CDT Equity Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read together with the other sections of this Annual Report on Form 10-K, including our audited financial statements for the year ended December 31, 2023, together with related notes thereto, included elsewhere in this Annual Report. The following discussion contains forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” or in other parts of this Annual Report and our other filings with the SEC. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Conduit Pharmaceuticals Limited entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Murphy Canyon Acquisition Corp. (“MURF”) on November 8, 2022. The transaction contemplated by the terms of the Merger Agreement was completed on September 22, 2023, in conjunction with which MURF changed its name to Conduit Pharmaceuticals Inc. (hereafter referred to, collectively with is subsidiaries as “Conduit”, the “Company”, “we”, “us” or “our”, unless the context otherwise requires. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated. Overview Conduit has developed a unique business model that allows it to act as a “conduit” to bring clinical assets from pharmaceutical companies and develop new treatments for patients. Our novel approach addresses unmet medical need and lengthens the intellectual property for our existing assets through cutting-edge solid-form technology and then commercialize these products with life science companies. We are led by highly experienced pharma executives, Dr. Freda Lewis-Hall, former Chief Medical Officer of Pfizer Inc., the Chair of our Board of Directors, and Dr. David Tapolczay, former Chief Executive Officer of the United Kingdom-based medical research charity LifeArc, our Chief Executive Officer. While simultaneously leveraging the capabilities of our Cambridge laboratory facility and highly experienced team of solid-form experts to extend or develop proprietary solid-form intellectual property for our existing and future clinical assets. Our own intellectual property portfolio comprises a 20-year patent pending solid-form compound, the AZD1656 Cocrystal (a HK-4 Glucokinase Activator), targeting a wide range of autoimmune diseases. Our pipeline research includes a number of compounds that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, which we have identified as having an opportunity to develop further intellectual property positions through solid-form technology. In connection with the funding and development of clinical assets, we evaluate and select the specific molecules to be developed and collaborate with external CROs and KOLs to run clinical trials that are managed, funded, and overseen by us. We intend to leverage our comprehensive clinical and scientific expertise in order to facilitate development of clinical assets through Phase II trials in an efficient manner by using CROs and third-party service providers. We will also collaborate closely with disease specific KOLs to collectively assess and determine the most appropriate indications for all our current and forthcoming assets. We believe that successful Phase II trials of the clinical assets in our pipeline will increase the value of our assets. There is no assurance that any clinical trials on the assets owned or licensed by us will be successful, however, following a successful Phase II clinical trial, we would look to licensing opportunities with large biotech or pharmaceutical companies, typically for up-front milestone payments and royalty income streams for the life of the asset patent. We anticipate using any future royalty income stream to develop our asset portfolio in combination with other potential sources of financing, including debt or equity financing. Outside of our proprietary owned patented clinical assets, we have an exclusive relationship and partnership with St George Street, a biomedical charity based in the United Kingdom. We have the option to fund 100% of the development of clinical assets that were initially licensed to St George Street by AstraZeneca. AstraZeneca has conducted initial pre-clinical and, in some instances, clinical trials on these assets, but has decided to license them for further development. In addition to our patent pending solid-form compound targeting a wide range of autoimmune diseases, two assets which were licensed from AstraZeneca to St George Street that is expected to be developed by us include AZD5904 (a Myeloperoxidase Inhibitor) targeting idiopathic male infertility and AZD1656 (a Glucokinase Activator) targeting autoimmune diseases or immunodeficient conditions including uveitis, premature labor, renal transplant rejection, and Hashimoto’s thyroiditis. As the clinical assets have undergone initial pre-clinical and clinical testing conducted by AstraZeneca, we are able to use the safety data generated in these clinical trials to assess which clinical assets to further develop and for which indications. Through this relationship, there is considerable APIs that was manufactured by AstraZeneca in conducting its clinical trials available. As a result, Conduit may not have to develop the API, which is often a time consuming and expensive process, and the API already produced was subject to rigorous quality control measures. Furthermore, Conduit is well positioned, and intends, to pursue additional relationships and/or partnerships with third parties for the licensing of further assets which are currently deprioritized. We plan to focus our efforts on developing clinical assets to address diseases that impact a large population where there is no present treatment or the present treatment, carries significant unwanted side effects. 64 Impact of COVID-19, the Russia and Ukraine Conflict, and Global Economic Conditions As a result of the spread of the COVID-19 pandemic, economic uncertainties have arisen which may negatively affect our financial position, results of operations and cash flows. We have assessed that the COVID-19 pandemic has not so far had a material or direct impact on our operations or financial position. Nevertheless, in light of the ongoing COVID-19 pandemic, we have implemented measures to protect employees and take social responsibilities while at the same time attempting to limit any negative effects on our business. Another outbreak of an illness, a communicable disease, or any other public health crisis, and any resulting impacts, such as an extended period of global supply chain and/or economic disruption, labor shortages, or government-mandated actions in response to such public health crisis could materially affect our business, results of operations, access to sources of liquidity, and financial condition. Management continues to actively monitor our financial condition, liquidity, operations, suppliers, industry and workforce. The conflicts between Russia and Ukraine and between Israel and Hamas have caused major macroeconomic disruptions that have impacted the global trade and economies. As such increasing inflation around the globe has forced national banks to increase their interest rates, consequently impacting interest yields around the globe. We have assessed the impact of these measures and concluded that as of today, no material impact has been identified on our business or our ability to continue as a going concern. Key Component of Result of Operations Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred in connection with the research and development of our candidates and programs. We expense research and development costs and intangible assets acquired that have no alternative future use as incurred. These expenses include: ● personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation for employees engaged in research and development functions; ● expenses incurred in connection with the clinical development and regulatory approval of our clinical assets, including under agreements with third parties, such as consultants, contractors and CROs; ● license fees with no alternative use; and ● other expenses related to research and development. We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the benefits are consumed. We incurred approximately $37,000 on research and development activities during the year ended December 31, 2022, and $90,000 during the year ended December 31, 2023. Our research and development activities have been wholly focused on developing co-crystals of AZD1656 to increase patent life. Some of this work was completed by third-party CROs but all intellectual property is retained by us. We currently have one pending international patent application and two pending national patent applications. The successful completion of clinical trials increases the value of clinical assets and may lead to the commercialization and/or licensing of such assets to other pharmaceutical companies. There is no assurance that any clinical trials on the assets owned or licensed by us will be successful. 65 Research and Development Funding expenses Funding expenses consist primarily of costs incurred in connection with the Company providing funding to SGSC to carry out its research and development activities. SGSC holds all licenses to conduct clinical research through third party pharmaceutical companies. We and St George Street entered into an Exclusive Funding Agreement on March 26, 2021 (the “Global Funding Agreement”), pursuant to which St George Street granted us the exclusive first right to provide to St George Street, or procure the provision of, all funding for the performance of a drug discovery and/or development project in consideration for a share of the net revenue in respect of such project. We have provided approximately GBP £220,000 in aggregate project funding pursuant to the Global Funding Agreement and the project funding agreements and we have received aggregate revenues totaling GBP £0 pursuant to the Global Funding Agreement and the project funding agreements. To date, we do not track our research and development expenses on a program-by-program basis as we only worked on one program related to COVID-19 treatment. Moving forward, we do not expect further research and development expense for clinical research into COVID-19 as we explore broader applications of our research to date. Our direct external research and development expenses consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct its research and discovery as well as for managing its preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track their costs by program. Research and development activities have historically been central to our business model. We anticipate that our research and development expenses will increase for the foreseeable future in connection with our planned clinical development activities, upon raising anticipated additional funding. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that would be necessary to complete the preclinical and clinical development of any of our clinical assets or when, if ever, material net cash inflows may commence from any of our clinical assets. The successful development and commercialization of any of our clinical assets is highly uncertain. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of the following: ● the scope, progress, timing, outcome and costs of any continued preclinical development activities, clinical trials and other related development activities; ● delays, suspensions, or other setbacks or interruptions encountered; ● successful patient enrollment in and the initiation and completion of any clinical trials; ● the timing, receipt and terms of any marketing approvals from applicable regulatory authorities including the U.S. Food and Drug Administration (“FDA”) and non-U.S. regulatory authorities; ● the extent of any required post-marketing approval commitments to applicable regulatory authorities; ● establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that us or our third-party manufacturers are able to make and scale our products successfully; ● development and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in Conduit’s clinical trials and for commercial launch; ● obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights; ● significant and changing government regulation; ● launching commercial sales of Conduit’s clinical assets, if and when approved, whether alone or in collaboration with others; and ● maintaining a continued acceptable safety profile of Conduit’s clinical assets following approval, if any, of Conduit’s clinical assets. 66 A change in any of these variables with respect to any of Conduit’s programs would significantly change the costs, timing and viability associated with that program. General and Administrative Expenses General and administrative expenses consist of salaries and other related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, and other operating costs. We anticipate that our general and administrative expenses will increase substantially for the foreseeable future as we increase our administrative headcount to operate as a public company and as we advance clinical assets through clinical development. We also will incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and the Nasdaq listing rules, additional insurance expenses, investor relations activities and other administrative and professional services. Other Income (Expenses) Other income (expenses), net Other income (expense), net consists of realized and unrealized losses or gains from the sale of equity securities, unrealized foreign currency transaction loss, loss on the change in fair value of convertible notes, warrants and option liabilities, and write-off of long-term debt- related party, and derecognition of deferred revenue. Interest expense, net Interest expense, net consists primarily of interest expense on convertible loan notes and promissory notes and interest expense on deferred commissions payable to an advisor for fees related to the merger, as well as a small amount of interest income on cash and cash equivalents held by the Company. Results of Operations The following table set forth our results of operations for the periods indicated: Years ended December 31, Change (Dollar amounts in thousands) 2023 2022 Amount % Research and development expenses $ 90 $ 37 $ 53 143 % 67 Research and development expenses increased by approximately $53,000, or 143%, to approximately $90,000 for the year ended December 31, 2023, as compared to approximately $37,000 for the year ended December 31, 2022. The increase was primarily due to the development of certain co-crystals of AZD1656 (AZD1656 Co-Crystal PCT/IB2022/00075 - Patent Expires 02/09/2042) during the year ended December 31, 2023. We will seek to develop the AZD1656 Co-Crystal in psoriasis, Crohn’s disease, lupus, sarcoidosis, diabetic wound healing, idiopathic pulmonary fibrosis, and nonalcoholic steatohepatitis (NASH). General and administrative expenses Years ended December 31, Change (Dollar amounts in thousands) 2023 2022 Amount % General and administrative expenses $ 5,173 $ 3,049 $ 2,124 70 % General and administrative expenses increased by $2.1 million, or 70%, to approximately $5.2 million for the year ended December 31, 2023, as compared to approximately $3.0 million for the year ended December 31, 2022. The increase was primarily driven by a $1.2 million increase in professional fees including: legal fees, accounting and tax expense, listing fees and consulting fees. General and administrative expenses were also impacted by a $0.4 million increase in salaries, payroll expense and stock compensation, a $0.2 million increase in travel expense, $0.5 million increase in employee insurance (including directors and officers insurance expense), offset by a $0.2 million decrease in Other G&A expenses. Funding expenses Years ended December 31, Change (Dollar amounts in thousands) 2023 2022 Amount % Funding expenses $ - $ 74 $ (74 ) 100 % Funding expenses decreased by $0.1 million, or 100%, to zero for the year ended December 31, 2023, as compared to $0.1 million for the year ended December 31, 2022. The decrease was primarily due to a decrease of $0.1 million in funding requirements from St George Street for research and development expenses incurred and which we agreed to fund. No funding was provided in 2023, as Conduit continues to explore preferred indications, its preferred collaboration partners, and preferred avenues of additional research. Other income (expense), net Years ended December 31, Change (Dollar amounts in thousands) 2023 2022 Amount % Other income (expense), net $ 4,923 $ (1,727 ) $ 6,650 385 % Other income (expense), net changed by $6.7 million, or 385%, to other income of $4.9 million for the year ended December 31, 2023, as compared to other expense, net of $1.7 million for the year ended December 31, 2022. The change was primarily driven by a $1.5 million gain on the derecognition of the Cizzle option in 2023, a $1.3 million gain on the change in fair value of the Cizzle option, a $2.8 million gain on the derecognition of the deferred revenue for the Vela option prior to the exercise of the Vela option , and a $1.0 million gain on the change in fair value of the Vela option. This was offset by a $1.0 million loss on issuance related to the Vela option, $0.4 million change in the fair value of convertible notes payable and $0.3 million realized foreign currency transaction loss. During the year ended December 31, 2022, we recorded a loss on the fair market value adjustment for the Cizzle option of $1.3 million and a loss on the adjustment to convertible notes of $0.3 million. For further details refer to Note 16 – Other income (expense), net in the financial statements as of December 31, 2023 and 2022 included elsewhere in this Report. 68 Interest expense, net Years ended December 31, Change (Dollar amounts in thousands) 2023 2022 Amount % Interest expense, net $ (211 ) $ - $ (211 ) nm* *Percentage changes denoted with an “nm” represent percent changes that are not meaningful. Interest expense, net changed by $0.2 million from nil for the year ended December 31, 2023 to an expense of $0.2 million for the year ended December 31, 2022. The change was driven by $0.2 million increase in interest expense on interest-bearing convertible promissory notes for the year ended December 31, 2023 that was not issued until the first quarter of 2023. Liquidity and Capital Resources Management assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. Since our inception, and in line with our growth strategy, we have prepared our financial statements assuming we will continue as a going concern. Since our inception, we have incurred net losses and experienced negative cash flows from operations. To date, our primary sources of capital have been through private placements of equity securities and convertible debt as well as PIPE financing as a result of the Merger. During the year ended December 31, 2023 and 2022, we had net losses of $0.5 million and $4.9 million, respectively. The Company has also received a $5 million commitment for working capital, subject to agreement and definitive documentation, from Corvus Capital, a major shareholder, and expects to use that commitment to cover its operating costs for the coming year. We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in research and development programs. Our primary uses of cash are to fund our operations as we continue to grow our business. We will require a significant amount of cash for expenditures as we invest in ongoing research and development and business operations. Until such time as we can generate significant revenue from commercialization of our product, we expect to finance our cash needs for ongoing research and development and business operations through public or private equity or debt financings or other capital sources, including strategic partnerships. However, we may be unable to raise additional funds or enter into such other arrangements, when needed, on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce research and development efforts all of which could have a material adverse effect on the Company and its financial results. While the Company believes in the viability of its ability to raise additional funds, there can be no assurances to that effect. We have based our estimates on assumptions of operating costs that may prove to be wrong. As a result, we could deplete our capital resources sooner than we currently expect. If, for any reason, our expenses differ materially from our assumptions or we utilize our cash more quickly than anticipated, or if we are unable to obtain funding on a timely basis we may be required to revise our business plan and strategy, which may result in significantly curtailing, delaying or discontinuing one or more of our research or development programs or the commercialization of any product candidates or may result in our being unable to expand our operations or otherwise capitalize on our business opportunities. As a result, our business, financial condition, and results of operations could be materially affected. Management has concluded that there is substantial doubt regarding our ability to continue as a going concern for a period of at least 12 months from the date of the filing of this Annual Report. This is based on our analysis under applicable accounting principles. These financial statements have been prepared assuming the Company will continue as a going concern and do not include adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Cash Requirements Our material cash requirements include the following contractual and other obligations. Promissory Convertible Note In March 2023, we issued an aggregate principal amount of $0.8 million convertible promissory note payable to an investor. 69 The promissory convertible note matures and is payable in full 18 months from the date of the note. The note carries 20% interest and is payable every six months from the date of the note until the maturity date. The note is subject to conversion into our common stock prior to the maturity date. Loans Payable In May 2022, we entered into two loan agreements, with an aggregate principal amount of $0.2 million, with two lenders. The loans are payable and mature in May 2024 and bear no interest. For additional information regarding our convertible promissory note, see Note 7 of the notes to the financial statements. Working Capital We currently anticipate that cash required for working capital for the next 12 months is approximately $6.8 million, which includes accrued expenses and other current liabilities of $1.1 million, and convertible promissory note, if not converted prior to maturity, of $0.8 million. We do anticipate being able to fund required working capital for the next 12 months with cash and cash equivalents on hand and current borrowings. Management believes that we will be able to fund cash required for the next 12 months through borrowings. We have historically been able to access funds through the issuance of debt and believe we can continue to obtain funding through such debt financing agreements as needed to meet cash requirements for the next 12 months. Cash Flows The following table set forth our cash flows for the period indicated (in thousands): Years ended December 31, 2023 2022 Net cash (used in) provided by: Operating Activities $ (7,725 ) $ (2,266 ) Investing Activities 725 (183 ) Financing Activities 10,929 2,448 Effect of exchange rate changes on cash and cash equivalents 299 1 Net (decrease) increase in cash and cash equivalents $ 4,228 $ - Cash Flows Used in Operating Activities Net cash used in operating activities for the year ended December 31, 2023 was $7.7 million, resulting primarily from a net loss of $0.5 million, adjusted for non-cash items including a $4.3 million reduction of deferred income upon exercise of the Cizzle and Vela option, a $2.5 million change in operating assets and liabilities, a $2.3 million gain on the change in fair value of the Vela and Cizzle options, a $0.2 million change in the reserve for uncollectible loans and a $0.1 million gain on warrant remeasurement, partially offset by a $1.0 million loss upon the issuance of the Vela option, a $0.5 million change in amortization on directors & officers insurance, a $0.4 million loss on change in fair value of convertible notes and a $0.2 million increase in stock based compensation expense. The $2.5 million cash outflow from operating assets and liabilities is primarily due to a $1.0 million cash outflow from prepaid expenses and a $1.7 million cash outflow from accrued expenses and other current liabilities partially offset by a $0.2 million cash inflow from accounts payable $1.8 million in decrease from accounts payable, accrued expense and other current liabilities due to differences in the timing of disbursements. 70 Net cash used in operating activities during the year ended December 31, 2022 was $2.3 million, resulting primarily from a net loss of $4.9 million, adjusted for non-cash charges of $2.0 million and working capital adjustments of $0.6 million. Cash Flows (Used) Provided by Investing Activities Net cash provided by or used in investing activities for the year ended December 31, 2023. was $0.7 million, resulting from $0.5 million in proceeds from an option fee received from Vela of $0.5 million and $0.6 million proceeds from the repayment of a loan from a related party, partially offset by an issuance of a loan to a related party of $0.4 million. Net cash used in investing activities for the year ended December 31, 2022 was $0.2 million resulting from the issuance of a loan to a related party of $0.3 million, partially offset by an option fee received from Cizzle of $0.1 million . Cash Flows Provided by Financing Activities Net cash provided by financing activities for the year ended December 31, 2023 was $11.0 million, resulting from the proceeds from the Merger and related PIPE financing, net of transaction costs of $8.5 million, $2.3 million from issuance of convertible notes payable, and $0.1 million capital contribution from a related party. Net cash provided by financing activities during the year ended December 31, 2022 was $2.4 million. resulting from the proceeds from the sale of shares received for the sale of future revenue of $1.3 million, proceeds from notes payable of $0.2 million and the issuance of our convertible debt of $0.9 million. Contractual Obligations and Other Commitments As of December 31, 2023, we had no non-cancellable commitments for the purchase of clinical materials, contract manufacturing, maintenance and committed funding which we expect to pay within one year. Critical Accounting Estimates The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following: Going Concern The accompanying Consolidated Financial Statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying Consolidated Financial Statements do not reflect any adjustments that might result if we are unable to continue as a going concern. In connection with the preparation of the Consolidated Financial Statements for the years ended December 31, 2023 and 2022, we conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to our ability to continue as a going concern within one year after the date of the issuance of such financial statements, and concluded that substantial doubt existed as to our ability to continue as a going concern as further discussed in Note 1 in the notes to the Consolidated Financial Statements of this Annual Report. Under ASC 205-40, the receipt of potential funding from future partnerships, equity or debt issuances, potential achievement of milestones from customer agreements and reductions in workforce cannot be considered probable at this time because these plans are not entirely within our control and/or have not been approved by our board of directors as of the date of issuance of the Consolidated Financial Statements. Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations, raise substantial doubt regarding our ability to continue as a going concern. Our plans to alleviate the conditions that raise substantial doubt include reduced spending, and the pursuit of additional capital. We have concluded the likelihood that our plan to successfully obtain sufficient funding from one or more of these sources, or adequately reduce expenditures, while possible, is less than probable. We believe that the accounting estimates described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. 71 Fair Value Measurements Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures , defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Fair value is to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. In determining fair value, the Company used various valuation approaches. A fair value hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumption about the inputs that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels, based on the inputs, as follows: ● Level 1—Valuations based on quoted prices for identical instruments in active markets. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. ● Level 2— Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for either similar instruments in active markets, identical or similar instruments in markets that are not active, or model-derived valuations whose inputs or significant value drivers are observable or can be corroborated by observable market data. ● Level 3—Valuations based on inputs that are unobservable. These valuations require significant judgment. The Company’s Level 1 assets consist of cash and cash equivalents in the accompanying balance sheets and the value of accrued expenses and other current liabilities approximate fair value due to the short-term nature of these assets and liabilities. As of December 31, 2023, the Company has a warrant liability for which the fair value is determined based on Level 2 inputs as such inputs are based on observable inputs other than quoted prices. See Note 4 and Note 6 for further information on the Company’s financial liabilities carried at fair value. Vela Option Agreement We account for the Vela option at fair value in order to measure the liability at an amount that more accurately reflects the current economic environment in which we operate. We recorded the option at fair value with changes in fair value recorded in earnings at each reporting period through settlement. The significant assumptions used to estimate the fair value of the option liability involved inherent uncertainties and the application of significant judgment and included the time to maturity and the underlying asset price based on the probability of AZD 1656 successfully moving from Phase I to Phase II. The sensitivity of these inputs to the fair value of the option is assessed on a periodic basis. 72 The fair value of the option liability was estimated using the Monte Carlo Simulation Model, where the value of the Vela option was estimated based on an analysis of five inputs. Valuation models require the input of highly subjective assumptions, including the expected volatility of the underlying asset as well as the expected share price of the Company at the reporting date. If any of the assumptions used in the Monte Carlo Simulation Model changes significantly, the option liability may differ materially from that recorded in the current period. Cizzle Option Agreement We account for the Cizzle option at fair value in order to measure the liability at an amount that more accurately reflects the current economic environment in which we operate. We recorded the option at fair value with changes in fair value recorded in earnings at each reporting period through settlement. The significant assumptions used to estimate the fair value of the option liability involved inherent uncertainties and the application of significant judgment and included the time to maturity and the underlying asset price based on the probability of the AZD 1656 successfully moving from Phase I to Phase II. The sensitivity of these inputs to the fair value of the option is assessed on a periodic basis. The fair value of the option liability was estimated using the Black-Scholes-Merton Model, where the value of the Cizzle option was estimated based on an analysis of six inputs. Valuation models require the input of highly subjective assumptions, including the expected volatility of the underlying asset. If any of the assumptions used in the Black-Scholes-Merton Model changes significantly, the option liability may differ materially from that recorded in the current period. Fair Value Option for Convertible Notes We elected to account for certain of our convertible notes at fair value in order to measure those liabilities at amounts that more accurately reflect the current economic environment in which we operate. We recorded the convertible notes at fair value with changes in fair value recorded in earnings at each reporting period through settlement. The fair value of the convertible notes was determined using a probability-weighted income approach as the convertible notes contained various settlement outcomes. The significant assumptions used to estimate the fair value of the convertible notes involved inherent uncertainties and the application of significant judgment and included the time to maturity and the probability of the various settlement outcomes. The sensitivity of these inputs to the fair value of the convertible notes is assessed on a periodic basis. Fair values of the derivative liabilities related to the convertible notes were estimated using a probability-weighted expected return method, where the values of various instruments were estimated based on an analysis of future values of our business, assuming various future outcomes. The resulting instruments’ values were based upon the probability - weighted present value of expected future investment returns, considering each of the possible future outcomes available to us, as well as the economic benefits attributable to each class of instruments. The expected future investment returns were estimated using a variety of methodologies, including both the market approach and the income approach, where an observable quoted market does not exist, and were generally classified as Level 3. Such methodologies included reviewing values ascribed to our most recent financing, comparing the subject instrument with similar instruments of publicly traded companies in similar lines of business, and reviewing our underlying financial performance and subject instrument, including estimating discounted cash flows. If any of the assumptions used in the probability-weighted expected return method changes significantly, the convertible notes may differ materially from that recorded in the current period. 73 Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included in Note 1 - Nature of the Business and Basis of Presentation and Summary of Significant Accounting Policies to our financial statements included elsewhere in this Report. Emerging Growth Company Status and Smaller Reporting Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that: (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Upon closing of the Merger, the surviving company remained an emerging growth company, as defined by the Jumpstart Our Business Startups act of 2012, until the earliest of (i) the last day of the combined entity’s first fiscal year following the fifth anniversary of the completion of MURF’s initial public offering, (ii) the last day of the fiscal year in which the combined entity has total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which the combined entity is deemed to be a large accelerated filer, which means the market value of the combined entity’s common stock that is held by non-affiliates exceeds $700.0 million as of the prior December 31st or (iv) the date on which the combined entity has issued more than $1.0 billion in non-convertible debt securities during the prior three year period. In addition, Conduit is a smaller reporting company as defined in the Exchange Act. The Company may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) Conduit’s voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) Conduit’s annual revenue is less than $100.0 million during the most recently completed fiscal year and its voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of its second fiscal quarter. 74 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.