Business context and reporting period
Entity identification: The request identifies CDT Equity Inc., but the supplied Form 10-K is for Murphy Canyon Acquisition Corp. (Nasdaq: MURFU, MURF and MURFW), a Delaware SPAC. This summary reflects the filing provided, for the fiscal year ended December 31, 2022; it is not a filing for CDT Equity Inc.
The company had no operating business or revenue in 2022 and was formed to pursue a business combination. Its stated search focus was real estate and property technology, although the proposed transaction is with Conduit Pharmaceuticals Limited, a pharmaceutical company. The filing was signed March 28, 2023.
Financial performance and position
| Metric | FY 2022 / December 31, 2022 | Prior comparable period |
|---|---|---|
| Revenue | None; no operating revenues before a business combination | None |
| Net income (loss) | $398,639 | $(4,381), from inception on October 19, 2021 through December 31, 2021 |
| Expenses | $1,202,682, including $1,092,682 general and administrative expenses and $110,000 related-party administrative fees | $4,381 |
| Trust interest income | $1,976,183 | None |
| Cash | $345,777 | $48,555 |
| Trust investments | $136,871,183 | None |
| Total liabilities | $5,046,725, including $4,628,750 deferred underwriting fees payable upon a completed business combination | $192,506 |
Net income was driven by interest earned on trust assets, not operating activity. The filing does not present operating margins as the company had no revenue-generating operations. Cash used in operating activities was $1,311,310; cash used in investing activities was $134,895,000, mainly trust funding; and cash provided by financing activities was $136,503,532. The reported net increase in cash was $297,222.
The trust assets were held in short-term U.S. government securities or qualifying money market funds. The company reported no off-balance-sheet arrangements or commitments at year-end. Management and the auditor identified substantial doubt about the company’s ability to continue as a going concern, given the business-combination deadline and expected ongoing costs. The auditor issued an unqualified opinion on the financial statements with a going-concern explanatory paragraph.
Material changes and subsequent events
- The company completed its IPO on February 7, 2022, selling 13,225,000 units at $10 each for $132.25 million gross proceeds, and sold 754,000 sponsor placement units for $7.54 million.
- On November 8, 2022, it agreed to combine with Conduit Pharmaceuticals; the agreement was amended in January 2023. At closing, Conduit shareholders are to receive 65 million newly issued shares, valued under the agreement at $650 million. A separate subscription agreement provides for a proposed $27 million private placement at $10 per unit, each unit comprising one share and one warrant. Both transactions are subject to closing conditions, including required stockholder approval; completion is not assured.
- At a January 26, 2023 special meeting, stockholders approved up to twelve one-month deadline extensions, through February 7, 2024, with monthly trust contributions of approximately $77,000 in aggregate if exercised. Holders of 11,037,272 public shares redeemed at approximately $10.33 per share, removing about $114 million from the trust. The remaining trust balance was approximately $23 million.
- The filing says about $23 million would be available for a business combination after deferred underwriting fees, but cash available at closing depends on redemptions, transaction conditions, expenses and financing. Management said it did not expect 2023 trust interest income to match 2022 because of the reduced trust balance.
- On March 7, 2023, the sponsor advanced $300,000 under a non-interest-bearing, unsecured promissory note of up to $1.5 million for trust funding and operating expenses. The balance is repayable upon a business combination or winding up; up to $1.5 million of eligible sponsor loans may be convertible into units at the lender’s option upon a business combination.
Outlook, risks and unusual items
The company had no operating guidance or revenue forecast. Its ability to complete a business combination by February 7, 2024 depends on the remaining deadline extensions and required monthly deposits. If it fails to complete a transaction within the permitted period, public shares are to be redeemed from the trust, subject to creditor claims and applicable law; warrants would expire worthless. The filing estimates a potential liquidation payment of approximately $11.05 per share assuming the sponsor makes the maximum extension contributions, before taxes and other potential reductions. That estimate is not guaranteed.
- Transaction and funding risk: The Conduit merger and $27 million private placement remain conditional. The roughly $23 million post-redemption trust balance may be insufficient for the proposed transaction’s needs; additional financing is not assured.
- High redemptions and dilution: Most public shares were redeemed at the January 2023 extension meeting. The proposed Conduit consideration, private placement, warrants, founder-share conversion provisions and possible additional financing could substantially dilute existing holders.
- Listing risk: The company stated that it believed it no longer met Nasdaq requirements for market value of listed securities and number of shareholders following the redemptions; it had not received delisting correspondence as of the filing. A post-combination company may need to meet initial listing requirements.
- Liquidity and going concern: Year-end operating cash was only $345,777, and management relied on sponsor financing for subsequent-period needs. Sponsor advances are discretionary beyond amounts already advanced.
- Trust and creditor exposure: Claims against the company or the trust, bankruptcy proceedings, negative investment returns, or an unenforceable sponsor indemnity could reduce public-stockholder recoveries. The filing says the sponsor’s ability to meet its indemnification obligations was not verified.
- Governance and conflicts: The sponsor and management have economic interests in founder shares and placement securities, and affiliates receive a $10,000 monthly administrative fee. The filing also describes potential conflicts involving the sponsor’s parent, transaction advisers and competing business opportunities.
- Disclosure inconsistency to investigate: Although the filing describes a signed Conduit merger agreement, the MD&A also states that no specific target had been selected and no substantive target discussions had begun. The filing’s business strategy describes a real-estate focus while the proposed target is pharmaceutical.
- The filing also cites investment-company status, SPAC competition, transaction timing, COVID-19 and geopolitical uncertainty, possible 1% stock-repurchase excise tax, warrant registration and exercise conditions, and potential creditor claims as risks.
Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2022. The auditor did not provide an internal-control attestation, which was not required for the company.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is Murphy Canyon Acquisition Corp., not CDT Equity Inc.
- Check the latest status and terms of the Conduit merger, required stockholder approvals, closing conditions and the proposed $27 million private placement.
- Reconcile trust cash after redemptions, extension contributions, taxes, fees and any later transactions; verify actual cash available for the merger.
- Review current sponsor-loan balances, repayment or conversion terms, and the sponsor’s capacity to fund further extensions or operating costs.
- Verify Nasdaq listing status and whether the post-combination company can satisfy applicable listing requirements.
- Assess the transaction’s fully diluted ownership and potential dilution from merger shares, founder shares, warrants, private-placement units and other financing.