CDT Equity Inc. 10-Q

Item 2. 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 in conjunction with the financial statements and the related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) as well as the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2023 that was filed with the SEC on April 16, 2024. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. 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 Quarterly Report . 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 (the “Merger”), 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). 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 (in certain remaining jurisdictions) 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 contract research organizations (“CROs”) and Key Opinion Leaders (“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, AstraZeneca AB (PUBL) (“AstraZeneca”) agreed to grant a license to the Company under certain intellectual property rights controlled by AstraZeneca related to HK-4 Glucokinase activators AZD1656 and AZD5658 in all indications and myeloperoxidase inhibitor AZD5904 for the treatment, prevention, and prophylaxis of idiopathic male infertility. The Company will be responsible for the development and commercialization of the relevant products licensed under the related License Agreement (the “Licensed Products”). The Company is required to use commercially reasonable efforts to develop and commercialize the Licensed Products. 27 AstraZeneca has conducted initial pre-clinical and, in some instances, clinical trials on these assets, but has decided to license them for further development. 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 are considerable active pharmaceutical ingredients (“APIs”) that were manufactured by AstraZeneca in conducting its clinical trials available. As a result, Conduit may not have to develop the APIs, which is often a time consuming and expensive process, and the APIs already produced were subject to rigorous quality control measures. Furthermore, Conduit is well positioned to pursue, 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. 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 $3.1 million and $3.2 million on research and development activities during the three and nine months ended September 30, 2024, respectively. There was no comparable research and development funding during the three and nine months ended September 30, 2023. Of the costs incurred in 2024, $1.5 million was due to the upfront payment to AstraZeneca in connection with the license agreement and $1.6 million was related to the shares issued to AstraZeneca. 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. 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. 28 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. In addition, if regulatory approval is obtained for clinical assets, we expect to incur expenses associated with building a sales and marketing team. Other Income (Expenses) Other income (expenses), net Other income (expense), net consists of change in the fair value of options, change in fair value of convertible notes, and expense incurred upon the issuance of warrants during the quarter. Other income (expense), net consists of change in the fair value of options, change in fair value of convertible notes, and expense incurred upon the issuance of warrants during the quarter. 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: Three Months ended September 30, Nine Months ended September 30, (Dollar amounts in thousands) 2024 2023 2024 2023 Operating expenses: Research and development expenses $ 3,093 $ - 3,246 - General and administrative expenses 2,718 430 8,660 2,833 Total operating costs and expenses 5,811 430 11,906 2,833 Operating loss (5,811 ) (430 ) (11,906 ) (2,833 ) Other income (expenses): Other income (expense), net (341 ) 3,102 (2,954 ) 2,145 Interest Income - - 11 - Interest expense, net (309 ) (47 ) (547 ) (92 ) Total other (expense) income, net (650 ) 3,055 (3,490 ) 2,053 Net loss $ (6,461 ) $ 2,625 (15,396 ) (780 ) Comparison of the Three Months Ended September 30, 2024 and 2023 Research and Development Expenses Three Months ended September 30, Change (Dollar amounts in thousands) 2024 2023 Amount % Research and development expenses $ 3,093 $ - $ 3,093 100 % Research and development expenses increased by $3.1 million, or 100%, for the three months ended September 30, 2024, as compared to $0 for the three months ended September 30, 2023. The increase was driven by the upfront payment made and shares issued to AstraZeneca in the third quarter of 2024 in connection with the license agreement and issuance agreement, respectively. General and Administrative Expenses Three Months ended September 30, Change (Dollar amounts in thousands) 2024 2023 Amount % General and administrative expenses $ 2,718 $ 430 $ 2,288 532 % General and administrative expenses increased by $2.3 million, or 532%, to $2.7 million for the three months ended September 30, 2024, as compared to $0.4 million for the three months ended September 30, 2023. The increase was primarily driven by a $0.8 million increase in salaries and stock compensation expense, a $0.4 million increase in insurance related the amortization of D&O insurance, and $1.0 million in professional fees and other general and administrative expenses. 29 Other Income (Expense), Net Three Months ended September 30, Change (Dollar amounts in thousands) 2024 2023 Amount % Other income (expense), net $ (341 ) $ 3,102 $ (3,443 ) (111 )% Other income (expense), net changed by $(3.4) million, or (111)%, to $0.3 million of expense for the three months ended September 30, 2024, as compared to $3.1 million of net income for the three months ended September 30, 2023. The decrease was primarily driven a $0.4 million contingent liability incurred in the third quarter of 2024, a change in the fair value of the Cizzle option of $1.0 million, a fair value change for the Vela option of $0.7 million and $1.5 million derecognition of the Cizzle deferred revenue in 2023. For further details refer to Note 14, “Other income (expense), net,” in the unaudited financial statements as of September 30, 2024 and September 30, 2023 included elsewhere in this document. Interest Expense, Net Three Months ended September 30, Change (Dollar amounts in thousands) 2024 2023 Amount % Interest expense, net $ (309 ) $ (47 ) $ (262 ) 557 % Interest expense, net increased by $(0.3) million, or 557%, to $0.3 million of interest expense for the three months ended September 30, 2024, as compared to $47,000 of interest expense for the three months ended September 30, 2023. The increase was driven by $0.1 million of interest expense related to the amortization of debt discount, $0.1 million of interest expense on the deferred commission payable to an advisor for fees related to the Merger and $0.1 million of interest expense for interest on convertible note and note payables for the three months ended September 30, 2024. Comparison of the Nine Months Ended September 30, 2024 and 2023 Research and Development Expenses Nine Months ended September 30, Change (Dollar amounts in thousands) 2024 2023 Amount % Research and development expenses $ 3,246 $ - $ 3,246 100 % Research and development expenses increased by $3.2 million, or 100%, for the nine months ended September 30, 2024, as compared to $0 for the nine months ended September 30, 2023. The increase was driven by the upfront payment made to and shares issued to AstraZeneca in the third quarter of 2024 in connection with the license agreement and issuance agreement, respectively. The remaining increase was due to the development of certain co-crystals of AZD1656 (AZD1656 Co-Crystal PCT/IB2022/00075 - Patent Expires 02/09/2042) during the nine months ended September 30, 2024. There was no comparative activity during the nine months ended September 30, 2023. General and Administrative Expenses Nine Months ended September 30, Change (Dollar amounts in thousands) 2024 2023 Amount % General and administrative expenses $ 8,660 $ 2,833 $ 5,827 206 % General and administrative expenses increased by $5.8 million, or 206%, to $8.6 million for the nine months ended September 30, 2024, as compared to $2.8 million for the nine months ended September 30, 2023. The increase was primarily driven by a $2.9 million increase in salaries and stock compensation expense, $1.3 million increase in insurance related the amortization of D&O insurance, $0.3 million of advertising and marketing expenses, $0.2 million of board of directors’ fees, $0.2 million increases in rent expenses, a $0.5 million other general and administrative expenses, and $0.5 million increase in professional fees and travel expense. 30 Other Income (Expense), Net Nine Months ended September 30, Change (Dollar amounts in thousands) 2024 2023 Amount % Other income (expense), net $ (2,954 ) $ 2,145 $ (5,099 ) (238 )% Other income (expense), net changed by $(5.1) million, or (238)%, to $2.9 million of net expense for the nine months ended September 30, 2024, as compared to $2.1 million of net income for the nine months ended September 30, 2023. The increase was primarily driven by an increase of $2.7 million related to the issuance of warrants in exchange for stockholders entering into lock-up agreements and a $0.4 million contingent liability incurred during the nine months ended September 30, 2024. The $2.1 million income for the nine months ended September 30, 2023 was driven by a change in the fair value of the Cizzle option of $1.3 million, a fair value change for the Vela option of $0.7 million and $1.5 million derecognition of the Cizzle deferred revenue in 2023, offset by a loss on the issuance of the Vela option of $1.0 million. For further details refer to Note 14, “Other income (expense), net,” in the unaudited financial statements as of September 30, 2024 and September 30, 2023 included elsewhere in this document. Interest Expense, Net Nine Months ended September 30, Change (Dollar amounts in thousands) 2024 2023 Amount % Interest expense, net $ (547 ) $ (92 ) $ (455 ) 495 % Interest expense increased by $(0.5) million, or 495%, to $0.5 million of net expense for the nine months ended September 30, 2024, as compared to $92,000 of net expense for the nine months ended September 30, 2023. The change was driven by $0.1 million of interest expense related to the amortization of debt issuance costs, $0.2 million of interest expense on the deferred commission payable to an advisor for fees related to the Merger and $0.2 million of interest expense for interest on convertible note and note payables for the three months ended September 30, 2024. 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 nine months ended September 30, 2024 and 2023, we had net losses of $15.4 million and $0.8 million, respectively. We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in research and development programs. We have determined that additional financing will be required to fund our operations for the next 12 months and our ability to continue as a going concern is dependent upon obtaining additional capital and financing. Sources and Uses of Liquidity Our primary uses of cash are to fund our operations as we continue to develop our product candidates. 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 or licensing, 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. While the Company believes in the viability of its ability to raise additional funds, there can be no assurances to that effect. 31 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 (the “March 2023 Convertible Note”) payable to an investor. The March 2023 Convertible Note originally was to mature and become payable in full, 18 months from the date of the March 2023 Convertible Note. The March 2023 Convertible Note carries 20% interest per annum and interest is payable every six months from the date of the March 2023 Convertible Note until the maturity date. The March 2023 Convertible Note became convertible into Common Stock following the consummation of the Merger. On October 9, 2024, the Company executed an agreement to extend the maturity date for the March 2023 Convertible Note. The March 2023 Convertible Note’s maturity date is currently November 19, 2024. For additional information regarding our convertible promissory note, see Note 7 of the notes to the unaudited financial statements. 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 payable were to mature and become payable in full two years from the date of the loan agreement and they bear no interest. On October 9, 2024, the Company executed agreements to extend the loan maturity date for each loan to December 19, 2024. In August 2024, we entered into a senior secured promissory note with an aggregate principal amount of $2.7 million with one lender. The note matures and is payable in full, 12 months from the date of the note. The note bears interest at the rate of 12% per annum and interest is payable monthly in arrears as cash or accrued at the lender’s discretion from the date of the note until the maturity date. For additional information regarding our loans payable note, see Note 8 of the notes to the unaudited financial statements. Working Capital We currently anticipate that cash required for working capital for the next 12 months is approximately $13.7 million, which includes deferred financing fees payable of $5.7 million, accrued expenses and other current liabilities of $3.2 million, a convertible promissory note, if not converted prior to maturity, of $0.8 million, notes payable of $0.2 million, and a note payable of $2.7 million. We do not anticipate being able to fund required capital expenditures for the next 12 months with cash and cash equivalents on hand as we have a history of limited cash on hand. We have historically been able to access funds through the issuance of our convertible notes and believe we can continue to obtain funding through debt and equity financing agreements as needed to meet cash requirements for the next 12 months. 32 Cash Flows The following table set forth our cash flows for the period indicated (in thousands): Nine Months ended September 30, 2024 2023 Net cash (used in) provided by: Operating Activities $ (5,869 ) $ (2,922 ) Investing Activities (128 ) 228 Financing Activities 1,857 11,343 Effect of exchange rate changes on cash and cash equivalents (17 ) (5 ) Net (decrease) increase in cash and cash equivalents $ (4,157 ) $ 8,644 Cash Flows Used in Operating Activities Net cash used in operating activities for the nine months ended September 30, 2024, was $5.9 million, resulting primarily from a net loss of $15.1 million, net a change in the fair value of warrants of $0.1 million, adjusted for non-cash items including $1.3 million of stock-based compensation, $1.3 million of amortization expense, $2.7 million expense on the issuance of warrants, $0.2 million interest expense of the deferred commission payable, $1.7 million non-cash share issuance and a $1.4 million cash inflow from operating assets and liabilities. The $2.3 million cash inflow from operating assets and liabilities is primarily due to a $2.5 million cash inflow from accounts payable and accrued expenses and other current liabilities and a $0.2 million cash outflow from prepaid expenses. Net cash used in operating activities for the nine months ended September 30, 2023 was $2.9 million, resulting primarily from a net loss of $0.8 million, adjusted for non-cash items including a $1.5 million reduction of deferred income upon exercise of the Cizzle option, a $2.0 million gain on the change in fair value of the Vela and Cizzle options, a $0.2 million change from the reversal of a reserve for an uncollectible loan that was repaid in September 2023 and a $0.1 million gain on warrant remeasurement, partially offset by a $1.7 million cash inflow from net changes from operating assets and liabilities, a $1.0 million loss on issuance of the Vela option, a $0.4 million loss on change in fair value of convertible notes and a $0.1 million increase in interest expense on a convertible promissory note. The $0.2 million cash inflow from operating assets and liabilities is primarily due to a $1.6 million cash inflow from accrued expense and other current liabilities due to differences in the timing of disbursements and a $1.4 million cash outflow from prepaid expenses. Cash Flows (Used in) Provided by Investing Activities Net cash used in investing activities for the nine months ended September 30, 2024, was $0.1 million, resulting from $0.5 million purchases of short term investments offset by $0.4 million in sales of short term investments. Net cash provided by investing activities for the nine months ended September 30, 2023, was $0.2 million, resulting proceeds on the issuance of an option of $0.6 million offset by the issuance of a loan to a related party of $0.4 million. Cash Flows Provided by Financing Activities Net cash provided by financing activities for the nine months ended September 30, 2024, was $1.9 million, resulting from $1.6 million of proceeds on the issuance of the promissory note to Nirland, $0.1 million of proceeds the issuance of the April 2024 warrants and a $0.1 million bank overdraft. Net cash provided by financing activities for the nine months ended September 30, 2023, was $11.3 million, resulting from the issuance of a convertible note payable of $1.4 million and from the issuance of a convertible promissory note payable of $0.7 million. Contractual Obligations and Other Commitments As of September 30, 2024, 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: 33 Warrants The Company determines the accounting classification of warrants as either liability or equity by first assessing whether the warrants meet liability classification in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”). Under ASC 480, a financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares must be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. If financial instruments, such as the warrants, are not required to be classified as liabilities under ASC 480, the Company assesses whether such instruments are indexed to the Company’s own stock under ASC 815-40. In order for an instrument to be considered indexed to an entity’s own stock, its settlement amount must always equal the difference between the following: (a) the fair value of a fixed number of the Company’s equity shares, and (b) a fixed monetary amount or a fixed amount of a debt instrument issued by the Company. Equity classified warrants are recorded in stockholders’ deficit and liability classified warrants are recorded as liabilities within the Consolidated Balance Sheets. The liability classified warrants are remeasured each period with changes recorded in the Consolidated Statements of Operations and Comprehensive Loss. As of September 30, 2024, the Company had outstanding warrants that are classified as a liability within the condensed consolidated balance sheets. The fair value of the warrant liability is determined each balance sheet date based on Level 2 inputs as such inputs are based on observable inputs other than quoted prices. The warrant liability is valued using a Black-Scholes model, with the most judgmental non-observable input being the volatility measure. Changes in the assumptions around the volatility can cause significant changes in the estimated fair value of the warrant liability. See Note 4 for further information on the Company’s financial liabilities carried at fair value. During the nine months ended September 30, 2024, the Company issued warrants that met the criteria to be classified within stockholders’ deficit within the condensed consolidated balance sheets. The fair value of the warrants was determined by using a Black-Scholes model, with the most judgmental non-observable input being the volatility measure. Changes in the assumptions around the volatility could have caused significant changes in the estimated fair value of the warrants. See Note 14 for further information on the warrants classified within stockholders’ deficit. Share Based Compensation The Company accounts for share based compensation arrangements granted to employees in accordance with ASC 718, Compensation: Stock Compensation, by measuring the grant date fair value of the award and recognizing the resulting expense over the period during which the employee is required to perform service in exchange for the award. The grant date fair value of stock options is determined using a Black-Scholes model, with the most judgmental non-observable input being the volatility measure. Changes in the assumptions around the volatility can cause significant changes in the grant date fair value of stock options. The Company accounts for forfeitures when they occur. 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 JOBS Act 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. 34 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, we are not required to provide disclosure regarding quantitative and qualitative market risk.