Company: CDAQF
Filing Date: 2025-05-14
Form Type: 10-Q
Source: 0001641172-25-010268
Chunk: 24

Company: Compass Digital Acquisition Corp.
Filing Date: 2025-05-14
Form: 10-Q
Item: Part I, Item 1
Chunk 24
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2025

Warrant Liability

The Company accounts for its Warrants as either equity-classified
or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance
in ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the
Warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether
the Warrants meet all of the requirements for equity classification under ASC 815, including whether the Warrants are indexed to the Company’s
own Ordinary Shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment,
is conducted at the time of Warrant issuance and as of each subsequent quarterly period end date while the Warrants are outstanding.

For issued or modified Warrants that meet all of the
criteria for equity classification, the Warrants are required to be recorded as a component of additional paid-in capital at the time
of issuance. For issued or modified Warrants that do not meet all the criteria for equity classification, the Warrants are required to
be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair
value of the Warrants are recognized as a non-cash gain or loss on the accompanying unaudited condensed statements of operations.

Derivative Financial Instruments

The Company evaluates its financial instruments to
determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. For
derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value
on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the accompanying unaudited
condensed statements of operations. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are accounted in the accompanying condensed balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument
could be required within 12 months of the balance sheet date.

The Company accounts for the conversion features in
the Working Capital Loans under ASC 815. The conversion features were classified as a derivative liability and the