Crown Electrokinetics Corp. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Notes Payable

Notes Payable	6 Months Ended
Jun. 30, 2023
Notes Payable [Abstract]
Notes Payable	Note 11 - Notes Payable Convertible Notes 2022 Notes On October 19, 2022, the Company issued its 2022 Notes with a principal balance of approximately $5.4 million and warrants to purchase 362,657 shares of the Company’s common stock for net proceeds of $3.5 million. The 2022 Notes were issued with a conversion price at a 54% premium to the most recent closing price, an original issue discount (“OID”) of 35%, do not bear interest, and mature upon the earlier of twelve months from the date of issuance or the closing of a change of control transaction (as defined in the 2022 Notes). The 2022 Notes are convertible into shares of the Company’s common stock at a conversion price of $29.7 per share, subject to adjustment under certain circumstances described in the notes. The 2022 Notes are secured by all of the Company’s assets (subject to exceptions for certain strategic transactions). The warrants have an exercise price of $19.32 per share and expire five years from the issuance date (subject to adjustment under certain circumstances described in the warrants). During the six months ended June 30, 2023, in connection with its 2022 Notes, the Company entered into a warrant inducement and exercise agreement with certain holders of the 2022 Notes (See Notes 7 and 13). On February 28, 2023, the Company entered into waiver agreements with holders of the 2022 Notes which extended the maturity date of the 2022 Notes from October 19, 2023 to April 18, 2024. As consideration for this agreement, the Company issued 96,890 warrants to purchase shares of the Company’s common stock (See Note 7 and 13). On March 24, 2023, the Company entered into the waiver agreements with holders of the 2022 Notes to eliminate the minimum pricing covenant as it relates to Company’s At-The-Market facility. As consideration for this agreement, the Company provided the holders with two options to choose from i) to take an additional 5% OID on their October note principal or ii) pending shareholder approval, to be issued shares of common stock with a value equal to the 5% OID, and to issue total shares of 31,724 as converted using the Nasdaq minimum price of $9.42. During the six months ended June 30, 2023, six of the note holders elected option i), and the Company increased the respective principal balance of the notes by approximately $0.15 million. The remaining noteholders elected option ii), and as of the date of this report, no shares of common stock have been issued. The Company recorded expense of $0.3 million associated with the commitment to issue shares of the Company’s common stock. On May 12, 2023, the Company entered into letter agreements (the “Inducement Agreements”) with certain of the October Investors, pursuant to which such October Investors agreed to reduce the conversion price of October Notes in an aggregate principal amount equal to $1,500,000, to $9.42 per share, which are now convertible into 161,561 shares of the Company’s common stock, representing an increase of 83,849 shares in excess of the number of shares into which such October Notes were convertible prior to the Company’s entry into the Inducement Agreements. On May 17, 2023, the Company entered into Inducement Agreements with the remaining October Investors, pursuant to which such October Investors agreed to reduce the conversion price of October Notes in an aggregate principal amount equal to $1,392,657, to $10.932 per share, which are now convertible into 127,393 shares of the Company’s common stock, representing an increase of 55,242 shares in excess of the number of shares into which such October Notes were convertible prior to the Company’s entry into the Inducement Agreements. The Company elected to account for the October Notes under the fair value option. For the Inducement Agreements that were entered into as described in Note 2, the Company accounted for the change in the terms through the fair value adjustment of $2.7 million, which is included in the $6.9 million Change in FV of Notes on the Income Statement, upon the settlement of $0.2 million principal balance of the October Notes on June 4, 2023 as part of the Exchange Agreements and $1.0 million principal balance of October Notes on June 21, 2023 based on the issuance of 248,981 shares of the Company’s Common Stock. 2023 Note On February 3, 2023, upon drawing down on the Line of Credit, the Company issued its 2023 Note totaling $2.0 million, which is due and payable 60 days from the issuance date. The 2023 Note is non-interest bearing and secured by the Company’s assets. The 2023 Note issued with the initial $2.0 million drawdown is convertible into shares of the Company’s common stock, at a conversion price per share of $30.00 per share, subject to adjustment under certain circumstances described in the 2023 Note. Notes evidencing future withdrawals, if any, will be convertible into common stock only upon the declaration of an event of default under such promissory note. On April 14, 2023, the Company entered into a First Amendment to the 2023 Note with the lender, pursuant to which the lender agreed to extend the maturity date of the 2023 Note balance until May 1, 2023 in exchange for 33,333 shares of the Company’s common stock pending shareholder approval. The 2023 Note was further amended to accrue interest at the fifteen percent (15%) per annum from the original funding date of the 2023 Note. The Company recorded a change in fair value adjustment of $0.2 million related to the commitment to issue 33,333 shares of the Company’s common stock. On May 1, 2023, the Company entered into a Second Amendment to the 2023 Note with the lender, pursuant to which the lender agreed to extend the maturity date of the 2023 Note balance until May 15, 2023 On May 15, 2023, the Company entered into a Third Amendment to the 2023 Note with the lender, pursuant to which the lender agreed to extend the maturity date of the 2023 Note until June 7, 2023 in exchange for 4,000 shares of the Company’s Series E Preferred Stock, which are convertible into 66,667 shares of the Company’s common stock pending shareholder approval. The Company recorded a change in fair value adjustment of $0.7 million related to the commitment to issue 4,000 shares of the Company’s Series E Preferred Stock. On May 16, 2023, the Company made a second draw of $0.2 million under the Line of Credit. Upon drawing down on the Line of Credit, the Company issued a second Secured Promissory Note (the “2^nd 2023 Note”) which is due and payable July 16, 2023. The 2^nd 2023 Note shall accrue interest at the fifteen percent (15%) per annum from the original funding date of the 2^nd 2023 Note. On May 26, 2023, the Company made a third draw of $0.15 million under the Line of Credit. Upon drawing down on the Line of Credit, the Company issued a third Secured Promissory Note (the “3^rd 2023 Note”) which is due and payable June 2, 2023. The 3^rd 2023 Note included a $200,000 Commitment fee and does not bear interest. With the 3^rd 2023 Note, the Company recorded a change in fair value adjustment of $0.2 million related to the Commitment fee. On May 26, 2023, the Company entered into that certain Fourth Amendment to the 2023 Note with the lender, pursuant to which the Company will issue to Holder a convertible promissory note in the principal amount of $0.15 million due June 2, 2023 in exchange for 4,000 shares of the Company’s Series E Preferred Stock, which are convertible into 66,667 shares of the Company’s common stock pending shareholder approval. The Company recorded a change in fair value adjustment of $0.6 million related to the commitment to issue 4,000 shares of the Company’s Series E Preferred Stock. On June 13, 2023, the Company partially redeemed the principal of the 2023 Note and fully redeemed the principal of the 2^nd 2023 Note and the 3^rd 2023 Notes in addition to all accrued interest and commitment fees owing for approximately $2.1 million. With the settlement of the 2^nd 2023 and the 3^rd2023 Note, the Company recorded a change in fair value adjustment of $0.1 million. On June 30, 2023, the Company and the LOC Lender agreed to amend the 2^nd 2023 Note and the 3^rd 2023 Note to extend the maturity dates of each until July 16, 2023. In connection with the amendments, the Company agreed to issue to the LOC Lender: 5,000 shares of the Company’s Series E Preferred Stock, which is convertible into 83,333 shares of the Company’s Common Stock. Additionally, the Company agreed to issue an additional 8,000 shares of the Company’s Series E Preferred Stock, which is convertible into 133,333 shares of the Company’s Common Stock, to the LOC Lender for failure to comply with a covenant in the Line of Credit, as amended. The Company recorded a change in fair value adjustment of $2.0 million related to the commitment to issue 13,000 shares of the Company’s Series E Preferred Stock pending shareholder approval. Senior Secured Notes On January 3, 2023, the Company issued senior secured notes with a principal balance of approximately $1.2 million and warrants to purchase 41,667 shares of the Company’s common stock for net proceeds of $1.0 million. The senior secured notes were issued with an original issue discount of 16.7%, do not bear interest, and mature three months from the date of issuance (unless extended pursuant to the terms of the notes). Pursuant to these terms, the Notes were subsequently extended to May 3, 2023 incurring an additional 10% on Principal or $120,000. The warrants are exercisable for five years at an exercise price of $19.32, subject to adjustment under certain circumstances described in the warrants. On May 8, 2023, the Company entered into a letter agreement (the “Extension Letter”) with the lead noteholder and collateral agent for the January Notes (the “Agent”), pursuant to which we agreed to issue an aggregate of 11,833 shares of Common Stock to the holders of January Notes in exchange for the extension of the maturity date thereof until May 15, 2023. On May 15, 2023, the Agent agreed to grant us an additional extension of the maturity date thereof until May 23, 2023 in exchange for the issuance by us to the holders of January Notes, on a pro rata basis, of 66,667 shares of our Common Stock, pending shareholder approval. Subsequently, on May 23, 2023, the Agent agreed to grant us an extension of the maturity date thereof until May 31, 2023 in exchange for the issuance by us to the January Investors, on a pro rata basis, of 25,000 shares of our Common Stock, pending shareholder approval. Thereafter, on May 31, 2023, the Agent for the January Notes agreed to grant us an extension of the maturity date thereof until June 12, 2023 in exchange for the issuance by us to the January Investors, on a pro rata basis, of 100,000 shares of our Common Stock, pending shareholder approval. With the completion of the Extension Letter and additional extensions, the Company concluded that a troubled debt restructuring did not occur, but an extinguishment of the outstanding senior secured notes occurred. Subsequent to the extinguishment, the Company concluded to account for the senior secured notes using the fair value option. The Company recorded an extinguishment loss of $2.2 million. The loss was comprised of the fair value of the shares of Common Stock on the dates issued to extend the maturity date as discussed above. On June 4, 2023, $0.2 million of the outstanding senior secured notes was settled as part of the Exchange Agreements described below. The Company accounted for the settlement as an extinguishment that resulted in a gain being recognized of $0.1 million and resulted in $0.1 million being recorded as Series F convertible preferred stock and $0.1 million being recorded as part of the warrant liability. On June 30, 2023, the Company and the remaining January Investors agreed to extend the maturity date of the January Notes until July 31, 2023, in exchange for 41,667 shares of our Common Stock pending approval by shareholders. The Company recorded a change in fair value adjustment of $0.3 million based on the fair value of the 41,667 shares of Common Stock. As of June 30, 2023, the fair value of the outstanding senior secured notes approximated the principal balance of $1.1 million. The secured notes and warrants were not registered under the Securities Act of 1933, as amended (the “Securities Act”) or the securities laws of any state and were offered and sold in reliance upon the exemption from registration afforded by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering. The Investors are “accredited investors” as such term is defined in Regulation D promulgated under the Securities Act.

Notes Payable

6 Months Ended

Jun. 30, 2023

Notes Payable [Abstract]

Notes Payable

Note 11 - Notes Payable

Convertible Notes

2022 Notes

On October 19, 2022, the Company issued its 2022 Notes with a principal balance of approximately $5.4 million and warrants to purchase 362,657 shares of the Company’s common stock for net proceeds of $3.5 million. The 2022 Notes were issued with a conversion price at a 54% premium to the most recent closing price, an original issue discount (“OID”) of 35%, do not bear interest, and mature upon the earlier of twelve months from the date of issuance or the closing of a change of control transaction (as defined in the 2022 Notes). The 2022 Notes are convertible into shares of the Company’s common stock at a conversion price of $29.7 per share, subject to adjustment under certain circumstances described in the notes. The 2022 Notes are secured by all of the Company’s assets (subject to exceptions for certain strategic transactions). The warrants have an exercise price of $19.32 per share and expire five years from the issuance date (subject to adjustment under certain circumstances described in the warrants).

During the six months ended June 30, 2023, in connection with its 2022 Notes, the Company entered into a warrant inducement and exercise agreement with certain holders of the 2022 Notes (See Notes 7 and 13).

On February 28, 2023, the Company entered into waiver agreements with holders of the 2022 Notes which extended the maturity date of the 2022 Notes from October 19, 2023 to April 18, 2024. As consideration for this agreement, the Company issued 96,890 warrants to purchase shares of the Company’s common stock (See Note 7 and 13).

On March 24, 2023, the Company entered into the waiver agreements with holders of the 2022 Notes to eliminate the minimum pricing covenant as it relates to Company’s At-The-Market facility. As consideration for this agreement, the Company provided the holders with two options to choose from i) to take an additional 5% OID on their October note principal or ii) pending shareholder approval, to be issued shares of common stock with a value equal to the 5% OID, and to issue total shares of 31,724 as converted using the Nasdaq minimum price of $9.42. During the six months ended June 30, 2023, six of the note holders elected option i), and the Company increased the respective principal balance of the notes by approximately $0.15 million. The remaining noteholders elected option ii), and as of the date of this report, no shares of common stock have been issued. The Company recorded expense of $0.3 million associated with the commitment to issue shares of the Company’s common stock.

On May 12, 2023, the Company entered into letter agreements (the “Inducement Agreements”) with certain of the October Investors, pursuant to which such October Investors agreed to reduce the conversion price of October Notes in an aggregate principal amount equal to $1,500,000, to $9.42 per share, which are now convertible into 161,561 shares of the Company’s common stock, representing an increase of 83,849 shares in excess of the number of shares into which such October Notes were convertible prior to the Company’s entry into the Inducement Agreements.

On May 17, 2023, the Company entered into Inducement Agreements with the remaining October Investors, pursuant to which such October Investors agreed to reduce the conversion price of October Notes in an aggregate principal amount equal to $1,392,657, to $10.932 per share, which are now convertible into 127,393 shares of the Company’s common stock, representing an increase of 55,242 shares in excess of the number of shares into which such October Notes were convertible prior to the Company’s entry into the Inducement Agreements.

The Company elected to account for the October Notes under the fair value option. For the Inducement Agreements that were entered into as described in Note 2, the Company accounted for the change in the terms through the fair value adjustment of $2.7 million, which is included in the $6.9 million Change in FV of Notes on the Income Statement, upon the settlement of $0.2 million principal balance of the October Notes on June 4, 2023 as part of the Exchange Agreements and $1.0 million principal balance of October Notes on June 21, 2023 based on the issuance of 248,981 shares of the Company’s Common Stock.

2023 Note

On February 3, 2023, upon drawing down on the Line of Credit, the Company issued its 2023 Note totaling $2.0 million, which is due and payable 60 days from the issuance date. The 2023 Note is non-interest bearing and secured by the Company’s assets. The 2023 Note issued with the initial $2.0 million drawdown is convertible into shares of the Company’s common stock, at a conversion price per share of $30.00 per share, subject to adjustment under certain circumstances described in the 2023 Note. Notes evidencing future withdrawals, if any, will be convertible into common stock only upon the declaration of an event of default under such promissory note.

On April 14, 2023, the Company entered into a First Amendment to the 2023 Note with the lender, pursuant to which the lender agreed to extend the maturity date of the 2023 Note balance until May 1, 2023 in exchange for 33,333 shares of the Company’s common stock pending shareholder approval. The 2023 Note was further amended to accrue interest at the fifteen percent (15%) per annum from the original funding date of the 2023 Note. The Company recorded a change in fair value adjustment of $0.2 million related to the commitment to issue 33,333 shares of the Company’s common stock.

On May 1, 2023, the Company entered into a Second Amendment to the 2023 Note with the lender, pursuant to which the lender agreed to extend the maturity date of the 2023 Note balance until May 15, 2023

On May 15, 2023, the Company entered into a Third Amendment to the 2023 Note with the lender, pursuant to which the lender agreed to extend the maturity date of the 2023 Note until June 7, 2023 in exchange for 4,000 shares of the Company’s Series E Preferred Stock, which are convertible into 66,667 shares of the Company’s common stock pending shareholder approval. The Company recorded a change in fair value adjustment of $0.7 million related to the commitment to issue 4,000 shares of the Company’s Series E Preferred Stock.

On May 16, 2023, the Company made a second draw of $0.2 million under the Line of Credit. Upon drawing down on the Line of Credit, the Company issued a second Secured Promissory Note (the “2^nd 2023 Note”) which is due and payable July 16, 2023. The 2^nd 2023 Note shall accrue interest at the fifteen percent (15%) per annum from the original funding date of the 2^nd 2023 Note.

On May 26, 2023, the Company made a third draw of $0.15 million under the Line of Credit. Upon drawing down on the Line of Credit, the Company issued a third Secured Promissory Note (the “3^rd 2023 Note”) which is due and payable June 2, 2023. The 3^rd 2023 Note included a $200,000 Commitment fee and does not bear interest. With the 3^rd 2023 Note, the Company recorded a change in fair value adjustment of $0.2 million related to the Commitment fee.

On May 26, 2023, the Company entered into that certain Fourth Amendment to the 2023 Note with the lender, pursuant to which the Company will issue to Holder a convertible promissory note in the principal amount of $0.15 million due June 2, 2023 in exchange for 4,000 shares of the Company’s Series E Preferred Stock, which are convertible into 66,667 shares of the Company’s common stock pending shareholder approval. The Company recorded a change in fair value adjustment of $0.6 million related to the commitment to issue 4,000 shares of the Company’s Series E Preferred Stock.

On June 13, 2023, the Company partially redeemed the principal of the 2023 Note and fully redeemed the principal of the 2^nd 2023 Note and the 3^rd 2023 Notes in addition to all accrued interest and commitment fees owing for approximately $2.1 million. With the settlement of the 2^nd 2023 and the 3^rd2023 Note, the Company recorded a change in fair value adjustment of $0.1 million.

On June 30, 2023, the Company and the LOC Lender agreed to amend the 2^nd 2023 Note and the 3^rd 2023 Note to extend the maturity dates of each until July 16, 2023. In connection with the amendments, the Company agreed to issue to the LOC Lender: 5,000 shares of the Company’s Series E Preferred Stock, which is convertible into 83,333 shares of the Company’s Common Stock. Additionally, the Company agreed to issue an additional 8,000 shares of the Company’s Series E Preferred Stock, which is convertible into 133,333 shares of the Company’s Common Stock, to the LOC Lender for failure to comply with a covenant in the Line of Credit, as amended. The Company recorded a change in fair value adjustment of $2.0 million related to the commitment to issue 13,000 shares of the Company’s Series E Preferred Stock pending shareholder approval.

Senior Secured Notes

On January 3, 2023, the Company issued senior secured notes with a principal balance of approximately $1.2 million and warrants to purchase 41,667 shares of the Company’s common stock for net proceeds of $1.0 million. The senior secured notes were issued with an original issue discount of 16.7%, do not bear interest, and mature three months from the date of issuance (unless extended pursuant to the terms of the notes). Pursuant to these terms, the Notes were subsequently extended to May 3, 2023 incurring an additional 10% on Principal or $120,000. The warrants are exercisable for five years at an exercise price of $19.32, subject to adjustment under certain circumstances described in the warrants.

On May 8, 2023, the Company entered into a letter agreement (the “Extension Letter”) with the lead noteholder and collateral agent for the January Notes (the “Agent”), pursuant to which we agreed to issue an aggregate of 11,833 shares of Common Stock to the holders of January Notes in exchange for the extension of the maturity date thereof until May 15, 2023.

On May 15, 2023, the Agent agreed to grant us an additional extension of the maturity date thereof until May 23, 2023 in exchange for the issuance by us to the holders of January Notes, on a pro rata basis, of 66,667 shares of our Common Stock, pending shareholder approval.

Subsequently, on May 23, 2023, the Agent agreed to grant us an extension of the maturity date thereof until May 31, 2023 in exchange for the issuance by us to the January Investors, on a pro rata basis, of 25,000 shares of our Common Stock, pending shareholder approval.

Thereafter, on May 31, 2023, the Agent for the January Notes agreed to grant us an extension of the maturity date thereof until June 12, 2023 in exchange for the issuance by us to the January Investors, on a pro rata basis, of 100,000 shares of our Common Stock, pending shareholder approval.

With the completion of the Extension Letter and additional extensions, the Company concluded that a troubled debt restructuring did not occur, but an extinguishment of the outstanding senior secured notes occurred. Subsequent to the extinguishment, the Company concluded to account for the senior secured notes using the fair value option. The Company recorded an extinguishment loss of $2.2 million. The loss was comprised of the fair value of the shares of Common Stock on the dates issued to extend the maturity date as discussed above.

On June 4, 2023, $0.2 million of the outstanding senior secured notes was settled as part of the Exchange Agreements described below. The Company accounted for the settlement as an extinguishment that resulted in a gain being recognized of $0.1 million and resulted in $0.1 million being recorded as Series F convertible preferred stock and $0.1 million being recorded as part of the warrant liability.

On June 30, 2023, the Company and the remaining January Investors agreed to extend the maturity date of the January Notes until July 31, 2023, in exchange for 41,667 shares of our Common Stock pending approval by shareholders. The Company recorded a change in fair value adjustment of $0.3 million based on the fair value of the 41,667 shares of Common Stock. As of June 30, 2023, the fair value of the outstanding senior secured notes approximated the principal balance of $1.1 million.

The secured notes and warrants were not registered under the Securities Act of 1933, as amended (the “Securities Act”) or the securities laws of any state and were offered and sold in reliance upon the exemption from registration afforded by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering. The Investors are “accredited investors” as such term is defined in Regulation D promulgated under the Securities Act.