Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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, 2025, 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. CDT Equity Inc. (formerly 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 "CDT", "CDT Equity", 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

On September 22, 2023, a merger transaction (the "Business Combination") between Conduit Pharmaceuticals Limited ("Old Conduit"), Murphy Canyon Acquisition Corp ("MURF") and Conduit Merger Sub, Inc., a Cayman Islands exempted company and a wholly owned subsidiary of MURF ("Merger Sub"), was completed pursuant to the Agreement and Plan of Merger, dated November 8, 2022, as amended, (the "Merger Agreement"). Pursuant to the terms of the Merger Agreement, at the closing, (i) Merger Sub merged with and into Old Conduit, with Old Conduit surviving the Business Combination as a wholly-owned subsidiary of MURF, and (ii) MURF changed its name from Murphy Canyon Acquisition Corp. to Conduit Pharmaceuticals Inc. Effective August 5, 2025, the Company changed its name from Conduit Pharmaceuticals Inc. to CDT Equity Inc. Our change to CDT Equity Inc. reflects the evolution of our strategy as a data-driven biotech development company focused on identifying, enhancing, and advancing high-potential therapeutic assets through scientific innovation and strategic partnerships.

CDT Equity is a data-driven biotech development company focused on identifying, enhancing, and advancing high-potential therapeutic assets through scientific innovation and strategic partnerships. The Company has evolved into a broader, more agile platform that leverages artificial intelligence, solid-form chemistry, and efficient asset repositioning to accelerate the development of novel therapeutic treatments.

CDT Equity's strategy is centered on unlocking the untapped value of clinical-stage compounds, particularly those deprioritized by larger pharmaceutical companies with strong, supporting Phase I safety data. Through advanced co-crystallization and solid-form technologies developed at our Cambridge facility, we aim to improve drug properties and have successfully extended the patent life of certain drugs by up to 20 years.

Our current pipeline includes candidates targeting inflammatory and autoimmune disorders, as well as idiopathic male infertility, dermatology, and animal health. The intellectual property portfolio comprises pending patent applications in several international jurisdictions describing a solid-form compound, including the AZD1656 Cocrystal (a HK-4 Glucokinase Activator). Our pipeline research includes a number of additional compounds that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, which we have identified as potential opportunities to develop further intellectual property positions through solid-form technology.

Our collaboration with Sarborg enables us to apply proprietary algorithms utilizing AI-powered disease mapping to identify novel re-purposing opportunities across a database of more than 3,000 disease signatures. Sarborg's insights have directly informed two new combination patent filings, strengthening our intellectual property portfolio. In addition, CDT Equity has initiated pre-clinical in-vitro models to explore new indications, guided by AI-insights without human intervention. We will seek an exit through third-party license deals following successful in vitro and in vivo pre-clinical trials, entering into agreements with third parties to pursue further development, FDA approval, commercialization, and marketing of our assets.

The Sarborg Agreement entered into between the Company and Sarborg on December 12, 2024 is designed to address longstanding challenges in the pharmaceutical sector, in particular by reducing human error in critical decision-making processes in both clinical development and asset identification. By integrating Sarborg's algorithmic AI/cybernetics technology, CDT Equity aims to enhance efficiency, lower costs, and accelerate timelines by minimizing human intervention, ultimately optimizing the drug development cycle and giving CDT Equity a competitive advantage in the sector.

Through this relationship, CDT Equity will gain access to cutting-edge predictive models and dashboards, enabling the Company to evaluate drug candidates, streamline clinical trials, and optimize asset management with real-time data. These tools will drive faster, more accurate decisions, improving efficiency and reducing costs. By leveraging these insights, CDT Equity can differentiate itself in a competitive sector and gain unique data-driven insights that position the Company for success across both its current and future asset portfolio.

A further partnership with Manoira enables CDT Equity to expand the scope of its drug portfolio into the animal health market in a cost-efficient manner. This collaboration allows us to accelerate the understanding of the mechanism of action, safety, and potential efficacy of its portfolio across multiple species, while retaining 100% ownership of all data and intellectual property generated relating to human applications. This is expected to enhance the core human therapeutic pipeline but also opens potential new revenue streams in the high-growth veterinary market.

Repositioning CDT Equity enables the Company to explore multiple opportunities in the healthcare, biotech, artificial intelligence and broader technology innovation. The Board continues to evaluate an artificial intelligence led strategy, collaborating with consultants to best advise a growing market which has seen significant recent activity and success for respective stakeholders. Long-term exposure to artificial intelligence can present both strategic and financial benefits as part of a diversified capital management approach.

Operating with a lean disease-agnostic model, CDT Equity prioritizes speed, adaptability, and capital efficiency. We avoid the cost burden of late-stage clinical trials, focusing instead on high-leverage development strategies. Led by highly experienced executives: Dr. Freda Lewis-Hall, former Chief Medical Officer of Pfizer Inc., the Chair of the Company's Board; Dr. Andrew Regan, CEO and James Bligh, CFO. Our management team includes active senior scientists who have an extensive understanding of the pharmaceuticals market, supporting our strategy of developing clinical assets in a cost-efficient manner focused on therapeutic efficacy.

In 2024, AstraZeneca granted 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 development and commercialization of the Licensed Products under the related License Agreement. The Company is required to use commercially reasonable efforts to develop and commercialize the Licensed Products.

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 re-purpose.

Furthermore, CDT Equity is well positioned to pursue, and intends to pursue additional relationships and/or partnerships with third parties to license assets which are currently deprioritized. We plan to focus our efforts on developing clinical assets to address disorders that impact large populations where there is no present treatment or the existing treatments carry significant unwanted side effects.

Reverse Stock Split

During the year ended December 31, 2025, the Company effected three reverse stock splits of its common stock pursuant to amendments to the Company's Second Amended and Restated Certificate of Incorporation that were previously approved by the Company's stockholders and authorized by the Board of Directors. The reverse stock splits were implemented as follows: a 1-for-100 reverse stock split effective January 24, 2025, a 1-for-15 reverse stock split effective May 19, 2025, and a 1-for-8 reverse stock split effective October 10, 2025.

On March 26, 2026, the company effected a 1-for-25 reverse stock split. No fractional shares were issued in connection with the reverse stock splits. Stockholders who otherwise would have been entitled to receive fractional shares received cash in lieu of fractional shares based on the applicable post-split trading price of the Company's common stock. All references to numbers of shares of common stock and per-share information in this Annual Report on Form 10-K have been adjusted retroactively, as appropriate, to reflect the reverse stock split.

Reverse stock splits were applied sequentially at their respective effective dates (resulting in a cumulative effect equivalent to an approximate 1-for-300,000 reverse stock split).

The reverse stock splits automatically combined the Company's issued and outstanding shares of common stock at the applicable ratios without affecting the number of authorized shares of common stock or the par value of $0.0001 per share. No fractional shares were issued in connection with the reverse stock splits. Stockholders who otherwise would have been entitled to receive fractional shares received cash in lieu of fractional shares based on the applicable post-split trading price of the Company's common stock.

As a result of the aggregate of the reverse stock splits, every 300,000 shares of our common stock issued or outstanding were automatically reclassified into and became one new share of common stock. The number of our issued and outstanding shares of common stock, when accounting for the reverse stock splits, was 92,140 and 461 shares as of December 31, 2025 and December 31, 2024, respectively.

In accordance with ASC 260, Earnings Per Share, all historical share and per-share amounts presented in the accompanying consolidated financial statements and related notes have been retroactively adjusted to reflect the effect of the reverse stock splits for all periods presented. Accordingly, all references to common stock share amounts and per-share information in this Annual Report on Form 10-K have been retroactively adjusted, as applicable, to reflect the reverse stock splits.

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.

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.

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 year.

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)		2025				2024				Amount				%
Research and development expenses		$	5,054			$	3,378			$	1,676				50	%

Research and development expenses increased by approximately $1.7 million, or 50%, to approximately $5.1 million for the year ended December 31, 2025, as compared to approximately $3.4 million for the year ended December 31, 2024. The increase was primarily driven by an increase of $4.2 million related to work performed under the Sarborg agreements, a $0.3 million increase related to Thesprogen, a $0.2 million increase related to Charles River and a $0.1 million increase related to Manoira, partially offset by a $3.1 million decrease related to an upfront payment to AstraZeneca with no comparable activity in 2025.

General and administrative expenses

		Years ended December 31,								Change
(Dollar amounts in thousands)		2025				2024				Amount				%
General and administrative expenses		$	31,703			$	12,041			$	19,662				163	%

General and administrative expenses increased by $19.7 million, or 163%, to approximately $31.7 million for the year ended December 31, 2025, as compared to approximately $12.0 million for the year ended December 31, 2024. The $19.7 million increase was primarily driven by a $9.6 million increase in litigation liability expense in relation to the Strand litigation, a $7.0 million increase in compensation expense associated with the issuance of common stock and pre-funded warrants as consideration for the sale of CPL, a $2.4 million increase in legal fees, and a $0.9 million increase in salaries and stock-based compensation, partially offset by a $0.2 million decrease in directors' and officers' (D&O) insurance costs.

Other expense, net

		Years ended December 31,								Change
(Dollar amounts in thousands)		2025				2024				Amount				%
Other expense, net		$	(2,176	)		$	(890	)		$	(1,286	)			144	%

Activity for the year ended December 31, 2025 consisted of a loss on the change in fair value of convertible notes of $2.7 million, a loss on the disposition of digital assets of $0.4 million, partially offset by a gain on the waiver of accrued interest of $0.4 million, a gain on debt extinguishment of $0.3 million, and a gain on the change in the fair value of warrant liability of $0.2 million.

Activity for the year ended December 31, 2024 consisted of a loss of debt extinguishment of $3.2 million and a loss on the issuance of warrants for lock-up of $2.7 million, partially offset by a gain on debt extinguishment of $2.5 million, a gain on the change in fair value of convertible notes of $2.0 million, a $0.3 million income tax refund and a gain on the change in the fair value of warrant liability of $0.2 million.

For further details refer to Note 17, "Other income (expense), net," in the consolidated financial statements as of December 31, 2025 and 2024 included elsewhere in this Annual Report.

Interest expense, net

		Years ended December 31,								Change
(Dollar amounts in thousands)		2025				2024				Amount				%
Interest expense, net		$	(319	)		$	(1,506	)		$	1,187				(79	)%

Interest expense, net changed by $1.2 million or 79%, to $0.3 million for the year ended December 31, 2025, from $1.5 million for the year ended December 31, 2024. The decrease was primarily attributable to a $0.9 million decrease in the amortization of debt issuance costs, debt discounts, and conversion costs, and a $0.4 million decrease in interest expense and conversion costs related to interest-bearing convertible promissory notes, partially offset by a $0.1 million increase in loan settlement fees.

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 and the Sales Agreement with A.G.P. During the years ended December 31, 2025 and 2024, we incurred operating losses of $36.8 million and $15.4 million, respectively.

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 we can generate significant revenue from the successful approval and commercialization of a product candidate, 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 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.

A.G.P Convertible Note

On November 25, 2024, the Company issued to A.G.P. a convertible promissory note (the "A.G.P. Convertible Note") in the principal amount of $5.7 million to evidence the A.G.P.'s currently owed deferred commission payable. Unless earlier converted as specified in the Convertible Note, the principal amount plus all accrued but unpaid interest is due on November 25, 2025 (the "Maturity Date"). The A.G.P. Convertible Note accrues interest at 5.5% per annum.

At any time prior to the full payment of the A.G.P. Convertible Note, provided that the A.G.P. has given at least three business days written notice to the Company, A.G.P., in its sole discretion, may elect to have all or any portion of the outstanding principal amount and all interest accrued converted into shares of the Company's common stock, at the lower of the Reverse Split price and the market price per share at the time of the conversion date, but in no event less than $1.00, subject to adjustment as provided therein and to take into account any future share splits or reverse splits. However, the conversion of the A.G.P. Convertible Note may not occur prior to the Company having sufficiently authorized shares of common stock to permit the entire conversion of the convertible promissory note. Refer to Note 8 to our financial statements included elsewhere in this Annual Report.

During the year ended December 31, 2025, the holder of the A.G.P. Convertible Note converted $3.5 million of principal and interest into 18,711 shares of the Company's Common Stock, respectively. As of December 31, 2025 and the date of filing the consolidated financial statements, approximately $2.5 million and $1.2 million, respectively, of principal and interest remained outstanding under the A.G.P. Convertible Note.

Working Capital

We currently anticipate that cash required for working capital for the next 12 months is approximately $10.0 million, which includes forecasted operating expenses of $6.3 million, accrued expenses and other current liabilities of $2.5 million, the A.G.P. Convertible Promissory Note payable, if not converted prior to maturity of $1.2 million and forecasted research and development costs of $60 thousand. 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 and equity raises. We have historically been able to access funds through the issuance of debt, and more recently the at the market offering program agreement and believe we can continue to obtain funding through such debt financing agreements and Sales agreement as needed to meet cash requirements for the next 12 months.

As of December 31, 2025, we have raised the full $23.9 million (net of fees) out of the $23.9 million available to us through the Sales agreement. We expect to raise additional funds from an updated at the market offering program agreement and ELOC over the next 12 months but can't guarantee the additional funding from the at the market offering program agreement, ELOC and other potential debt and equity raises will cover the required cash required for working capital 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,
		2025				2024
Net cash (used in) provided by:
Operating Activities		$	(15,555	)		$	(9,682	)
Investing Activities			(808	)			(43	)
Financing Activities			17,422				6,067
Effect of exchange rate changes on cash and cash equivalents			(104	)			(16	)
Net increase (decrease) in cash and cash equivalents		$	955			$	(3,674	)

Cash Flows Used in Operating Activities

Net cash used in operating activities for the year ended December 31, 2025 was $15.6 million, resulting primarily from a net loss of $39.2 million, a gain on the waiver of accrued interest of $0.4 million, a gain on debt extinguishment of $0.3 million and a gain on the change in fair value of warrant liabilities of $0.1 million. This was partially offset by a $7.0 million compensation expense from the issuance of shares and warrants upon the sale of a previously controlled subsidiary, $4.7 million cash inflow from operating assets and liabilities, a $3.2 million cash inflow from the issuance of common stock for services, a $2.7 million loss on the change in fair value of convertible notes payable, $2.4 million of amortization expense, $2.2 million cash outflow of stock-based compensation, $1.4 million of amortization of directors and officers insurance, a $0.4 million loss on the change in fair value of digital assets, $0.3 million of non-cash interest expense and $0.1 million of non-cash lease expense. The $4.7 million cash inflow from operating assets and liabilities was primarily driven by a $9.6 million increase in accrued litigation liability, a $0.4 million cash inflow from accounts payable, partially offset by a $4.1 million cash outflow from prepaid expenses, $0.9 million cash outflow from accrued expenses and other liabilities, and other current assets and a $0.1 million cash outflow from lease liabilities.

Net cash used in operating activities for the year ended December 31, 2024 was $9.7 million, resulting primarily from a net loss of $17.8 million, a gain on the change in fair value of convertible notes payable of $2.0 million, a gain on change in fair value of warrant liabilities of $0.2 million and a $0.1 million cash outflow from operating assets and liabilities. This was partially offset by a $2.7 million loss on the issuance of warrants, $1.7 million of amortization of directors and officers insurance, a $1.6 million outflow attributable to the issuance of common stock for licensing rights, $1.6 million of stock-based compensation, $0.9 million of debt discount amortization, a $0.7 million loss on debt extinguishment, $0.5 million of non-cash interest expense, $0.4 million of amortization expense, a $0.2 million share issuance for services and a $0.1 million of non-cash lease expense. The $0.1 million cash outflow from operating assets and liabilities is primarily due to a $2.3 million cash outflow from prepaid expenses and other current assets and a $0.1 million cash outflow from lease liabilities, partially offset by a cash inflow of $1.2 million from accounts payable and a cash inflow of $1.0 million from accrued expenses and other current liabilities.

Cash Flows Used in Investing Activities

Net cash used in investing activities for the year ended December 31, 2025 was $0.8 million, consisting of $2.0 million of digital asset purchases and $0.4 million of equipment and clinical assets, partially offset by proceeds of $1.6 million from digital asset disposals.

Net cash used in investing activities for the year ended December 31, 2024 was $43 thousand, resulting from purchases of short-term investments of $0.5 million and purchases of property, plant and equipment of $0.1 million, partially offset by sales of short-term investments of $0.5 million.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2025 was $17.4 million, resulting from $19.7 million of proceeds from the issuance of common shares under the ATM program, partially offset by $2.2 million of debt repayments and $0.1 million of treasury stock purchases.

Net cash provided by financing activities for the year ended December 31, 2024 was $6.1 million, resulting from proceeds from the issuance of common shares under the ATM program of $3.3 million, proceeds from the issuance of notes payable of $3.2 million, proceeds from the exercise of warrants of $0.2 million and proceeds from the issuance of warrants of $0.1 million, partially offset by repayments of notes payable of $0.8 million.

Contractual Obligations and Other Commitments

Laboratory Lease

As of December 31, 2025, we are the lessee under one laboratory space lease for a term of two years. The annual rent payments are $0.1 million for the years ending December 31, 2025 and December 31, 2026. The laboratory space lease has a remaining lease term of approximately 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:

Fair Value of Convertible Notes

The Company has elected the fair value measurement option for convertible debt with embedded derivatives that would otherwise require bifurcation, and has recorded the entire hybrid financial instrument at fair value under the guidance in ASC 825, Financial Instruments. To value the convertible debt, the Company utilizes Binomial Lattice Pricing Models. The Binomial Lattice Pricing Models involve the construction of various intermediate lattices: stock price tree, conversion value tree, conversion probability tree, and discount rate tree. In doing so, we assume the holders act rationally to maximize return and minimize cost at each decision point. We computed the notes payoff at maturity and at intermediate decision nodes based upon the better of (i) conversion or (ii) repayment of principal and interest.

The significant inputs and assumptions used to estimate the fair value include: (i) the Company's stock price, (ii) the term of the convertible debt, (iii) the sum of the notes' principal and unpaid accrued interest, (iv) expected volatility, (v) risk-free interest rate, (vi) the corporate bond yield, (vii) the credit spread, (viii) probability of default, and (ix) the estimated recovery upon default. Any change to the unobservable inputs to estimate fair value could produce significantly higher or lower fair value measurements and result in a material change within the financial statements.

The convertible debt will subsequently be remeasured at fair value each reporting date until settled or converted.

Contingencies

In the ordinary course of business, we are involved in various legal proceedings that are complex in nature and have outcomes that are difficult to predict. We describe our legal proceedings and other matters that are significant or that we believe could become significant in Note 15 to the consolidated financial statements. We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously or modifications to contingency disclosures that are considered material.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is included in Note 3 - Basis of Presentation and Summary of Significant Accounting Policies to our financial statements included elsewhere in this Annual 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, CDT Equity 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) CDT'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) CDT'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.