockholder.

Note 7 –Segment Reporting

We manage our operations as a single segment, focused on developing the next generation of cancer therapy drugs. As our chief operating decision maker (CODM), our CEO manages and allocates resources at a consolidated level. He assesses performance, monitors budget versus actual results, and decides how to allocate resources based on net loss that also is reported on the consolidated statement of operations and comprehensive loss as consolidated net loss.

The following table presents reportable segment profit and loss, including significant expense categories, attributable to our reportable segment for the three and six months ended June 30, 2025 and 2024:

Note 8 –PCS12852

On June 17, 2025, we entered into a binding term sheet (“Term Sheet”) with Intact Therapeutics (“Intact”) granting Intact the exclusive option to license PCS12852, a highly specific and potent 5HT5 agonist that is Phase 2B ready as potentially the first meaningful treatment for diabetic gastroparesis patients. Upon execution of the Term Sheet, Intact agreed to pay a non-refundable standstill payment of $20,000 and upon execution of a license agreement, the Company will receive a 3.5% equity interest in Intact and a payment of $2.5 million, with $1.0 million paid within thirty days of closing and the remaining $1.5 million paid within twelve months of closing. The Term Sheet also provides that the license agreement will provide for development and regulatory milestone payments, commercial milestone payments based on net product sales and a 12% royalty on worldwide net sales of licensed products, excluding South Korea.

The obligations of the parties to enter into the license agreement are subject to additional diligence by Intact. Pursuant to the Term Sheet, the parties have one hundred and twenty (120) days to finish any remaining due diligence and enter into the license agreement, which period may be extended for an additional one hundred and twenty days for an additional fee of $30,000. There can be no assurance that the Company and Intact will enter into a license agreement.

In connection with the Term Sheet, Yuhan Corporation executed Amendment No. 1 to our existing license agreement dated August 19, 2020 (the “Yuhan Agreement”), effective June 11, 2025, which, among other things, extended the deadline to dose the first patient in a Phase 2B clinical trial, Phase 3 clinical trial or other pivotal clinical trial from 48 months to 108 months from the effective date of the original agreement.

Note 9 –Commitments and Contingencies

Purchase Obligations

We enter into contracts in the normal course of business with contract research organizations (CROs) and subcontractors to further develop our products. The contracts are cancelable, with varying provisions regarding termination. If we terminated a cancelable contract with a specific vendor, we would only be obligated for products or services that we received at the effective date of the termination and any applicable cancellation fees. At June 30, 2025, we are contractually obligated to pay up to $13.1 million of future services under the agreements with the CROs. Our actual contractual obligations will also vary depending on the progress and results of the remaining clinical trials.

NGC-Gem (also identified as PCS3117)

On June 27, 2025, we provided a 120-day written notice of termination of our licensing agreement with Ocuphire Pharma, Inc. (now Opus Genetics) dated June 16, 2021, rescinding all rights and licenses previously granted to us for NGC-Gem.

Note 10 –Subsequent Events

RSU Grants

On July 24, 2025, the Compensation Committee of our Board of Directors granted RSUs for the future issuance of up to 356,310 shares of common stock to our employees and independent directors. The RSUs vest over a 1-3 year period.

Equity Sales

On August 4, 2025, we entered into a Securities Purchase Agreement with an accredited investor and sold 5,467,181 shares for $1.3 million in gross proceeds. We also sold 4,597,612 shares for $1.1 million in gross proceeds under our ATM agreement. Following these investments, we are exploring options to pursue a cryptocurrency treasury strategy.