| Nature of the Business, Basis of Presentation and Summary of Significant Accounting Policies | 1.
Nature of the Business, Basis of Presentation and Summary of Significant Accounting Policies Conduit
Pharmaceuticals Inc., a Delaware corporation, (“Conduit” or the “Company”) is a clinical-stage specialty biopharmaceutical
company that was formed to facilitate the development and commercialization of clinical assets that have not been, or are not being,
prioritized by leading biopharmaceutical companies in order to develop pharmaceutical products that meet the unmet medical needs of patients. The
Company’s current development pipeline through a relationship with St George Steet Capital (“St George Street”), a
related party (see note 15), includes a glucokinase activator, which is Phase II ready in autoimmune diseases including uveitis, Hashimoto’s
Thyroiditis, preterm labor and renal transplant rejection as well as the Company’s proprietary, patent pending, solid-form compound
targeting a wide range of autoimmune diseases. The Company’s development pipeline also includes a potent, irreversible inhibitor
of human Myeloperoxidase (MPO) that has the potential to treat idiopathic male infertility. Merger
Agreement On
September 22, 2023 (the “Closing Date”), a merger transaction 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 (the “Merger”, see Note 3) pursuant to the initial merger agreement
dated November 8, 2022 and subsequent amendments to the merger agreement dated January 27, 2023 and May 11, 2023 (the “Merger Agreement”).
Pursuant to the terms of the Merger Agreement, on the Closing Date, (i) Merger Sub merged with and into Old Conduit, with Old Conduit
surviving the merger as a wholly-owned subsidiary of MURF, and (ii) MURF changed its name from Murphy Canyon Acquisition Corp. to Conduit
Pharmaceuticals Inc. The common stock of the Company commenced trading on The Nasdaq Global Market under the symbol “CDT”
on September 25, 2023, and the Company’s warrants commenced trading on The Nasdaq Capital Market under the symbol “CDTTW”
on September 25, 2023. The
Merger was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”). Under the reverse recapitalization method, MURF was treated as the acquired company for financial
reporting purposes, and the accounting acquirer was assumed to have issued shares of stock for the net assets of MURF, with no goodwill
or other intangible assets recorded. This determination is primarily based on the following predominant factors: (i) post-closing, the
Old Conduit stockholders have a majority of the voting power of the combined company and ability to elect the members of the combined
company’s Board of Directors (“Board”); (ii) the on-going operations post-merger will comprise those of Old Conduit;
and (iii) all of the senior management of the combined company, except for the Chief Financial Officer, will be members of the management
of Old Conduit. As a result of the Merger, MURF was renamed “Conduit Pharmaceuticals Inc.” The board of directors of MURF
and Conduit each approved the Merger. Basis
of Presentation The
accompanying consolidated financial statements have been prepared by the Company in accordance with U.S. GAAP as set forth by the Financial
Accounting Standards Board (“FASB”) and pursuant to the rules and regulations of the United States Securities and Exchange
Commission (“SEC”). References to U.S. GAAP issued by the FASB in these notes to the accompanying consolidated financial
statements are to the FASB Accounting Standards Codifications (“ASC”) and Accounting Standards Update (“ASUs”). Principles
of Consolidation The
accompanying consolidated financial statements include the accounts of Conduit Pharmaceuticals, Inc. and its wholly owned
subsidiaries Conduit UK Management Ltd. (United Kingdom) and Conduit Pharmaceuticals, Ltd. (Cayman Islands). As used herein,
references to the “Company” include references to Conduit Pharmaceuticals, Inc, and its subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation. Liquidity
and Going Concern In
accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there
are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as
a going concern within one year after the date the financial statements are issued. Since its inception, the Company has generated significant
losses and as of December 31, 2023 had an accumulated deficit of $ 11.3 million. For the years ended December 31, 2023 and 2022, the Company
had net losses of $ 0.5 million
and $ 4.9 million,
respectively, and cash used in operating activities of $ 7.7 million and $ 2.3
million, respectively. As further discussed in Note 3, on September
22, 2023, the Company completed the Merger, that included a private placement of an aggregate amount of $ 20.0
million of the Company’s shares of common stock (referred
to as the “PIPE”). The proceeds received from the Merger and PIPE, net of transaction costs, totaled $ 8.5 million. Despite the closing of the Merger and an additional $ 5.0
million commitment from a major shareholder (See Note 18), the
Company has determined that it does not have sufficient cash and other sources of liquidity to fund its current business plans. Management
believes these factors raise substantial doubt regarding the Company’s ability to continue as a going concern for at least the
next twelve months from the financial statement filing date. The
Company’s expectation is to generate operating losses and negative operating cash flows in the future and will need additional
funding to support its current business plan. Management’s plans to alleviate the conditions that raise substantial doubt include
the pursuit of additional cash resources through public or private equity or debt financings. Management has concluded the likelihood
that its plan to successfully obtain sufficient funding from one or more of these sources, or adequately reduce expenditures is reasonably
possible, however there is no assurance that such funding will be available when needed or on acceptable terms. If additional funding
is not available when required, the Company would need to delay or curtail its operations and its research and development activities
until such funding is received, all of which could have a material adverse effect on the Company and its financial condition. 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. Other
Risks and Uncertainties The
Company is subject to risks common to companies in the pharmaceutical industry including, but not limited to, uncertainties related to
commercialization of competitor products, regulatory approvals, dependence on key products, dependence on key customers and suppliers,
and protection of intellectual property rights. Clinical assets currently under development will require significant additional research
and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These
efforts will require significant amounts of additional capital, adequate personnel, infrastructure, and extensive compliance and reporting
capabilities. Even if the Company’s efforts are successful, it is uncertain when, if ever, the Company will realize significant
revenue from royalties or product sales. The
Company relies on agreements with related parties and third parties for the purpose of developing and licensing clinical assets from
St George Street and, in turn, St George Street licenses such assets from AstraZeneca. See Note 15, “St George Street Capital” Summary
of Significant Accounting Policies Cash
and Cash Equivalents Cash
and cash equivalents are primarily maintained with major financial institutions in the United Kingdom and Switzerland. The Company considers
cash equivalents to be short-term, highly liquid investments that (a) are readily convertible into known amounts of cash, (b) are traded
and held for cash management purposes, and (c) have original maturities of three months or less at the time of purchase. The Switzerland
bank accounts holding cash balances are uninsured, and the UK bank account, with a year-end balance of approximately £ 254,000
(or approximately $ 323,000 )
exceeds the country’s deposit limit of £ 85,000
(approximately $ 108,000 ).
The Company’s US depository bank participates in the Demand Deposit Marketplace program, insuring deposits up to $ 10
million by sweeping amounts in excess of the
$ 250,000 deposit
insurance limit among participating banks. The Company has not experienced any losses on any accounts through the year ended December
31, 2023. The
Company had $ 4.2 million
in cash and cash equivalents on hand as of December 31, 2023. The Company did no t
have any cash and cash equivalents on hand as of December 31, 2022. Use
of Estimates The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the reporting period. Estimates are based on several factors
including the facts and circumstances available at the time the estimates are made, historical experience, risk of loss, general economic
conditions and trends, and the assessment of the probable future outcome. Actual results could differ materially from such estimates.
Estimates and assumptions are reviewed periodically by management and changes in estimates are made as management becomes aware of changes
in circumstances surrounding the estimates. The effects of changes are reflected in the financial statements in the period that they
are determined. Fair
Value Measurements ASC
Topic 820, Fair Value Measurements and Disclosures 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 one financial liability, a warrant liability for which the fair value is determined based on Level
2 inputs as such inputs are valued based on observable inputs other than quoted prices included in Level 1, such as quoted prices for
either similar instruments in active markets. See Note 4 for further information on the Company’s financial liability carried at
fair value. Research
and Development and Funding Research
and development expenses consist primarily of costs incurred in connection with the research and development of our clinical assets and
programs. Funding expenses consist primarily of costs incurred in connection with the Company providing funding to St George Street to
carry out its research and development activities (See Note 15). St George Street holds all licenses to conduct clinical research through
third party pharmaceutical companies. The Company expenses research and development costs and intangible assets acquired that have no
alternative future use as incurred. These expenses include:
● expenses
incurred under agreements with organizations that support the Company’s drug discovery and development activities;
● expenses
incurred in connection with the preclinical and clinical development of the Company’s clinical assets and programs, including
under agreements with contract research organizations, or CROs;
● costs
related to contract manufacturing organizations, or CMOs, that are primarily engaged to provide drug substance and product for our
clinical trials, research and development programs, as well as investigative sites and consultants that conduct the Company’s
clinical trials, nonclinical studies and other scientific development services;
● the
costs of acquiring and manufacturing nonclinical and clinical trial materials, including manufacturing registration and validation
batches;
● employee-related
expenses, including salaries, related benefits and equity-based compensation expense, for employees engaged in research and development
functions;
● costs
related to compliance with quality and regulatory requirements;
● payments
made under third-party licensing agreements; and
● direct
and allocated costs related to facilities, information technology, personnel and other overhead. 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. Such amounts are recognized as an expense as the goods are delivered or consumed or the related services are performed,
or until it is no longer expected that the goods will be delivered, or the services rendered. General
and Administrative Expenses General
and administrative expenses consist primarily of salaries and related costs for personnel in executive management, finance, corporate
and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent
and corporate matters; professional fees for accounting, auditing, tax, and administrative consulting services; insurance costs;
administrative travel expenses and other operating costs. Income
Taxes ASC
Topic 740, Income Taxes In
December 2023, the FASB issued ASU 2023-09, which introduces new income tax disclosure requirements. After reviewing the provisions of
the new standard, the Company has determined that these changes will not materially affect our financial condition, results of operations,
or cash flows as presented in our financial statements. Earnings/(Net
Loss) per Share The
Company calculates basic and diluted earnings/(net loss) per share under ASC Topic 260, Earnings Per Share Warrants Upon
the closing of the Merger, the Company assumed (i) the warrants initially included in the MURF units issued in MURF’s initial public
offering (the “Publicly Traded Warrants”), and (ii) the warrants that were included in the private placement units issued
to the Sponsor simultaneously with the closing of MURFS’s initial public offering (the “Private Placement Warrants,”
and together with the Publicly Traded Warrants, the “Equity Classified Warrants”). In connection with the Merger, the Company
issued warrants to the PIPE Investors (the “PIPE Warrants”) pursuant to the Subscription Agreements and to an advisor (the
“A.G.P. Warrants,” and together with the PIPE Warrants, the “Liability Classified Warrants”) pursuant to the
Company’s engagement agreement with the advisor. 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.
The Company determined that the warrants should not be classified as liabilities under ASC 480. 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.
The Company determined that the settlement amount of the Equity Classified Warrants would equal the difference between the fair value
of a fixed number of shares and a fixed monetary amount (or a fixed amount of a debt instrument) and must be classified as equity, while
the settlement amount of the Liability Classified Warrants would not equal the difference between the fair value of a fixed number of
shares and a fixed monetary amount (or a fixed amount of a debt instrument) and must be classified as a liability. The
Equity Classified Warrants are recorded in stockholders’ deficit and the Liability Classified Warrants are recorded as liabilities
with the Consolidated Balance Sheets. The Liability Classified Warrants are remeasured each period with changes recorded in the Consolidated
Statements of Operations and Comprehensive Income (Loss). Foreign
Currency Translation The
Company translated the assets and liabilities of foreign subsidiaries from their respective functional currency, the British pound, to
United States dollars at the appropriate spot rates as of the balance sheet date. Income and expenses of operations are translated to
United States dollars using weighted average exchange rates during the year. The foreign subsidiaries use the local currency as their
functional currency. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive
income in the accompanying consolidated statements of changes in stockholders’ deficit. Non-monetary items in the subsidiaries’
functional currency are re-measured into the reporting currency at the historical exchange rate (i.e., the rate of exchange at the date
of the transaction). Emerging
Growth 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. Following
the Merger, the Company will remain 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
(the “MURF IPO”), (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 . Recently
Adopted Accounting Pronouncements In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Topic 842 was subsequently amended by ASU 2018-10, “Codification
Improvements to Topic 842, Leases” and ASU 2018-11, “Leases (Topic 842)”. The amendments in this update increase transparency
and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information
about leasing arrangements. For leases with a term of 12 months or less, the amendments permit lessees to make an accounting policy election
by class of underlying assets not to recognize lease assets and lease liabilities. For finance leases, the amendments in this update
require a lessee to (1) recognize a right-of-use asset and lease liability, initially measured at the present value of the lease payments,
on the balance sheet; (2) recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement
of operations; (3) classify repayments of the principal portion of the lease liability within financing activities and payments of interest
on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases,
the amendments in this update require a lessee to (1) recognize a right-of-use asset and a lease liability, initially measured at the
present value of the lease payments, on the balance sheet; (2) recognize a single lease cost, calculated so that the cost of the lease
is allocated over the lease term on a generally straight-line basis; (3) classify all cash payments within operating activities in the
statement of cash flows. The Company adopted the standard on January 1, 2022. The adoption of ASU No. 2016-02 did not have a material
impact on the Company’s consolidated financial statements, as the Company had no lease agreements upon adoption. In
June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses
(Topic 326) (“ASU 2016-13”), which requires entities to measure all expected credit losses for financial assets held at the
reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing
incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13
became effective for the Company for annual and interim reporting periods beginning after December 15, 2022. The adoption of this guidance
did not have a material impact on the Company’s consolidated financial statements. Recently
Issued Accounting Standards Not Yet Adopted In
November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) (“ASU 2023-07”), which enhances the segment disclosure
requirements for public entities on an annual and interim basis. Under this proposal, public entities will be required to disclose significant
segment expenses that are regularly provided to the chief operating decision maker (the “CODM”) and included within each
reported measure of segment profit or loss. Additionally, current annual disclosures about a reportable segment’s profit or loss
and assets will be required on an interim basis. Entities will also be required to disclose information about the CODM’s title
and position at the Company along with an explanation of how the CODM uses the reported measures of segment profit or loss in their assessment
of segment performance and deciding whether how to allocate resources. Finally, ASU 2023-07 requires all segment disclosures for public
entities, even those with a single reportable segment. The amendments in ASU 2023-07 will become effective on a retrospective basis for
annual disclosures for fiscal years beginning after December 15, 2023, with interim period disclosures required effective for fiscal
years beginning after December 15, 2024. Early adoption of ASU 2023-07 is permitted. The Company is currently evaluating the impact ASU
2023-07 will have on its consolidated financial statements. In
December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”).
ASU 2023-09 modifies the reporting requirements for income tax disclosures related to effective tax rates and cash income taxes paid.
Pursuant to ASU 2023-09, public business entities are required to disclose certain categories in the income tax rate reconciliation,
as well as additional information for reconciling items that meet a specific quantitative threshold. Additionally, ASU 2023-09 requires
annual disclosures of income taxes paid for all entities, including the amount of income taxes paid, net of refunds received, disaggregated
by federal, state, and foreign jurisdictions. The standard is effective for fiscal years beginning after December 15, 2024, with early
adoption permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements. |
