CDT Equity Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We are a newly organized blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. While our efforts to identify a target business may span many industries and regions worldwide, we intend to focus our search for prospects within the real estate industry. We have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target. We intend to effectuate our initial business combination using cash from the proceeds of the initial public offering and the sale of the placement units, the proceeds of the sale of our shares in connection with our initial business combination (including pursuant to backstop agreements we may enter into), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing. The issuance of additional shares in connection with an initial business combination to the owners of the target or other investors: ● may significantly dilute the equity interest of existing shareholders; ● may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock; ● could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; ● may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and ● may adversely affect prevailing market prices for our common stock and warrants. Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in: ● default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations; 58 ● acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; ● our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand; ● our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt is outstanding; ● our inability to pay dividends on our common stock; ● using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes; ● limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; ● increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; ● limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy; and ● other purposes and other disadvantages compared to our competitors who have less debt. As indicated in the accompanying financial statements, at December 31, 2022 and December 31, 2021, we had $345,777 and $48,555 in cash, respectively and deferred offering costs of $0 and $108,962, respectively. Additionally, the underwriters are entitled to a deferred fee of $0.35 per Unit, or $4,628,750. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement. Further, we expect to continue to incur significant costs in the pursuit of our initial business combination plans. We cannot assure you that our plans to raise capital or to complete our initial business combination will be successful. Merger Agreement On November 8, 2022, we entered into an agreement and plan of merger (together with an amendment entered into on January 27, 2023, the “Merger Agreement”) with Conduit Pharmaceuticals Limited, a Cayman Islands exempted company (“Conduit”) and Conduit Merger Sub, Inc., a Cayman Islands exempted company and our wholly owned subsidiary. If the Merger Agreement is approved by our stockholders and the transactions under the Merger Agreement are consummated, Merger Sub will merge with and into Conduit, with Conduit surviving the merger as our wholly owned subsidiary (the “Merger”). Upon the closing of the Merger, it is anticipated that we will change our name to “Conduit Pharmaceuticals Inc.” Our board of directors has (i) approved and declared advisable the Merger Agreement, the related ancillary agreements thereto and the transactions contemplated thereby and (ii) resolved to recommend approval of the Merger Agreement and related transactions by our stockholders. Pursuant to the Merger Agreement, the outstanding ordinary shares (including the shares issued upon conversion of all outstanding convertible debt, which conversion shall have occurred prior to the consummation of the Merger Agreement) of Conduit will be converted into an aggregate of 65,000,000 shares of our newly issued common stock, with each such outstanding Conduit ordinary share (including the ordinary shares issued upon conversion of all outstanding convertible debt, which conversion shall have occurred prior to the consummation of the Merger Agreement) converted into newly issued shares of our common stock on a pro rata basis. 59 In connection with the transactions contemplated by the Merger Agreement, we entered into a subscription agreement (the “Subscription Agreement”) with an investor. Pursuant to the Subscription Agreement, the investor has agreed to purchase $27 million (the “Private Placement”) units of our securities, with each unit consisting of (i) one share of common stock and (ii) one warrant to purchase one share of common stock, for a purchase price of $10.00 per unit. The Subscription Agreement contains registration rights, pursuant to which within 15 business days after the closing, we will use reasonable best efforts to file with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement registering the resale of the shares of common stock included in the units and issued and issuable upon exercise of the warrants. The closing of the Private Placement is conditioned on, among other things, the closing of the Conduit Business Combination. January 2023 Extension Initially, we were required to complete our initial business combination transaction by 12 months from the consummation of our initial public offering or up to 18 months if we extended the period of time to consummate a business combination in accordance with our Certificate of Incorporation. On January 26, 2023, at a special meeting of our stockholders, our stockholders approved a proposal to amend our certificate of incorporation to allow us to extend, at our election, the date by which we have to consummate a business combination up to 12 times, each such extension for an additional one month period, from February 7, 2023, to February 7, 2024. Our stockholders also approved a related proposal to amend the trust agreement allowing us to deposit into the Trust Account, for each one-month extension, one-third of 1% of the funds remaining in the Trust Account following the redemptions made in connection with the approval of the extension proposal at the special meeting. At the special meeting our stockholders also approved a proposal to amend our certificate of incorporation to expand the methods that we may employ to not become subject to the “penny stock” rules of the SEC. In connection with such proposals, our public stockholders had the right to redeem their shares for cash equal to their pro rata share of the aggregate amount on deposit in the Trust Account as of two days prior to such stockholder vote. Our public stockholders holding 11,037,272 shares of Class A common stock (out of a total of 13,979,000 shares of Class A common stock) exercised their right to redeem such shares at a redemption price of approximately $10.33 per share. Approximately $114 million in cash was removed from the Trust Account to pay such stockholders and, accordingly, after giving effect to such redemptions, the balance in the Trust Account was approximately $23 million. As a result of the approval of such proposals, we agreed to deposit into the trust account one-third of 1% of the funds then on deposit in the trust account for each month of the extension period, resulting in a monthly contribution of approximately $0.035 per share that was not redeemed in connection with the special meeting, or an aggregate of approximately $77,000 per month, and an aggregate of $924,000 (the “Maximum Contribution”) if the date we have to consummate a business combination is extended 12 times, each assuming no interest is earned on the funds in the trust account. Results of Operations and Known Trends or Future Events Our entire activity since inception up to December 31, 2022 relates to our formation, our initial public offering and, since the closing of the initial public offering, a search for a business combination candidate. We will not be generating any operating revenues until the closing and completion of our initial business combination, at the earliest. For the year ended December 31, 2022 and during the period from October 19, 2021 (inception) through December 31, 2021, we had net income and a loss of $398,639 and $4,381, respectively. For the year ended December 31, 2022 this consisted primarily of general and administrative expenses of approximately $1.20 million and income tax expense of $374,862. This was offset by interest income of approximately $1.98 million earned on Trust assets during the year ended December 31, 2022. There was no interest income earned and during the period from October 19, 2021 (inception) through December 31, 2021, and the net loss consisted of formation costs. In January 2023, our public stockholders had the right to redeem their shares for cash equal to their pro rata share of the aggregate amount on deposit in the Trust Account. Our public stockholders holding 11,037,272 shares of Class A common stock (out of a total of 13,979,000 shares of Class A common stock) exercised their right to redeem such shares at a redemption price of approximately $10.33 per share. Approximately $114 million in cash was removed from the Trust Account to pay such stockholders and, accordingly, after giving effect to such redemptions, the balance in the Trust Account was approximately $23 million. As a result of less fund in the Trust Account, we do not expect the same level of interest income in 2023 as we experienced during the year ended December 31, 2022. 60 Liquidity, Capital Resources and Going Concern As indicated in the accompanying financial statements, at December 31, 2022, we had $345,777 in cash. For the year ended December 31, 2022, the net increase in cash was $297,222. Cash used in operating activities was $1,311,310 and was mainly the result of a net income of $398,639, interest income earned on trust assets $1,976,183, cash used in accrued expenses of $27,664, and cash used in prepaid expenses of $245,254 partially offset by change in deferred offering costs of $108,962 and accrued income taxes payable of $374,862. Cash used in investing activities was $134,895,000 and was the result of funds deposited into the trust account. Cash provided by financing activities was $136,503,532 and was primarily related to the initial public offering. On February 7, 2022 Company consummated its initial public offering of 11,500,000 units (the “Units”). Each Unit consists of one share of Class A common stock of the Company, par value $0.0001 per share (“Class A Common Stock”), and one redeemable warrant of the Company (“Warrant”), with each whole Warrant entitling the holder thereof to purchase one share of Class A Common Stock for $11.50 per share. The Units were sold at a price of $10.00 per Unit, generating gross proceeds to the Company of $115,000,000 the Company granted the Underwriters in the Offering a 45-day option to purchase up to 1,725,000 additional Units solely to cover over-allotments, if any (the “Option”). The Underwriters exercised the Option in full, resulting in the sale of 13,225,000 Units in total and total gross proceeds of $132.25 million, which were placed in a U.S.-based trust account (the “Trust Account”), maintained by Wilmington Trust Company, acting as trustee. On February 7, 2022, simultaneously with the consummation of the Offering, the Company consummated the private placement of 754,000 units (the “Private Placement Units”) to the Sponsor, which amount includes 69,000 Private Placement Units purchased by the Sponsor in connection with the Underwriters’ exercise of the Option in full, at a price of $10.00 per Private Placement Unit, generating gross proceeds of approximately $7.54 million (the “Private Placement”) a portion of the proceeds of were placed in the Trust Account and a portion was used to pay offering expenses including the non-deferred underwriting discount related to the Offering. See “ January 2023 Extension ” as noted above for additional information regarding proceeds currently in the Trust Account. In connection with the Company’s assessment of going concern considerations in accordance with Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the Combination Period is less than one year from the date of the issuance of the financial statements. There is no assurance that the Company’s plans to consummate a Business Combination will be successful within the Combination Period. As a result, these factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of the uncertainty. Related Party Transactions On November 16, 2021, Murphy Canyon Acquisition Sponsor, LLC, our sponsor, purchased 4,312,500 founder shares for an aggregate purchase price of $25,000, or approximately $0.006 per share. On January 26, 2022, the sponsor surrendered and forfeited 1,006,250 Founder Shares for no consideration, following which the sponsor holds 3,306,250 founder shares at approximately $0.008 per share. The founder shares (including the Class A common stock issuable upon exercise thereof) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder. Commencing on the date of our initial public offering, we have pay Murphy Canyon Management Group, Inc., an affiliate of our sponsor, a total of $10,000 per month for office space, utilities and secretarial and administrative support. For the year ended December 31, 2022, total payments to Murphy Canyon Management Group were $110,000. Upon completion of our initial business combination or our liquidation, we will cease paying these monthly fees. 61 Our sponsor, officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made to our sponsor, officers or directors or our or their affiliates and will determine which expenses and the amount of expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf. On November 4, 2021 our sponsor loaned us $300,000 to be used for a portion of the expenses of the initial public offering. These loans are non-interest bearing, unsecured and were repaid upon the closing of the initial public offering in February 2022. In addition, in order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units, at a price of $10.00 per unit at the option of the lender, upon consummation of our initial business combination. The units would be identical to the placement units. The terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans. We do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. In connection with the initial public offering, our sponsor purchased 754,000 placement units for an aggregate purchase price of $7,540,000. Each whole warrant is exercisable to purchase one whole share of Class A common stock at $11.50 per share. Our Sponsor has agreed to transfer, but has not yet transferred, an aggregate of 45,000 placement units (15,000 each) to each of our three independent directors. There will be no redemption rights or liquidating distributions from the Trust Account with respect to the founder shares, or placement units, which will expire worthless if we do not consummate a business combination within 12 months from the consummation of our initial public offering (or up to February 7, 2024 at the election of the Company subject to satisfaction of certain conditions). The placement units are identical to the units sold in the initial public offering except that the placement units and their component securities will not be transferable, assignable or saleable until 30 days after the consummation of our initial business combination except to permitted transferees, the purchasers of the placement units waive any and all rights and claims that they may have to any proceeds, and any interest thereon, held in the Trust Account in respect of the common stock underlying such placement units in the event that a business combination is not consummated. The placement units are entitled registration rights. Additionally, the warrants underlying the placement units contain a cashless exercise provision and shall be non-redeemable while held by the initial purchasers thereof or their permitted assignees. There will be no underwriting fees or commissions due with the respect to the private placement. Our sponsor has agreed to waive its redemption rights with respect to its founder shares (i) in connection with the consummation of a business combination, (ii) in connection with a stockholder vote to amend our amended and restated certificate of incorporation to modify the substance or timing of our obligation to allow redemption in connection with our initial business combination or certain amendments to our charter prior thereto or to redeem 100% of our public shares if we do not complete our initial business combination within 12 months from the consummation of our initial public offering (or up to February 7, 2024 at the election of the Company subject to satisfaction of certain conditions) and (iii) if we fail to consummate a business combination within 12 months from the consummation of our initial public offering (or up to February 7, 2024 at the election of the Company subject to satisfaction of certain conditions) or if we liquidate prior to the expiration of such period. However, our initial stockholders will be entitled to redemption rights with respect to any public shares held by them if we fail to consummate a business combination or liquidate within 12 months from the consummation of our initial public offering (or up to February 7, 2024 at the election of the Company subject to satisfaction of certain conditions). 62 Pursuant to a registration rights agreement we entered into with our initial stockholders, we may be required to register certain securities for sale under the Securities Act. These holders, and holders of units issued upon conversion of working capital loans, if any, are entitled under the registration rights agreement to make up to three demands that we register certain of our securities held by them for sale under the Securities Act and to have the securities covered thereby registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders have the right to include their securities in other registration statements filed by us. We will bear the costs and expenses of filing any such registration statements. On March 7, 2023 our sponsor loaned us $300,000 to be used to fund the trust account and for our operating expenses, and may lend up to $1,500,000 in total. These loans are non-interest bearing, unsecured and will be repayable in full upon the earlier of (i) the date on which we consummate our initial business combination and (ii) the date that our winding up is effective. Off-Balance Sheet Arrangements; Commitments and Contractual Obligations; Quarterly Results As of December 31, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations. JOBS Act On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things, (i) provide an independent registered public accounting firm’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the report of independent registered public accounting firm providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of the initial public offering or until we are no longer an “emerging growth company,” whichever is earlier. Item 7A. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, we are not required to provide the information required by this item. Item 8. Financial Statements and Supplementary Data This information appears following Item 15 of this Report and is included herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 63