Processa Pharmaceuticals, Inc.

Item 1: Financial Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

Note 1 –Organization and Summary of Significant Accounting Policies

Organization

On July 28, 2026, Processa Pharmaceuticals, Inc. (the “Company,” “we,” “us,” and “our”) acquired Vidya Therapeutics, Inc. (“Vidya”) pursuant to the terms of an Agreement and Plan of Merger, dated as of July 28, 2026 (such agreement, the “Merger Agreement” and the transaction consummated via Merger Agreement, the “Vidya Acquisition”) by and among our company, Venus Merger Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, Venus Merger Sub II, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, and Vidya (see Note 9). The accompanying unaudited condensed financial statements do not give effect to our acquisition of Vidya.

The Vidya Acquisition brought into our pipeline Vidya’s lead asset, VT-7208, an orally available, covalently binding, irreversible, CNS-penetrant Bruton’s tyrosine kinase inhibitor (“BTKi”) rationally designed to optimize for selectivity, potency, and tolerability. In connection with the Vidya Acquisition, we received $200 million in gross proceeds from a private placement financing of shares of our non-voting convertible preferred stock. We intend to use the net proceeds of $183.3 million from the private placement to fund operations into the second half of 2029 and through key clinical milestones, including top-line data from Phase 2 proof-of-concept studies for food allergy, chronic spontaneous urticaria (“CSU”), and relapsing multiple sclerosis (“RMS”).

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, 2025, 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

As of June 30, 2026 our net assets were not sufficient to fund our future operations. However, on July 30, 2026 we closed a private placement, as described in Note 9, for gross proceeds of $200 million from which we received net proceeds of $183.3 million. Management believes that with these funds our liquid assets are sufficient to meet obligations for at least one year from the issuance date of these financial statements.

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.

Digital Assets

Our digital assets consist of Chiliz (CHZ) tokens and we have accounted for it in accordance with ASC 350-60, Intangibles – Goodwill and Other – Crypto Assets (“ASC 350-60”). We initially recorded the digital assets at cost and have subsequently remeasured at fair value as of the balance sheet date with changes in fair value recognized as unrealized gain or losses in the condensed consolidated statement of operations. During the six months ended June 30, 2026, we sold 11,000,000 CHZ coins for $186,000 and recognized a realized loss of $159,005 related to the sale. We will continue to recognize any realized gains or losses in the consolidated statement of operations based on the fair value of the digital assets on the date of sale or derecognition.

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, 2026 and December 31, 2025, 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 2026 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. While total cash held by our banks at June 30, 2026 did not exceed FDIC limits, recent private placement net proceeds of $183.3 million (see Note 9) have caused cash balances to exceed 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, 2026, we issued the following shares of common stock:

Treasury Stock

On February 15, 2026, the Board of Directors (the “Board”) approved the retirement of the 200 shares held in treasury 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 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 432,000 shares of our common stock. At June 30, 2026, we had 232,721 shares available for future grants, which were all granted to employees and directors on July 26, 2026.

Stock Compensation Expense

We recorded stock-based compensation expense for the three and six months ended June 30, 2026 and 2025 as follows:

Stock Options

The following table summarizes our stock option activity during the six months ended June 30, 2026:

No forfeiture rate was applied to these stock options. The aggregate intrinsic value of outstanding options was $0 at both June 30, 2026 and 2025. No stock options were exercised during the six months ended June 30, 2026 or 2025. At June 30, 2026, unrecognized stock-based compensation expense for stock options of $514,000 is expected to be fully recognized over a weighted average period of 2.3 years.

Restricted Stock Units

Activity with respect to our Restricted Stock Units (“RSUs”) during the six months ended June 30, 2026 was as follows:

At June 30, 2026, unrecognized stock-based compensation expense of approximately $182,000 for RSUs is expected to be fully recognized over a weighted average period of 2.3 years. The unrecognized expense excludes approximately $12,000 of expense related to certain grants of RSUs with performance milestones that are not probable of occurring at this time. On July 26, 2026, we granted RSUs that represent 232,721 shares of common stock to our employees and directors with a grant date fair value of $2.60. The RSUs vested immediately and the shares of common stock will be distributed within six months of the grant date.

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, 2026,6,324 warrants expired and we did not grant any warrants and no warrants were exercised. We did not have any unrecognized stock-based compensation expense related to the 1,430,807 outstanding stock purchase warrants at June 30, 2026. The outstanding stock purchase warrants have a weighted average exercise price of $14.53 andexpire between January 18, 2027 and July 18, 2030.

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) 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 is the same. As such, diluted loss per share for the six months ended June 30, 2026 and 2025 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, 2026 and 2025 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:

Note 5 –Digital Assets

Digital assets are measured at fair value on a recurring basis using quoted prices in its principal market (Level 1 inputs). We have designated a principal market based on the market we have access to that has the greatest volume and level of orderly transactions for digital assets. We reassess the principal market when facts and circumstances change, including, but not limited to, when new markets become accessible, or the volume/activity in the current principal market declines.

The following table sets forth the number of tokens, cost basis and fair value of digital assets held, as shown on the condensed consolidated balance sheet as of June 30, 2026:

The following table represents a reconciliation of our assets and (liabilities) related to our digital assets during the six months ended June 30, 2026:

Note 6 –Related Party Transactions

CorLyst, LLC

CorLyst, LLC (“CorLyst”) reimburses us for shared costs related to payroll and health insurance (and rent during the three and six months ended June 30, 2025) based on actual costs incurred, which are recognized as a reduction of our general and administrative operating expenses in our condensed consolidated statements of operations. Included in our general and administrative expenses is approximately $34,000 and $31,000 of reimbursements from CorLyst during the three months ended June 30, 2026 and 2025, respectively, and $50,000 and $60,000 for the six months ended June 30, 2026 and 2025, respectively. At June 30, 2025, we included $29,000 due from CorLyst as a current asset in Prepaid and Other. No amounts were due at June 30, 2026. Our President, Research and Development is the CEO of CorLyst, and CorLyst is a stockholder.

The Chiliz Group

The Chiliz Group (formerly known as ‘HX Entertainment Limited’) is the issuer of the Chiliz Token. In prior periods, they have purchased 305,644 shares of our common stock for a cumulative $1.4 million in net proceeds. At June 30, 2026, the Chiliz Group owned 10.9% of shares of our common stock outstanding.

Note 7 –Segment Reporting

We manage our operations as asingle segment, focused on advancing the clinical-stage BTK inhibitor program and evaluating our legacy pharmaceutical assets. 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, 2026 and 2025:

Note 8 –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, 2026, we are contractually obligated to pay up to $10.3 million of future services under the agreements with the CROs. However, following the termination of our license agreement with Elion (see Note 9), we will be closing our ongoing NGC-Cap (also known as PCS6422 + Capecitabine) Phase 2 trial and expect the costs to wind down the trial to be $1 million over the next six months. Actual costs to wind down the trial could exceed these estimates.

Note 9 –Subsequent Events

Acquisition of Vidya Therapeutics, Inc. and Concurrent Private Placement

On July 28, 2026, we acquired Vidya pursuant to the Merger Agreement. Under the terms of the Merger Agreement, we issued to the stockholders of Vidya an aggregate of (i)558,398 shares of our common stock issuable upon exercise of the Vidya Assumed Options (as defined below) and (ii)142,744.100 shares of Series A Preferred Stock (or 142,744,100 shares of our common stock on an as-converted basis and without giving effect to any beneficial ownership limitations). The powers, preferences, rights, qualifications, limitations and restrictions applicable to the Series A Preferred Stock are set forth in the Certificate of Designation. Further, pursuant to the terms of the Merger Agreement, each option to purchase Vidya common stock was assumed by us (the “Vidya Assumed Options”) and converted into an option to purchase our common stock, which options are subject to exercise restrictions prior to obtaining the approval of the Stockholder Matters.

Concurrently with the Vidya Acquisition, on July 28, 2026, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) for a $200 million private placement financing, pursuant to which we agreed to sell an aggregate of 163,774.679 shares of Series A Preferred Stock (or 163,774,679 shares of our common stock on an as-converted basis and without giving effect to any beneficial ownership limitations) at a price of $1,221.19 per share (or $1.22119 per share on an as-converted basis) (collectively, the “2026 Private Placement”). The 2026 Private Placement closed on July 30, 2026.

Pursuant to the Merger Agreement and the Purchase Agreement we agreed to hold a stockholders’ meeting to submit certain matters to our stockholders for their consideration including: (i) the approval in accordance with applicable rules of the Nasdaq Stock Market, LLC (the “Nasdaq”) of the conversion of the Series A Preferred Stock issued pursuant to the Merger Agreement and the Purchase Agreement into shares of our common stock (the “Preferred Stock Conversion Proposal”), (ii) the approval of a 2026 Equity Incentive Plan, subject to approval by the Board, (iii) the approval of a 2026 Employee Stock Purchase Plan, and (iv) to the extent deemed necessary or advisable by the Company and/or Vidya, approval of an amendment to the Company’s certificate of incorporation to effect a reverse stock split (the matters contemplated in items (i) through (iv) collectively, the “Stockholder Matters”).

Subject to the receipt of stockholder approval of the Stockholder Matters, each share of Series A Preferred Stock will automatically convert into 1,000 shares of Common Stock, subject to certain beneficial ownership limitations established by each holder. As a result of the acquisition and private placement transactions, our equity holders immediately prior to the Vidya Acquisition owned approximately 1.0% of our common stock, equity holders of Vidya immediately prior to the Vidya Acquisition owned approximately 46.0% of our common stock and investors in the 2026 Private Placement owned approximately 53.0% of our common stock, in each case, calculated on a fully-diluted basis (without giving effect to any beneficial ownership limitations and assuming the conversion in full of the Series A Preferred Stock) and based on our and Vidya’s implied equity values.

Amendments to our Articles of Incorporation -Series A Non-Voting Convertible Preferred Stock

In connection with the Merger Agreement, on July 28, 2026, we filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Preferred Stock with the Secretary of State of the State of Delaware , as adopted by the Board. The Certificate of Designation provided for the creation of our Series A Preferred Stock.

Holders of Series A Preferred Stock are entitled to receive dividends on shares of Series A Preferred Stock equal to, on an as-if-converted-to-Common-Stock basis, and in the same form as dividends actually paid on shares of our common stock. Except as otherwise provided in the Certificate of Designation or as otherwise required by the General Corporation Law of the State of Delaware, the Series A Preferred Stock shall have no voting rights. However, as long as any shares of Series A Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series A Preferred Stock: (i) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock or alter or amend the Certificate of Designation, amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Preferred Stock, (ii) issue additional shares of Series A Preferred Stock or increase or decrease (other than by conversion) the number of authorized shares of Series A Preferred Stock, (iii) prior to the Automatic Conversion, consummate either: (A) any Fundamental Transaction (as defined in the Certificate of Designation) or (B) any merger or consolidation with or into another Person or any stock sale to, or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, share exchange or scheme of arrangement) with or into, another Person in which our shareholders immediately before such transaction do not hold at least a majority of the voting power of our capital stock or surviving corporation or the parent entity of ours or surviving corporation immediately after such transaction or in which we or the surviving corporation issues securities in such transaction that represent, or are convertible into securities representing, more than a majority of the voting power of the Company immediately before such transaction, (iv) prior to the stockholder approval of the Preferred Stock Conversion Proposal, authorize or issue any class or series of stock that has powers, preferences or rights that are senior to those of the Series A Preferred Stock, (v) amend, waive or modify the Merger Agreement in any manner that would be reasonably likely to prevent, impede or materially delay stockholder approval of the Preferred Stock Conversion Proposal or the Automatic Conversion (as defined below) or (vi) enter into any agreement with respect to any of the foregoing.

At 5:00 pm Eastern time on the third business day following stockholder approval of the Preferred Stock Conversion Proposal, each share of Series A Preferred Stock will automatically convert into 1,000 shares of our common stock, subject to certain limitations, including that a holder of Series A Preferred Stock is prohibited from converting shares of Series A Preferred Stock into shares of Common Stock if, as a result of such conversion, such holder, together with its affiliates, would beneficially own more than a specified percentage (to be established by the holder between 4.9% and 19.9%) of the total number of shares of Common Stock issued and outstanding immediately after giving effect to such conversion; provided that following stockholder approval of the Preferred Stock Conversion Proposal, such Beneficial Ownership Limitation may be waived by each holder of Series A Preferred Stock upon written notice to the Company to be effective on the 61st day following receipt of such notice.

If at any time after the earlier of (i) the Stockholder Approval or (ii) nine months after the initial issuance of the Series A Preferred Stock, the Company fails to deliver to the holder of the Series A Preferred Stock shares of Common Stock underlying such shares of Series A Preferred Stock, then (other than in certain circumstances set forth in the Certificate of Designation), the Company will pay, at the request of such holder, an amount of cash by wire transfer of immediately available funds equal to the Fair Value (as defined in the Certificate of Designation) of such undelivered shares, provided that the Company has funds legally available for such payment.

Appointment of Dr. Gujrathi to our Board of Directors

In accordance with the Merger Agreement, on July 28, 2026, Dr. Sheila Gujrathi was appointed to the Board as a director.

Amendment of our License Agreement with Yuhan Corporation

On August 14, 2026, Yuhan Corporation executed Amendment No. 2 to our existing license agreement dated August 19, 2020 (the “Yuhan Agreement”), effective August 14, 2026, which, extended the deadline to dose the first patient in a Phase 2B clinical trial, Phase 3 clinical trial or other pivotal clinical trial by August 14, 2027.

Termination of our License Agreement with Elion Oncology, Inc.

On July 23, 2026, we terminated our License Agreement, dated August 23, 2020 with Elion Oncology, Inc. (“Elion”). Pursuant to the Settlement, the parties agreed to settle all claims in respect of our litigation regarding the Elion License Agreement and to terminate the Elion License Agreement without further obligation of either party, with us returning the PCS6422 program to Elion. In connection with the Settlement, the parties exchanged mutual releases of all claims relating to the Elion License Agreement, the PCS6422 program and the related litigation. As part of the Settlement, we agreed to pay Elion the sum of $650,000 towards Elion’s attorneys’ fees and/or other out-of-pocket costs. In addition, we agreed to grant to Elion a non-voting equity interest equal to seven and one-half percent (7.5%) of the fully diluted pre-money equity capitalization of any newly formed entity whose assets include one or more of PCS499, PCS12852, and/or PCS11T, if the formation or spin-out is completed within three hundred sixty-five (365) days following the effective date of the Settlement Agreement. On August 7, 2026, the filed stipulation became effective as a final dismissal with prejudice.

Accordingly, we will be closing our ongoing Phase 2 trial of PCS6422 in advanced/metastatic breast cancer.