Estrella Immunopharma, Inc. Stock Compensation Disclosure
Note 13 — Stock Based Compensation
At the special meeting of UPTD stockholders related to the Business Combination held on July 31, 2023, UPTD’s shareholders approved the adoption of the Company’s 2023 Omnibus Incentive Plan (the “2023 Plan”), which became effective on the Closing Date. Upon the closing of the Business Combination, 3,520,123 shares of Common Stock became authorized for issuance under the 2023 Plan. As of the date hereof, no shares of Common Stock have been issued under the Incentive Plan.
On May 27, 2022, Estrella’s board of directors approved its 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan provides for the grant of (i) options, (ii) share appreciation rights, (iii) restricted share awards, (iv) restricted share unit awards, and (v) other share awards. The aggregate number of shares of Common Stock that may be issued pursuant to the 2022 Plan will not exceed 15,000,000 shares of Common Stock. On May 27, 2022, the Company granted options under the 2022 Plan to purchase 15,000,000 shares of its Common Stock to its employees, board of directors, and other consultants. The total fair value of these stock options was approximately $1,638,381.
The stock-based compensation expense recorded in the Company’s results of operations. For the years ended June 30, 2024 and 2023 were $1,194,653 and $409,595, respectively.
The breakdown of stock-based compensation by categories for the years ended June 30, 2024 and 2023 are summarized below:
| For the Year Ended June 30, 2024 | For the Year Ended June 30, 2023 | |||||||
| Research and development | $ | 453,968 | $ | 155,646 | ||||
| General and administrative | 740,685 | 253,949 | ||||||
| Total stock-based compensation | $ | 1,194,653 | $ | 409,595 | ||||
The intrinsic value of the granted options was approximately $1.6 million. Upon completion of the business combination on September 29, 2023, the unvested options were vested upon consummation of the merger, under which the Company recognized the remaining unrecognized fair value as expense.
The Company estimated the fair value of the stock options using the Black-Scholes option pricing model. The fair value of employee stock options issued was estimated using the following assumptions:
| Grant date | May 27, 2022 | |||
| Exercise price | $ | 0.001 | ||
| Estimated stock price | $ | 0.11 | ||
| Expected volatility | 120.0 | % | ||
| Expected term (in years) | 4.00 | |||
| Risk-free interest rate | 3.00 | % | ||
The risk-free interest rate was obtained from U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the implied volatility of a portfolio of comparable companies. The expected life of the Company’s options was determined using the actual remaining life of the stock option. The fair value of the Common Stock input was determined by the board of directors based on a variety of factors, including valuation prepared by a third party, the Company’s financial position, the status of development efforts within the Company, the current climate in the marketplace and the prospects of a liquidity event, among others.
For the year ended June 30, 2024, no additional stock options were granted.
On May 27, 2022, all employees, the board of directors, and other consultants elected to exercise the stock options granted by the Company early. The total proceeds received by the Company amounted to $15,000 and was recorded as other liability due to the terms of the early exercised shares, which are subject to repurchase until such shares are vested and are required to be returned to the Company if the vesting conditions are not satisfied. Such other liability account should be cleared at the time the exercised shares are vested or repurchased. As of June 30, 2024 and June 30, 2023, the unamortized balance of the above mentioned other liability amounted to $0 and $12,725, respectively, based on the vesting period.
A summary of early-exercised stock option’s vesting activity for the years ended June 30, 2024 and 2023, are as follows:
| Number of Shares* | Weighted-Average Grant Date Fair Value per share | |||||||
| Balance of unvested early-exercised stock option at June 30, 2022 | 3,568,955 | $ | 0.46 | |||||
| Vested early-exercised stock option | (935,873 | ) | $ | 0.46 | ||||
| Balance of unvested early-exercised stock option at June 30, 2023 | 2,633,082 | $ | 0.46 | |||||
| Vested early-exercised stock option | (2,633,082 | ) | $ | 0.46 | ||||
| Balance of unvested early-exercised stock option at June 30, 2024 | $ | |||||||
| * | Giving retroactive effect to reverse recapitalization effected on September 29, 2023 to reflect exchange ratio of approximately 0.2407 as described in Note 3 |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.