CDT Equity Inc. quarterly report, Q2 FY2023

Business context and reporting period

The supplied filing is Murphy Canyon Acquisition Corp.’s unaudited Form 10-Q for the quarter ended June 30, 2023—not a filing identifying CDT Equity Inc. as the registrant. Murphy Canyon is a shell company formed to complete a business combination; it had not begun operating activities and reported no operating revenue.

The company had a merger agreement with Conduit Pharmaceuticals Limited, as amended, with a stated transaction deadline extended to February 7, 2024. The proposed transaction contemplated issuing Conduit shareholders 65 million shares and a concurrent $27 million private placement, conditional on the business combination closing. Completion was not assured.

Financial results and liquidity

There was no revenue, so revenue margins are not meaningful. The six-month 2023 loss was narrower than in 2022, while the second-quarter loss increased year over year. General and administrative expense rose to $853,672 for the first half, versus $493,138, largely due to insurance and legal, accounting, consulting, and transaction-related costs. The filing reports no operating cash flow generation from a business.

At June 30, 2023, cash was $277,761, prepaid expenses were $76,729, and Trust Account investments were $23.34 million, down from $136.87 million at December 31, 2022. Trust funds are principally reserved for redemptions and a business combination, rather than ordinary operating needs. Current liabilities were $2.03 million, including a $750,000 non-interest-bearing Sponsor note, $1.14 million accrued excise tax, and $111,724 income taxes payable. Total liabilities were $6.66 million, including $4.63 million in deferred underwriting commissions payable only if a business combination closes. Stockholders’ deficit was $6.07 million.

For the six months, operating activities used $1.22 million; investing activities provided $114.47 million, largely reflecting Trust withdrawals for redemptions and taxes; financing activities used $113.32 million, mainly reflecting redemptions, partly offset by Sponsor borrowing. Cash declined $68,016 to $277,761. The filing states that management’s plans raise substantial doubt about the company’s ability to continue as a going concern for the next 12 months.

Material changes versus the prior comparable period

• In January 2023, holders redeemed 11,037,272 Class A shares for approximately $114.1 million, around $10.33 per share. The Trust Account fell to approximately $23.3 million; 2,187,728 redeemable shares remained at June 30.
• First-half interest income increased to $939,522 from $201,767, but management said the reduced Trust balance means it does not expect comparable interest income in the second half of 2023.
• First-half expenses increased, but the reported six-month net loss narrowed from $371,075 to $223,442, primarily reflecting higher Trust interest income.
• The company funded approximately $389,942 in Trust Account extension deposits during the first half and reported further deposits in July and August.

Outlook, risks, and unusual items

• Business-combination and deadline risk: The company had until February 7, 2024 to complete a combination; failure would require it to cease operations, redeem public shares, and liquidate. Public warrants could expire worthless.
• Going concern and funding: Management identified substantial doubt about continuing as a going concern. The Sponsor note is available up to $1.5 million, with $750,000 outstanding at quarter-end; further Sponsor funding was described as possible, not assured.
• Nasdaq listing: Nasdaq notified the company that it failed the $50 million minimum market value of listed securities requirement. The stated compliance deadline was October 9, 2023; failure to regain compliance could lead to delisting, subject to possible appeal or a listing transfer.
• Excise tax: A $1,140,683 liability was recorded for the 1% tax associated with redemptions. The filing says future share issuances may offset it and that it would not be due if the company liquidated before December 31, 2023.
• Transaction dilution and financing risks: The proposed share issuance and private placement could dilute existing holders. Management also described risks associated with potential debt financing, including repayment, covenant, and refinancing constraints.
• The filing reports no legal proceedings, off-balance-sheet arrangements, or material change in internal control over financial reporting; management concluded disclosure controls were effective.

Important facts for investors to verify

• Confirm the intended issuer: the provided document names Murphy Canyon Acquisition Corp., not CDT Equity Inc.
• Check the current status and final terms of the Conduit merger and the proposed $27 million private placement, including any required shareholder approvals or amendments.
• Verify whether Murphy Canyon regained Nasdaq listing compliance by October 9, 2023, and whether its securities remained listed.
• Review subsequent Trust Account balances, extension funding, Sponsor borrowing, redemption activity, and the February 7, 2024 deadline outcome.
• Assess the cash available outside the Trust Account to fund operations and the potential effect of the excise tax, deferred underwriting fee, and transaction-related dilution.