Company: CDT
Filing Date: 2025-08-14
Form Type: 10-Q
Source: 0001641172-25-024140
Chunk: 162

Company: CDT Equity Inc.
Filing Date: 2025-08-14
Form: 10-Q
Item: Part I, Item 2
Chunk 162
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 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 Topic 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.

39

Fair
Value of Warrants

The
Company has issued warrants to investors in our debt and equity offerings. The Company has also issued warrants to service providers
in relation to our financing offerings. We evaluate all warrants issued to determine the appropriate classification under ASC 480 and
ASC 815.

For
warrants that are determined to be equity-classified, we estimate the fair value at issuance and record the amounts to additional paid
in capital. For warrants that are determined to be liability-classified, we estimate the fair value at issuance and each subsequent reporting
date.

For
the Company’s liability classified warrants, we estimate fair value using the Black-Scholes model. The significant inputs and assumptions
used to estimate the fair value include: (i) the Company’s stock price; (ii) the risk-free rate; (iii) the expected volatility;
and (iv)