Estrella Immunopharma(ESLA) - 2025 Q2 - Quarterly Report

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section provides a standard disclaimer for forward-looking statements, highlighting inherent uncertainties and the company's non-obligation to update them - Forward-looking statements are identified by words like 'plan,' 'believe,' 'expect,' and are based on current management expectations, subject to inherent uncertainties and changes in circumstances[9][10] - These statements involve risks and uncertainties, including those described in 'Risk Factors' (Part II, Item 1A) and the Annual Report on Form 10-KT[10] - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[12] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Estrella Immunopharma's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in equity, and cash flows, with detailed notes Unaudited Condensed Consolidated Balance Sheets This section presents the unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity as of specific dates Condensed Consolidated Balance Sheet Highlights | Metric | As of June 30, 2025 (Unaudited) | As of December 31, 2024 | | :-------------------------------- | :------------------------------- | :---------------------- | | Cash and cash equivalent | $1,316,594 | $916,916 | | Total current assets | $1,480,527 | $1,640,777 | | Total Assets | $2,980,527 | $3,140,777 | | Total current liabilities | $9,075,195 | $2,997,046 | | Total Liabilities | $9,075,195 | $2,997,046 | | Accumulated deficit | $(31,576,492) | $(23,927,303) | | Total Stockholders' (Deficit) Equity | $(6,094,668) | $143,731 | - Total current liabilities significantly increased by $6.1 million, primarily due to a substantial rise in accrued liability - related party and the recognition of derivative liabilities[17] - Total Stockholders' (Deficit) Equity shifted from a positive balance of $0.14 million to a deficit of $(6.1 million), reflecting increased losses[17] Unaudited Condensed Consolidated Statements of Operations This section presents the unaudited condensed consolidated statements of operations, outlining revenues, expenses, and net loss for the reported periods Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Research and development | $4,660,301 | $3,525,000 | $6,070,489 | $3,550,000 | | General and administrative | $883,727 | $424,447 | $1,577,837 | $868,977 | | Total operating expenses | $5,544,028 | $3,949,447 | $7,648,326 | $4,418,977 | | Net loss | $(5,544,878) | $(3,951,072) | $(7,649,189) | $(4,420,602) | | Net loss per share, basic and diluted | $(0.15) | $(0.11) | $(0.21) | $(0.12) | - Net loss increased for both the three-month period (from $(3.95) million to $(5.54) million) and the six-month period (from $(4.42) million to $(7.65) million) year-over-year[18] - Research and development expenses rose significantly, by $1.14 million (32.2%) for the three months and $2.52 million (71.0%) for the six months, reflecting increased clinical trial activities[18] Unaudited Condensed Consolidated Statements of Changes in Preferred Stock and Stockholders' (Deficit) Equity This section details changes in preferred stock and stockholders' (deficit) equity, reflecting capital transactions and net loss over the period Changes in Stockholders' (Deficit) Equity | Metric | Balance, December 31, 2024 | Stock-based compensation | Issuance of common stock for PIPE investment | Net loss | Balance, June 30, 2025 | | :----------------------------------- | :------------------------- | :----------------------- | :------------------------------------------- | :------------------------- | :------------------------- | | Common Stock Shares | 36,680,870 | - | 900,000 | - | 37,580,870 | | Common Stock Amount | $3,668 | - | $90 | - | $3,758 | | Treasury Stock | $(568,917) | - | - | - | $(598,379) | | Additional Paid-in Capital | $24,636,283 | $318,193 | $1,121,969 | - | $26,076,445 | | Accumulated Deficit | $(23,927,303) | - | - | $(7,649,189) | $(31,576,492) | | Total Stockholders' (Deficit) Equity | $143,731 | $318,193 | $1,122,059 | $(7,649,189) | $(6,094,668) | - Total Stockholders' (Deficit) Equity decreased from a positive $0.14 million at December 31, 2024, to a deficit of $(6.1 million) at June 30, 2025, primarily due to the net loss incurred[19] - The issuance of common stock for PIPE investment contributed $1.12 million to additional paid-in capital during the period[19] Unaudited Condensed Consolidated Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net loss | $(7,649,189) | $(4,420,602) | | Net cash used in operating activities | $(880,860) | $(4,526,147) | | Net cash provided by (used in) financing activities | $1,280,538 | $(354,440) | | Net Change in Cash | $399,678 | $(4,880,587) | | Cash at end of the period | $1,316,594 | $4,165,428 | - Net cash used in operating activities significantly decreased from $(4.53) million in 2024 to $(0.88) million in 2025, primarily due to an increase in accrued liability - related party[21][198][199] - Net cash provided by financing activities was $1.28 million in 2025, a substantial increase from net cash used of $(0.35) million in 2024, driven by proceeds from the PIPE investment[21][200][201] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering organization, accounting policies, commitments, related party transactions, and equity Note 1 — Organization and Business Operation This note describes the company's formation, business as a clinical-stage biopharmaceutical entity, and current financial position regarding liquidity - Estrella Immunopharma, Inc. is a clinical-stage biopharmaceutical company developing T-cell therapies for blood cancers and solid tumors, formed through a separation from Eureka Therapeutics, Inc[24][26] - The FDA cleared the IND application for EB103, allowing the Phase I/II STARLIGHT-1 Clinical Trial to proceed, with patient enrollment ongoing as of June 30, 2025[28] - The company completed a business combination with TradeUP Acquisition Corp. (UPTD) on September 29, 2023, and established a wholly-owned subsidiary in Hong Kong in November 2024[29][31] - As of June 30, 2025, the company had $1.3 million in cash and an accumulated deficit of $31.6 million, but management believes it has sufficient funds for the next 12 months through an Equity Line with White Lion[33][39] Note 2 — Significant accounting policies This note outlines the significant accounting policies and estimates used in preparing the financial statements, including U.S. GAAP compliance and derivative liabilities - The financial statements are prepared in accordance with U.S. GAAP for interim reporting, with certain information condensed or omitted per SEC rules[40] - The company is an 'emerging growth company' and has elected the extended transition period for complying with new or revised accounting standards[43][44] - Significant estimates include stock-based compensation, derivative liability, and deferred income tax asset valuation[47] - Derivative liabilities, specifically 'True Up Shares' from the Securities Purchase Agreement, are bifurcated and classified as a liability, measured at fair value with subsequent changes recognized in the consolidated statements of operations[64][65] Note 3 — Other payables and accrued liabilities This note details the composition and changes in other payables and accrued liabilities, including professional fees and payroll taxes Other Payables and Accrued Liabilities | Category | As of June 30, 2025 (Unaudited) | As of December 31, 2024 | | :-------------------------------- | :------------------------------- | :---------------------- | | Accrued professional fees | $98,660 | $177,029 | | Salary and payroll taxes payable | $12,107 | $14,100 | | Others | $- | $10,631 | | Total other payables and accrued liabilities | $110,767 | $201,760 | - Total other payables and accrued liabilities decreased by $90,993 from December 31, 2024, to June 30, 2025, primarily due to a reduction in accrued professional fees[84] Note 4 — Commitments and contingencies This note describes the company's contractual commitments and potential liabilities, including agreements for clinical trials and equity financing - Eureka is solely responsible for the manufacture and supply of clinical quantities of licensed products under the License Agreement[85] - The Equity Line Agreement with White Lion allows the company to sell up to $50 million in common stock, with 70,000 shares issued for $0.08 million as of June 30, 2025, subject to certain limitations and stockholder approval[86][195] - An amendment to the Common Stock Purchase Agreement extends its term to December 30, 2025, and introduces a 'Rapid Purchase' mechanism for expedited share settlements[87][88] - The Collaboration Agreement with Imugene for solid tumor treatments was completed as of August 30, 2023, with no associated R&D expenses in the current periods[95] Note 5 — Related Party Transactions This note details transactions with related parties, including license agreements, clinical trial services, consulting, and office subleases - Under the License Agreement with Eureka, Estrella has an exclusive license for T-cell therapies, with upfront payments fully made and two development milestones achieved and paid as of June 30, 2025[97][101][102][205] - The Statement of Work (SOW) with Eureka for the STARLIGHT-1 clinical trial has total fees of $33.0 million; as of June 30, 2025, $3.5 million has been paid, $1.5 million deposited, and $8.8 million accrued for six patient dosings and a site activation[105][108][111][112][210] - A consulting agreement with CoFame Investment Holding LLC, a related party, resulted in $0.11 million in consulting expenses for the six months ended June 30, 2025[114][115] - Office sublease agreements with Eureka incurred $0.012 million in rent expense for the six months ended June 30, 2025[118][120] Note 6 — Preferred Stock This note describes the issuance and conversion of preferred stock, including Series AA and Series A, prior to the business combination - Estrella issued 105,000,000 shares of Series AA Preferred Stock to Eureka in exchange for T-cell therapy assets[121] - Series A Preferred Stock was issued to third-party investors for gross proceeds, with significant terms including dividend rights (8% non-cumulative), liquidation preferences, and voting rights[122][123][124][125][128] - All Series A and Series AA Preferred Stock automatically converted into Estrella Common Stock immediately prior to the business combination on September 29, 2023[130][134] Note 7 — Stockholders' Equity (Deficit) This note details the components of stockholders' equity (deficit), including common stock, additional paid-in capital, and derivative liabilities - As of June 30, 2025, the company had 37,580,870 shares of Common Stock issued and 37,065,589 shares outstanding[135] - The company issued 900,000 shares of Common Stock for $1.35 million in gross proceeds as part of a private placement offering as of June 30, 2025, which includes a 'True-Up Shares' contingent value protection feature[140][196] - The 'True-Up Shares' feature is classified as a derivative liability, valued at $0.19 million as of June 30, 2025, using a Monte Carlo Simulation model[141][142] - The company has 2,214,993 public warrants outstanding, exercisable at $11.50 per share, which are accounted for as equity instruments[143][144][146] - A stock repurchase program authorized up to $1.0 million, with approximately $0.4 million remaining available as of June 30, 2025[148] Note 8 — Stock Based Compensation This note outlines the company's stock-based compensation plan, granted options, and associated expenses recognized during the periods - The 2023 Omnibus Incentive Plan authorized 3,520,123 shares, with 3,600,000 options granted in October 2024 to employees, directors, and consultants[150] Stock-Based Compensation Expense | Expense Category | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Research and development | $10,301 | $20,489 | | General and administrative | $148,797 | $297,704 | | Total stock-based compensation | $159,098 | $318,193 | - As of June 30, 2025, there were $1.6 million in unvested compensation costs, expected to be recognized over a weighted average remaining service period of 2.78 years[151] Note 9 — Leases This note describes the company's short-term operating lease agreements for office space and the associated rent expenses - The company entered into short-term office sublease agreements with Eureka, classified as operating leases, with a monthly sublease fee of $2,000[117][118][153][154] - The company elected not to apply ROU asset and lease liability recognition requirements for these short-term leases, recognizing monthly payments in profit or loss on a straight-line basis[154] - Rent expense for both the three and six months ended June 30, 2025, was $0.006 million and $0.012 million, respectively[155] Note 10 — Segment Information This note states that the company operates as a single segment and provides a breakdown of operating expenses by category - The company operates as a single operating and reportable segment, with the Chief Executive Officer serving as the chief operating decision-maker[156] Operating Expenses by Category | Operating Expenses | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Clinical trial related service fee | $4,625,000 | $3,500,000 | $6,000,000 | $3,500,000 | | Consulting fee | $25,000 | $25,000 | $50,000 | $50,000 | | Stock-based compensation | $159,098 | $- | $318,193 | $- | | Salary expense | $131,096 | $131,063 | $260,807 | $251,549 | | Professional fee | $475,437 | $152,148 | $760,527 | $351,304 | | Insurance expense | $83,636 | $87,494 | $164,693 | $174,987 | | Other general and administrative fee | $44,761 | $53,742 | $94,106 | $91,137 | | Loss before income tax | $5,544,028 | $3,949,447 | $7,648,326 | $4,418,977 | | Net loss | $5,544,878 | $3,951,072 | $7,649,189 | $4,420,602 | Note 11 — Subsequent Events This note confirms that no material subsequent events occurred after the balance sheet date requiring disclosure - No material subsequent events requiring recognition or disclosure were identified after the balance sheet date through the issuance date of the financial statements[158] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition and operations, covering strategic developments, performance, liquidity, and Nasdaq compliance Overview Estrella Immunopharma is a clinical-stage biopharmaceutical company focused on T-cell therapies, advancing clinical trials with no product revenue and an accumulated deficit - The company is a clinical-stage biopharmaceutical company developing T-cell therapies for blood cancers and solid tumors, utilizing Eureka's ARTEMIS platform[160][162] - The FDA cleared the IND application for EB103, allowing the Phase I/II STARLIGHT-1 Clinical Trial to proceed, with six patients dosed as of June 30, 2025[163][164] - Estrella has funded operations primarily from Series A Preferred Stock issuance ($5.0 million) and net proceeds from the Business Combination ($20.1 million)[165] - As of June 30, 2025, the company had an accumulated deficit of approximately $31.6 million and expects significant increases in expenses for ongoing R&D, clinical development, and regulatory activities[166][167] Recent Developments This section details the business combination, corporate changes, and Nasdaq non-compliance notices regarding minimum bid price and market value of listed securities - The Business Combination with UPTD on September 29, 2023, was accounted for as a 'reverse recapitalization,' with Estrella as the accounting acquirer, leading to increased public company expenses[169][170][171] - The company merged with its wholly-owned subsidiary, Estrella BioPharma Inc., on June 30, 2024, and changed its fiscal year end from June 30 to December 31 on November 25, 2024[174][175] - Estrella received Nasdaq notices for non-compliance with the minimum closing bid price ($1.00) and minimum Market Value of Listed Securities ($35 million) rules, with compliance periods until October 27, 2025, and January 28, 2026, respectively[177][232][234] Results of Operations The company has not generated revenue, focusing on product development, and reported increased net losses and operating expenses due to higher clinical trial costs Results of Operations for the three months ended June 30, 2025 and 2024 (unaudited) This section analyzes the company's financial performance for the three months ended June 30, 2025 and 2024, highlighting key expense changes and net loss Three Months Ended June 30 - Key Financials | Expense Category | 2025 (Unaudited) | 2024 (Unaudited) | Change | | :----------------------------------- | :----------------- | :----------------- | :------- | | Research and Development Expenses | $4,660,301 | $3,525,000 | +$1,135,301 | | General and Administrative Expenses | $883,727 | $424,447 | +$459,280 | | Net Loss | $(5,544,878) | $(3,951,072) | $(1,593,806) | - Research and development expenses increased by $1.1 million (32.2%) due to higher clinical phase service fees and three patient dosings under the SOW[179] - General and administrative expenses increased by $0.46 million (108.2%) primarily due to professional fees and stock-based compensation[181] Results of Operations for the six months ended June 30, 2025 and 2024 (unaudited) This section analyzes the company's financial performance for the six months ended June 30, 2025 and 2024, detailing expense increases and net loss Six Months Ended June 30 - Key Financials | Expense Category | 2025 (Unaudited) | 2024 (Unaudited) | Change | | :----------------------------------- | :----------------- | :----------------- | :------- | | Research and Development Expenses | $6,070,489 | $3,550,000 | +$2,520,489 | | General and Administrative Expenses | $1,577,837 | $868,977 | +$708,860 | | Net Loss | $(7,649,189) | $(4,420,602) | $(3,228,587) | - Research and development expenses increased by $2.5 million (71.0%) due to higher clinical phase service fees and four patient dosings and one site activation under the SOW[183] - General and administrative expenses increased by $0.71 million (81.6%) mainly due to professional fees and stock-based compensation[185] Liquidity and Capital Resources The company faces significant liquidity challenges with a working capital deficit, relying on future financing as it generates no revenue and expects continued losses - As of June 30, 2025, the company had approximately $1.3 million in cash and a working capital deficit of approximately $7.6 million[187] - The company has not generated any revenue to date and expects continued losses, making future operations highly dependent on additional financing[188][193] - The exercise of outstanding tradeable warrants is unlikely to provide significant liquidity, as the current stock price ($0.84) is substantially lower than the exercise price ($11.50)[194] - The Equity Line Agreement with White Lion allows for up to $50.0 million in common stock purchases, but issuances exceeding 20% of outstanding stock require stockholder approval, which has not been obtained[195] - Net cash used in operating activities improved significantly to $(0.9) million for the six months ended June 30, 2025, from $(4.5) million in the prior year, while net cash provided by financing activities was $1.3 million, primarily from a private placement[198][200] Off-Balance Sheet Arrangements The company reported no off-balance sheet arrangements as of the specified reporting dates - As of June 30, 2025, and December 31, 2024, the company did not have any off-balance sheet arrangements[202] Commitments & Contingencies This section details the company's contractual obligations and potential liabilities, including license agreements, clinical trial commitments, and equity line agreements - Under the License Agreement, the $1.0 million upfront fee has been fully paid, and two development milestones ($0.05 million each) related to IND submission and first patient dosing have been achieved and paid[204][205] - The Statement of Work for the STARLIGHT-1 clinical trial involves total fees of $33.0 million; as of June 30, 2025, $3.5 million has been paid, $1.5 million deposited for patient treatment, and $8.8 million accrued for six patient dosings and a site activation[209][210] - The Equity Line Agreement with White Lion provides a commitment for up to $50.0 million in common stock purchases, with 70,000 shares issued for $0.08 million as of June 30, 2025[211] Critical Accounting Policies and Estimates This section identifies derivative liabilities and stock-based compensation as critical accounting policies and estimates due to the significant judgment and assumptions required for their valuation - Derivative liabilities, specifically the 'True Up Shares' from the Securities Purchase Agreement, are measured at fair value using a Monte Carlo Simulation model, with a fair value of $0.19 million as of June 30, 2025[213][214] - Stock-based compensation costs are recognized as an expense over the service period, with fair value estimated using the Black-Scholes-Merton option-pricing model, which relies on significant assumptions[215][216] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Estrella Immunopharma, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[220] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to a material weakness related to insufficient qualified personnel for complex accounting and financial statement preparation Evaluation of Disclosure Controls and Procedures This section details management's conclusion regarding the effectiveness of the company's disclosure controls and procedures - Management concluded that the company's disclosure controls and procedures were not effective at a reasonable assurance level as of June 30, 2025[222] Material Weaknesses This section identifies a material weakness related to the lack of qualified personnel for complex accounting and financial statement preparation - A material weakness was identified due to the lack of qualified full-time personnel with appropriate accounting knowledge and experience to address complex U.S. GAAP issues and prepare/review financial statements[223] Changes in Internal Control over Financial Reporting This section outlines remediation efforts for internal control weaknesses, noting that effectiveness has not yet been achieved - Remediation efforts implemented in 2024 include adding qualified personnel, implementing processes for non-routine transactions, and establishing narratives and policies for business processes[224][226] - Despite remediation efforts, disclosure controls and procedures were still not effective as of June 30, 2025[224] Limitations on Effectiveness of Controls and Procedures This section acknowledges the inherent limitations of controls and procedures, which can only provide reasonable assurance - Management acknowledges that controls and procedures, regardless of design, can only provide reasonable assurance due to inherent limitations and resource constraints[225] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no material legal proceedings during the quarter ended June 30, 2025 - No material legal proceedings were reported for the quarter ended June 30, 2025[228] Item 1A. Risk Factors This section refers to the risk factors from the Annual Report on Form 10-KT, highlighting Nasdaq non-compliance and potential delisting risks - The company refers to the risk factors detailed in its Annual Report on Form 10-KT filed on March 25, 2025[229] - The company is currently not in compliance with Nasdaq's minimum bid price ($1.00) and minimum Market Value of Listed Securities ($35 million) requirements, facing potential delisting[230][232][234] - Non-compliance could adversely affect the market liquidity and price of common stock, and the company's ability to raise capital[236] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities The company reported no unregistered sales of equity securities or use of proceeds from registered securities during the quarter - No unregistered sales of equity securities or use of proceeds from registered securities were reported[237] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the quarter - No defaults upon senior securities were reported[238] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[239] Item 5. Other Information No director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[240] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.CAL, 101.SCH, 101.DEF, 101.LAB, 101.PRE, 104)[242] SIGNATURES This section contains the signatures of the principal executive officer, principal financial officer, and directors, certifying the report filing - The report was signed by the Principal Executive Officer (Cheng Liu), Principal Financial Officer (Peter Xu), and Directors on August 11, 2025[247][248]