Company: CDT
Filing Date: 2025-05-15
Form Type: 10-Q
Source: 0001641172-25-010405
Chunk: 125

Company: CDT Equity Inc.
Filing Date: 2025-05-15
Form: 10-Q
Item: Part I, Item 8
Chunk 125
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.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.

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