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Crown Electrokinetics Corp.

08/15/2022 | Press release | Distributed by Public on 08/15/2022 15:20

Quarterly Report for Quarter Ending June 30, 2022 (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 001-39924

Crown Electrokinetics Corp.

(Exact name of registrant as specified in its charter)

Delaware		47-5423944
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1110 NE Circle Blvd., Corvallis, Oregon97330

(Address of principal executive offices) (Zip Code)

(800)674-3612

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☒
Emerging Growth Company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

The number of shares of common stock, $0.0001 par value per share, outstanding as of August 12, 2022 was 15,874,624.

Title of each class:		Trading Symbol		Name of each exchange on which registered:
Common Stock, $0.0001 par value		CRKN		The Nasdaq Capital Market

CROWN ELECTROKINETICS CORP.

		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1

	Condensed Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021	1

	Condensed Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	2

	Condensed Statements of Stockholders' Equity (Deficit) for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	3

	Condensed Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)	5

	Notes to the Condensed Financial Statements (Unaudited)	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	26

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Mine Safety Disclosures	27

Item 5.	Other Information	27

Item 6.	Exhibits	28

	Signatures	29

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements may be identified by such forward-looking terminology as "may," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties.

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC") could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

PART I - FINANCIAL INFORMATION

Item 1. - Financial Statements.

CROWN ELECTROKINETICS CORP.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

	June 30, 2022			December 31, 2021
	(Unaudited)
ASSETS
Current assets:
Cash	$	984			$	6,130
Prepaid & other current assets		683				687
Total current assets		1,667				6,817
Property and equipment, net		1,092				895
Intangible assets, net		1,709				1,761
Right of use asset		2,097				-
Other assets		403				179
TOTAL ASSETS	$	6,968			$	9,652

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	840			$	358
Accrued expenses		116				298
Lease liability - current portion		378				-
Shares liability		1,058				-
Notes payable		8				8
Total current liabilities		2,400				664
Lease liability		1,815				-
Total liabilities		4,215				664

Commitments and Contingencies (Note 9)

STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.0001; 50,000,000 shares authorized, noshares outstanding		-				-
Series A preferred stock, par value $0.0001; 300 shares authorized, 251 shares outstanding as of June 30, 2022 and December 31 2021		-				-
Series B preferred stock, par value $0.0001; 1,500 shares authorized, 1,443 shares outstanding as of June 30, 2022 and December 31 2021		-				-
Series C preferred stock, par value $0.0001; 600,000 shares authorized, 500,756 shares outstanding as of June 30, 2022 and December 31, 2021		-				-
Common stock, par value $0.0001; 200,000,000 shares authorized; 14,614,627 and 14,530,126 shares outstanding as of June 30, 2022 and December 31, 2021, respectively		1				1
Additional paid-in capital		85,489				82,677
Accumulated deficit		(82,737	)			(73,690	)
Total stockholders' equity		2,753				8,988
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	6,968			$	9,652

The accompanying notes are an integral part of these condensed financial statements.

CROWN ELECTROKINETICS CORP.

Condensed Statements of Operations

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended June 30,			Six months ended June 30,
	2022			2021			2022		2021
Operating expenses:
Research and development	$	1,473			$	435		$	2,568		$	1,340
Selling, general and administrative		3,002				4,961			6,474			9,318
Total operating expenses		4,475				5,396			9,042			10,658

Loss from operations		(4,475	)			(5,396	)		(9,042	)		(10,658	)

Other income (expense):
Other income		-				-			-			6
Interest expense		(2	)			(2	)		(5	)		(533	)
Loss on exchange of notes payable for common stock and warrants		-				-			-			(6	)
Gain (loss) on extinguishment of debt		-				-			-			(13,805	)
Change in fair value of warrant liability		-				-			-			(1,024	)
Change in fair value of derivative liability		-				-			-			(51	)
Total other income (expense)		(2	)			(2	)		(5	)		(15,413	)

Net loss	$	(4,477	)		$	(5,398	)	$	(9,047	)	$	(26,071	)

Net loss per share, basic and diluted:	$	(0.27	)		$	(0.38	)	$	(0.56	)	$	(1.97	)

Weighted average shares outstanding, basic and diluted:		16,419,699				14,315,142			16,139,564			13,241,786

The accompanying notes are an integral part of these condensed financial statements.

CROWN ELECTROKINETICS CORP.

Condensed Statements of Stockholders' Equity

Three Ended June 30, 2022 and 2021

(Unaudited)

(in thousands, except share and per share amounts)

	Series A Preferred Stock		Series B Preferred Stock			Series C Preferred Stock	Common Stock	Additional Paid-in		Accumulated		Total Stockholders'
	Number		Amount			Number	Amount	Number		Amount		Number		Amount	Capital		Deficit			Equity
Balance as of April 1, 2022 (Unaudited)		251		$	-		1,443	$	-		500,756		$	-		14,563,458		$	1		$	83,983	$	(78,260	)	$	5,724
Issuance of Series D preferred stock and warrants, net of fees		-			-		-		-		-			-		-			-			1		-			1
Issuance of common stock/At-the-market offering, net of offering costs		-			-		-		-		-			-		51,169			-			58		-			58
Stock-based compensation		-			-		-		-		-			-		-			-			1,448		-			1,448
Net loss		-			-		-		-		-			-		-			-			-		(4,477	)		(4,477	)
Balance as of June 30, 2022 (Unaudited)		251		$	-		1,443	$	-		500,756		$	-		14,614,627		$	1		$	85,489	$	(82,737	)	$	2,753

	Series A Preferred Stock		Series B Preferred Stock			Series C Preferred Stock	Common Stock	Additional Paid-in		Accumulated		Total Stockholders'
	Number		Amount			Number	Amount	Number		Amount		Number		Amount	Capital		Deficit			Equity
Balance as of April 1, 2021 (Unaudited)		251		$	-		1,443	$	-		500,756		$	-		14,856,480		$	1		$	73,789	$	(57,203	)	$	16,587
Issuance of common stock in connection with a consulting agreement		-			-		-		-		-			-		64,261			-			244		-			244
Stock option exercise		-			-		-		-		-			-		-			-			4		-			4
Stock-based compensation		-			-		-		-		-			-		-			-			2,339		-			2,339
Net loss		-			-		-		-		-			-		-			-					(5,398	)		(5,398	)
Balance as of June 30, 2021 (Unaudited)		251		$	-		1,443	$	-		500,756		$	-		14,920,741		$	1		$	76,376	$	(62,601	)	$	13,776

The accompanying notes are an integral part of these condensed financial statements.

CROWN ELECTROKINETICS CORP.

Condensed Statements of Stockholders' Equity (Deficit)

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

(in thousands, except share and per share amounts)

	Series A Preferred Stock		Series B Preferred Stock			Series C Preferred Stock	Common Stock	Additional Paid-in		Accumulated		Total Stockholders'
	Number		Amount			Number	Amount	Number		Amount		Number		Amount	Capital		Deficit			Equity
Balance as of January 1, 2022		251		$	-		1,443	$	-		500,756		$	-		14,530,126		$	1		$	82,677	$	(73,690	)	$	8,988
Delivery of restricted common stock		-			-		-		-		-			-		33,332			-			-		-			-
Issuance of common stock warrants in connection with SLOC		-			-		-		-		-			-		-			-			223		-			223
Issuance of Series D preferred stock and warrants, net of fees		-			-		-		-		-			-		-			-			-		-			-
Issuance of common stock/At-the-market offering, net of offering costs		-			-		-		-		-			-		51,169			-			58					58
Stock-based compensation		-			-		-		-		-			-		-			-			2,531		-			2,531
Net loss		-			-		-		-		-			-		-			-			-		(9,047	)		(9,047	)
Balance as of June 30, 2022 (Unaudited)		251		$	-		1,443	$	-		500,756		$	-		14,614,627		$	1		$	85,489	$	(82,737	)	$	2,753

	Series A Preferred Stock		Series B Preferred Stock			Series C Preferred Stock	Common Stock	Additional Paid-in		Accumulated		Total Stockholders' Equity
	Number		Amount			Number	Amount	Number		Amount		Number		Amount	Capital			Deficit			(Deficit)
Balance as of January 1, 2021		-		$	-		-	$	-		-		$	-		7,599,716			$	1		$	29,758		$	(36,530	)	$	(6,771	)
Issuance of common stock and warrants, net of fees		-			-		-		-		-			-		4,772,500				-			19,326			-			19,326
Issuance of common stock and preferred stock in connection with conversion of notes		251			-		1,443		-		500,756			-		1,261,277				-			19,222			-			19,222
Repurchased beneficial conversion feature in connection with conversion of notes payable		-			-		-		-		-			-		-				-			(6,647	)		-			(6,647	)
Issuance of common stock warrants in connection with note exchange agreements		-			-		-		-		-			-		-				-			4,918			-			4,918
Exercise of common stock warrants		-			-		-		-		-			-		219,199				-			180			-			180
Issuance of common stock to consultants		-			-		-		-		-			-		64,954				-			247			-			247
Stock-based compensation		-			-		-		-		-			-		1,038,095				-			5,802			-			5,802
Stock option exercise		-			-		-		-		-			-		25,000				-			4			-			4
Canceled restricted stock awards		-			-		-		-		-			-		(60,000	)			-			-			-			-
Reclassification of warrant liabilities		-			-		-		-		-			-		-				-			3,566			-			3,566
Net loss		-			-		-		-		-			-		-				-			-			(26,071	)		(26,071	)
Balance as of June 30, 2021 (unaudited)		251		$	-		1,443	$	-		500,756		$	-		14,920,741			$	1		$	76,376		$	(62,601	)	$	13,776

The accompanying notes are an integral part of these condensed financial statements.

CROWN ELECTROKINETICS CORP.

Condensed Statements of Cash Flows

Six Months Ended June 30, 2022 and 2021

(Unaudited)

(in thousands)

	Six months ended June 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(9,047	)		$	(26,071	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		2,531				5,802
Issuance of common stock to consultants		-				247
Depreciation and amortization		234				112
Loss on extinguishment of debt		-				13,805
Loss on exchange of notes payable for common stock and warrants		-				6
Amortization of debt discount		-				458
Change in fair value of warrant liability		-				1,024
Change in fair value of derivative liability		-				51
Loss on disposal of equipment		52				-
Amortization of right of use assets		239				-
Changes in operating assets and liabilities:
Prepaid and other assets		3				(30	)
Accounts payable		370				(862	)
Accrued expenses		(182	)			(253	)
Accrued interest		-				72
Lease liability		(143	)			-
Net cash used in operating activities		(5,943	)			(5,639	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment		(258	)			(162	)
Purchase of patents		(61	)			(1,475	)
Net cash used in investing activities		(319	)			(1,637	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock, net of fees		-				19,326
Proceeds from the issuance of common stock / At-the-market offering		60				-
Offering costs for the issuance of common stock / At-the-market offering		(2	)			-
Proceeds from a deposit for the Series D preferred stock (shares liability)		1,058				-
Proceeds from the exercise of common stock warrants		-				180
Proceeds from PPP loan		-				233
Proceeds from exercise of stock options		-				4
Repayment of related party non interest bearing advance		-				(25	)
Net cash provided by financing activities		1,116				19,718

Net increase (decrease) increase in cash		(5,146	)			12,442
Cash - beginning of period		6,130				36
Cash - end of period	$	984			$	12,478

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock warrants in connection with SLOC	$	223			$	-
Issuance of common stock and preferred stock in connection with conversion of notes	$	-			$	19,222
Repurchase beneficial conversion feature in connection with conversion of notes payable	$	-			$	6,647
Reclassification of warrant liabilities	$	-			$	3,566
Issuance of common stock warrants in connection with note exchange agreements	$	-			$	4,918
Unpaid equipment included in accounts payable	$	112			$	-
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	3			$	4
Cash paid income taxes	$	-			$	-

The accompanying notes are an integral part of these condensed financial statements.

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

Note 1 - Organization and Description of Business Operations

Crown Electrokinetics Corp. (the "Company") was incorporated in the State of Delaware on April 20, 2015. Effective October 6, 2017, the Company's name was changed to Crown Electrokinetics Corp. from 3D Nanocolor Corp. ("3D Nanocolor").

On January 26, 2021, the Company completed its public offering, and its common stock began trading on the Nasdaq Capital Market (Nasdaq) under the symbol CRKN.

The Company is commercializing technology for smart or dynamic glass. The Company's electrokinetic glass technology is an advancement on microfluidic technology that was originally developed by HP Inc.

On July 19, 2022, the Company entered into an underwriting agreement relating to the Company's public offering of its common stock, par value $0.0001 per share. The Company agreed to sell 1,250,000 shares of its common stock to the underwriters, at a purchase price per share of $0.744 (the offering price to the public of $0.80 per share minus the underwriters' discount), pursuant to the Company's registration statement on Form S-3 (File No. 333-262122), under the Securities Act of 1933, as amended. The Company has also granted to the underwriters a 30-day option to purchase up to 187,500 additional shares of common stock to cover over-allotments. On July 22, 2022, the Company received net proceeds of $855,000, net of underwriter fees and commissions of approximately $70,000, and offering costs of $75,000.

In connection with the Company's public offering, the Company issued a warrant to the underwriters to purchase 62,500 shares of its common stock. The warrant may be exercised beginning on the date that is 180 days after July 22, 2022 until July 19, 2027. The exercise price of the warrant is $0.80 per share.

Note 2 - Liquidity and Financial Condition

The Company has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As reflected in the condensed financial statements, the Company had an accumulated deficit of approximately $82.7 million and negative working capital of approximately $0.7 million at June 30, 2022, a net loss of approximately $9.0 million, approximately $5.9 million of net cash used in operating activities for the six months ended June 30, 2022. The Company expects to continue to incur ongoing administrative and other expenses, including public company expenses.

On March 23, 2022, the Company entered into an Irrevocable $10 million Standby Letter of Credit ("SLOC"). The SLOC accrues interest at a rate of 12% per annum and matures 2 years from the issuance date of the SLOC. Interest is payable quarterly. In connection with the SLOC, the Company issued a warrant for 200,000 shares of common stock with an exercise price of $2.00. Additionally, the Company will issue 50,000 shares of its restricted common stock with each cash draw of $1.0 million. Drawdowns are capped at a maximum of $5 million in the first six months. The Company intends to sign and drawdown on the available funds as necessary in 2022 and 2023.

The Company entered into a Sales Agreement with A.G.P./Alliance Global Partners (the "Sales Agents") dated March 30, 2022 (the "Sales Agreement"), pursuant to which the Company may, from time to time, sell up to $5 million in shares (the "Placement Shares") of the Company's common stock through the Sales Agents, acting as the Company's sales agent and/or principal, in a continuous at-the-market offering (the "ATM Offering"). The Company will pay the Sales Agents a commission of up to 3.0% of the aggregate gross proceeds the Company receives from all sales of the Company's common stock under the Sales Agreement. The Placement Shares will be offered and sold pursuant to the Company's shelf registration statement on Form S-3 (Registration No. 333- 262122) and the related base prospectus included in the registration statement, as supplemented by the prospectus supplement dated March 30, 2022. As of June 30, 2022, the Company has received net proceeds on sales of 51,169 shares of common stock under the Sales Agreement of approximately $57,574 (after deducting $2,124 in commissions and expenses) at a weighted average price of $1.17 per share.

As of June 30, 2022, the Company recorded $1.1 million of shares liability in its condensed balance sheet related to cash received for 1,058 shares of Series D preferred stock that were issued in July 2022 (See Note 10).

Although it is difficult to predict the Company's liquidity requirements as of June 30, 2022, based upon the Company's current operating plan, cash on hand, SLOC funding, and ATM facility, management believes that the Company will have sufficient cash to meet its projected operating requirements for at least the next 12 months following the issuance of these condensed financial statements.

Risks and Uncertainties

Management is constantly monitoring the impact of the COVID-19 pandemic on operations and financials of the Company. To date the main impact has been the delayed evaluation of potential manufacturing partnerships. These delays have been caused by Covid lockdowns i) restricting site tour opportunities by potential partners and ii) driving strong demand for potential partners existing product lines, limiting their capacity to assess new partnership opportunities. The Company has concluded that while it is reasonably possible that the virus could still have a negative effect on the Company's financial position, the specific impact is not readily determinable as of the date of these condensed financial statements.

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

The Company is currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. The Company's financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.

The condensed financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Note 3 - Significant Accounting Policies

Basis of Presentation

The Company's condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and include all adjustments necessary for the fair presentation of the Company's financial position for the periods presented. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results for the full year or the results for any future periods. These condensed financial statements should be read in conjunction with the audited financial statements and related notes for the fiscal year ended December 31, 2021 included in the Company's Form 10-KT filed with the Securities and Exchange Commission (the "SEC") on March 30, 2022.

Use of Estimates

The preparation of condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of expenses during the reporting period. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company's future results of operations will be affected.

Significant Accounting Policies:

For a detailed discussion about the Company's significant accounting policies, see the Company's December 31, 2021 financial statements included in its 2021 Annual Report.

Leases

The Company accounts for its leases under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the condensed consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company's incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.

In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components as permitted under ASC 842. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

Warrants

The Company accounts for its warrants related to the SLOC in accordance with ASC 815-40, Contracts in Entity's Own Equity. The warrants to purchase the Company' common stock should be classified within stockholders' equity and the warrants are indexed to the Company's own stock under ASC 815-40. As such, the warrants meet the scope exception in ASC 815-10-15-74(a) to derivative accounting and therefore, the warrants should be classified in stockholders' equity. The Company will use a Black-Scholes model to value the warrants at issuance.

Under the guidance of ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, the Company concluded the warrants should be recorded as a deferred asset. At issuance and as of June 30, 2022, since no loan amounts were drawn down, the SLOC warrant is recorded as a deferred asset at fair value and will be amortized over the life of the SLOC. Upon a draw down, the remaining balance of the deferred asset would be reclassified to debt discount and amortized under the effective interest method over the one-year term of the loan.

Net Loss per Share

ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share ("EPS") with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Basic net loss per share of common stock excludes dilution and is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. Since the Company has only incurred losses, basic and diluted net loss per share is the same.

Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at June 30, 2022 and 2021 are as follows:

	June 30,		June 30,
	2022		2021
	(Unaudited)
Series A preferred stock		188,311		188,311
Series B preferred stock		2,019,038		2,019,038
Series C preferred stock		560,757		560,757
Warrants to purchase common stock (excluding penny warrants)		4,725,177		3,883,083
Options to purchase common stock		9,070,986		10,538,708
Unvested restricted stock awards		-		711,112
Unvested restricted stock units		516,629		1,061,905
		17,080,898		18,962,914

Emerging Growth Company

The Company is considered to be an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, as amended (JOBS Act). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Securities and Exchange Act of 1934.

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases (Topic 842) which supersedes FASB Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842, which amends ASU 2016-02 to provide entities an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 842. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. The standard will be effective for non-public entities for fiscal years beginning after December 15, 2022 and interim periods beginning after December 15, 2023. The Company adopted this standard on January 1, 2022, and the adoption did not have a material impact on the Company's financial statements or disclosures.

In August 2020, the FASB issued Accounting Standards Update ("ASU") No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. On January 1, 2022, the adoption of ASU 2020-06 did not have a material impact on the Company's condensed financial statements or disclosures.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. On January 1, 2022, the adoption of ASU 2021-04 did not have a material impact on the Company's condensed financial statements or disclosures.

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

Note 4 - Property & Equipment, Net

Property and equipment, net, consists of the following (in thousands):

	June 30,			December 31,
	2022			2021
	(Unaudited)
Equipment	$	1,219			$	1,013
Computers		52				37
Leasehold improvements		177				28
Total		1,448				1,078
Less accumulated depreciation and amortization		(356	)			(183	)
Property and equipment, net	$	1,092			$	895

Depreciation expense for the three months ended June 30, 2022 and 2021 was $68,000 and $19,000, respectively. Depreciation expense for the six months ended June 30, 2022 and 2021 was $121,000 and $35,000, respectively.

Note 5 - Intangible Assets, Net

IBM Patents

On July 23, 2021, the Company entered into a Patent Assignment Agreement with International Business Machines Corporation ("IBM") to acquire an ownership interest in assigned patents. As consideration for the patents, the Company paid $264,000 (including legal fees of approximately $38,000) as of June 30, 2022.

Intellectual Property

On January 31, 2016, the Company, entered into an IP agreement with HP to acquire a research license to determine the feasibility of incorporating HP's electro-kinetic display technology in the Company's products. Under the terms of the agreement, the license is to be used for research purposes only, has a purchase price of $200,000 for the technology and a two-year closing date. On April 12, 2016 the Company and HP entered into the first amendment to the agreement, which reduced the purchase price of the technology to $175,000. The sales agreement entered into with HP concurrently with the first amendment to the agreement allocated $25,000 of the $200,000 purchase price to acquire equipment to be used in the research. On May 1, 2017, the Company and HP entered into the second amendment to the agreement which increased the purchase price for the technology to $375,000 and extended the closing date to January 31, 2020. On March 10, 2019, the Company and HP entered into the third amendment to the agreement, which extended the closing date to January 31, 2021, enumerated certain intellectual property owned by HP that is not subject to the exclusive license granted to the Company and revised the schedule of fees payable by the Company to HP. Under the terms of the fourth amendment with HP (see details below), $75,000 will be included in the purchase price for the option to purchase assignable patents, which was paid on February 9, 2021.

Under the guidance of ASC 350, Intangibles - Goodwill and Other Intangibles, the Company recorded the research license at the cost to acquire the license. The Company has paid $375,000 for the transfer of the technology. The research license will be amortized over a 10-year useful life.

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

HP Patents

On February 4, 2021, the Company entered into the fourth amendment to the IP agreement with HP. Under the terms of the amendment, the parties agreed to amend the list of patent and patent applications, which includes two additional patents that are assignable to the Company by HP. The Company exercised the option to purchase the assignable patents and paid HP $1.55 million dollars on February 9, 2021. Upon assignment of the patents, the Company will pay HP a royalty fee based on the cumulative gross revenue received by the Company from the patents as follows:

1.	Prior to December 31, 2029:

●

Less than $70,000,000, royalty rate of 0.00%

●

$70,000,000 - $500,000,000, royalty rate of 1.25%

●

$500,000,000 and beyond, royalty rate of 1.00%

2.	After January 1, 2030 and onward, royalty rate of 0.00%

Under the terms of the amendment, HP waived any interest that would have been accrued on the open payable of $75,000 which was due from the Company related to the license agreement dated January 31, 2016.

Intangible assets, net, consists of the following (in thousands):

	June 30,			December 31,
	2022			2021
	(Unaudited)
Patents	$	1,800			$	1,739
Research license		375				375
Total		2,175				2,114
Accumulated amortization		(466	)			(353	)
Intangible assets, net	$	1,709			$	1,761

The following table represents the total estimated amortization of intangible assets for the five succeeding years and thereafter as of June 30, 2022 (in thousands):

	Estimated Amortization Expense

Six months ended December 31, 2022	$	111
Year ended December 31, 2023		220
Year ended December 31, 2024		221
Year ended December 31, 2025		220
Year ended December 31, 2026 and thereafter		937
Total	$	1,709

For the three months ended June 30, 2022 and 2021, amortization expense was approximately $60,000 and $47,000, respectively. For the six months ended June 30, 2022 and 2021, amortization expense was approximately $113,000 and $77,000, respectively.

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

Note 6 - Accrued Expenses

As of June 30, 2022 and December 31, 2021, the Company's accrued expenses consisted of the following (in thousands):

	June 30, 2022		December 31, 2021
	(Unaudited)
General liability insurance	$	15		$	234
Professional fees		101			7
Rent		-			57
Total	$	116		$	298

Note 7 - Stockholders' Deficit

Preferred Stock

As of June 30, 2022 and December 31, 2021, there were 50,000,000 authorized shares of the Company's preferred stock, par value $0.0001.

Series A Preferred Sock

As of June 30, 2022 and December 31, 2021, the Company had 251 shares of its Series A preferred stock issued and outstanding.

Series B Preferred Stock

As of June 30, 2022 and December 31, 2021, the Company had 1,443 shares of its Series B preferred stock issued and outstanding.

Series C Preferred Stock

As of June 30, 2022 and December 31, 2021, the Company had 500,756 shares of its Series C preferred stock issued and outstanding.

Common Stock

Restricted Stock

During the six months ended June 30, 2022, the Company issued 33,332 shares of common stock in connection with vested restricted stock units.

During the six months ended June 30, 2022, the Company issued 51,169 shares of common stock in connection with its ATM Offering (See Note 2).

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

Note 8 - Stock Options, Restricted Stock Units and Warrants:

On December 16, 2020, the Company adopted its 2020 Long-Term Incentive Plan ( the "2020 Plan"). Under the 2020 Plan, there are 5,333,333 shares of the Company's common stock available for issuance and the 2020 Plan has a term of 10 years. The available shares in the 2020 Plan will automatically increase on the first trading day in January of each calendar year during the term of this Plan, commencing with January 2021, by an amount equal to the lesser of (i) five percent (5%) of the total number of shares of common stock issued and outstanding on December 31 of the immediately preceding calendar year, (ii) 1,000,000 shares of common stock or (iii) such number of shares of common stock as may be established by the Company's Board of Directors.

The Company grants equity-based compensation under its 2020 Plan and its 2016 Equity Incentive Plan (the "2016 Plan"). The 2020 Plan and 2016 Plan allows the Company to grant incentive and nonqualified stock options, and shares of restricted stock to its employees, directors and consultants. On June 14, 2019, the Board of Directors of the Company approved increasing the number of shares allocated to the Company's 2016 Equity Incentive Plan from 5,500,000 to 7,333,333.

Under the 2016 Plan and the 2020 Plan, upon the exercise of stock options and issuance of fully vested restricted common stock, shares of common stock may be withheld to satisfy tax withholdings.

Stock-based compensation:

The Company recognized total expenses for stock-based compensation during the three and six months ended June 30, 2022 and 2021, which are included in the accompanying condensed statements of operations, as follows (in thousands):

	Three months ended June 30,		Six months ended June 30,
	2022		2021			2022		2021

Research and development expenses	$	445		$	32		$	500	$	614
Selling, general and administrative expenses		1,003			2,551			2,031		5,435
Total stock-based compensation	$	1,448		$	2,583		$	2,531	$	6,049

Stock Options:

The Company provides stock-based compensation to employees, directors and consultants under both the 2016 and 2020 Plans. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The risk-free interest rate is determined by referencing the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The Company utilized assumptions in the estimation of fair value of stock-based compensation for the three and six months ended June 30, 2022 and 2021 as follows:

	Three months ended June 30,	Six months ended June 30,
	2022	2021	2022	2021
Dividend yield	0%	0%	0%	0%
Expected price volatility	91.7%	50.0%	91.7%	50.0%
Risk free interest rate	3.25%	0.35% - 0.90%	3.25%	0.22-0.94%
Expected term	5.0-7.0 years	3.0-5.0 years	5.0-7.0 years	2.5-7.0 years

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

A summary of activity under the 2016 and 2020 Plans for the six months ended June 30, 2022 is as follows:

	Shares Underlying Options			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2021		11,135,432			$	2.85		7.6	$	13,031
Granted		65,000			$	1.12		9.9
Canceled		(652,776	)		$	3.50		-
Forfeited		(1,476,670	)		$	2.60		-
Outstanding at June 30, 2022		9,070,986			$	2.83		6.9	$	510

Exercisable at June 30, 2022		8,395,464			$	2.78		6.7	$	510

During the six months ended June 30, 2022, the Company cancelled 652,776 stock options with a weighted average exercise price of $3.50. There were a further 1,476,670 fully vested stock options, with a weighted average exercise price of $2.60, which were forfeited due to expiration.

During the six months ended June 30, 2022 the accelerated expiration of 789,527 vested stock options was removed. This was accounted for as a modification of the equity awards and during the six months ended June 30, 2022, the Company recognized incremental stock-based compensation of $0.6 million.

Restricted stock units:

A summary of the Company's restricted stock activity during the six months ended June 30, 2022 is as follows:

During the six months ended June 30, 2022, 33,332 restricted stock units ("RSUs) were swapped for 33,332 cancelled stock options. The cancellation of the stock options and the issuance of the RSUs were accounted for as a modification of the equity awards and during the six months ended June 30, 2022, the Company recognized incremental stock-based compensation of $0.1 million.

Additionally, there were 242,593 RSU's with accelerated vesting in the six months ended June 30, 2022. The accelerated vesting is accounted for as a modification of the equity awards and during the six months ended June 30, 2022, the Company recognized incremental stock-based compensation of $0.3 million.

	Number of Shares			Weighted Average Grant-Date Fair Value
Unvested at December 31, 2021		1,939,683			$	3.40
Granted		138,850			$	1.48
Vested		(1,561,904	)		$	3.88
Unvested at June 30, 2022		516,629			$	4.28

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

Warrants:

In connection with the SLOC, the Company issued a warrant for 200,000 shares of common stock with an exercise price of $2.00, and a total fair value of approximately $0.2 million. The fair value of the warrant was accounted for as deferred debt issuance costs and is classified as other assets in the condensed balance sheet as of June 30, 2022. A summary of the Company's warrant (excluding penny warrants) activity during the six months ended June 30, 2022 is as follows:

	Shares Underlying Warrants		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2021		4,525,177		$	2.65		4.0	$	7,088
Issued		200,000		$	2.00
Outstanding at June 30, 2022		4,725,177		$	2.62		3.5	$	611

Exercisable at June 30, 2022		1,175,913		$	0.33		3.6	$	611

The Company estimated the fair value of the warrants using the Black-Scholes pricing model as follows:

	Six months ended June 30,
	2022			2021

Expected price volatility		103.0	%		50.0	%
Risk free interest rate		2.2	%		0.4	%
Expected term (years)		5.0			5.0

There were no warrants issued during the three months ended June 30, 2022 and 2021.

Note 9 - Commitments and Contingencies

Leases

Oregon State University

On March 8, 2016, the Company entered into a lease agreement with Oregon State University, to lease office and laboratory space located at HP Campus Building 11, 1110 NE Circle Blvd, Corvallis, Oregon, for approximately $400 monthly. On July 1, 2016, the Company entered into the first amendment to the lease agreement which increased the monthly lease expense to approximately $1,200. On October 1, 2017, the Company entered into a sublease agreement, which provides for additional office space and the monthly lease payment increased to approximately $1,800. The lease expired on June 30, 2018 and the Company extended the lease through June 30, 2019. The monthly lease payment increased to approximately $4,500 for the months ended June 30 2018 through November 30, 2018, and increased to approximately $7,550 for the months ended December 31, 2018 through June 30, 2019.

On July 1, 2019, the Company entered into the fourth amendment to its lease with Oregon State University, which extends the lease expiration date to June 30, 2022. Beginning on July 1, 2020, and each July 1 thereafter, the monthly Operating Expense Reimbursement, as defined will be increased by no more than three percent.

On July 1, 2020, the Company entered into the fifth amendment to its lease with Oregon State University which adjusts the Operating Expense Reimbursement payment due dates from monthly to quarterly, with the payments due in advance on the first of July, October, January and April. Effective July 1, 2020, the quarterly operating expense will be $23,097 which includes Service fees of $11,979 and Facility Tooling fees of $11,118.

On July 1, 2021, the Company entered into the sixth amendment to its lease with Oregon State University which adjusts the Operating Expense Reimbursement to a quarterly payment of $23,805. The quarterly Operating Expense Reimbursement payment includes Service fees of $12,337 and Facility Tooling fees of $11,468.

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

On September 1, 2021, the Company entered into the seventh amendment to its lease with Oregon State University which expands the lease to now include approximately 703 square feet of lab space, 576 square feet of cubicle space, 1096 square feet of Highbay lab space, and 376 square feet of High bay storage space in a building commonly known as Building 11. Effective September 1, 2021, the quarterly operating expense will be $31,647 covering all utility and facility tooling costs. The sublease is extended until June 30, 2025.

On January 24, 2022, the Company entered into the eighth amendment to its lease with Oregon State University which expands the lease to now include approximately 703 square feet of lab space, 768 square feet of cubicle space, 2,088 square feet of Highbay lab space, and 376 square feet of High bay storage space in a building commonly known as Building 11. Effective January 24, 2022, the quarterly operating expense will be $44,252 covering all utility and facility tooling costs. The sublease expires June 30, 2025.

Hudson 11601 Wilshire, LLC

On March 4, 2021, the Company entered into a lease agreement with Hudson 11601 Wilshire, LLC, to lease 3,500 square feet of office space located in Los Angeles, California. The lease term is 39 months and expires on June 30, 2024. The monthly lease expense is as follows:

●

Months 1-12

$18,375

●

Months 13-24

$19,018

●

Months 25-36

$19,683

●

Months 37-39

$20,372

The Company paid a security deposit totaling $20,373 at the lease inception date.

HP Inc.

On May 4, 2021, the Company entered into a lease agreement with HP Inc. to lease office and lab space located in Corvallis, Oregon. The lease term is 5 years, and the lease commencement date is April 1, 2021. The monthly lease expense is $7,388 and increases 3% on each anniversary of the lease commencement date. The Company will pay a security deposit totaling $8,315. The Company has the option to extend the lease for an additional 5 years. On January 26, 2022, the Company entered into the first amendment to its lease with HP Inc., which amends the lease commencement date to January 26, 2022 and the lease expiration date to January 31, 2027.

Pacific N.W. Properties, LLC

On October 5, 2021, the Company entered into a lease agreement with Pacific N.W. Properties, LLC to lease 26,963 square feet of warehouse, manufacturing, production and office space located in Salem Oregon. The commencement date of the lease is October 1, 2021, the lease term is 62 months and expires on November 30, 2026.

On December 9, 2021, the Company entered into the first amendment to its lease agreement with Pacific N.W. Properties, LLC. The lease amendment revises the lease commencement date to December 9, 2021 and the lease expiration date to February 28, 2027. The revised monthly lease expense is as follows:

●	Months 1-2	-	$15,357

●	Months 3-12	-	$21,500

●	Months 13-24	-	$22,145

●	Months 25-36	-	$22,809

●	Months 37-48	-	$23,494

●	Months 49-60	-	$24,198

●	Months 61-62	-	$24,924

As of June 30, 2022, the Company had operating lease liabilities of approximately $2.2 million and right-of-use assets of approximately $2.1 million, which are included in the condensed balance sheet.

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

The components of lease expense were as follows:

	Three months ended June 30, 2022		Six months ended June 30, 2022
Operating leases:
Operating lease cost	$	190		$	380
Variable lease cost		11			16
Operating lease expense	$	201		$	396

Supplemental cash flow information related to leases were as follows:

	Three months ended June 30, 2022			Six months ended June 30, 2022
Operating cash flows - operating leases	$	189			$	341
Right-of-use assets obtained in exchange for operating lease liabilities	$	-			$	2,336
Weighted-average remaining lease term - operating leases (in years)		3.7				3.7
Weighted-average discount rate - operating leases		12.0	%			12.0	%

As of June 30, 2022, future minimum payments are as follows (in thousands):

	Operating
	Leases
Six months ended December 31, 2022	$	379
Year ended December 31, 2023		776
Year ended December 31, 2024		678
Year ended December 31, 2025		475
Year ended December 31, 2026		390
Year ended December 31, 2027		57
Total		2,755
Less present value discount		(562	)
Operating lease liabilities	$	2,193

During the three months ended June 30, 2022 and 2021, the Company recognized rent expense of approximately $0.2 million and $0.1 million, respectively. During the six months ended June 30, 2022 and 2021, the Company recognized rent expense of approximately $0.4 million and $0.1 million, respectively.

Litigation

From time to time, the Company is also involved in various other claims and legal actions that arise in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company does not believe that the ultimate resolution of these actions will have a material adverse effect on its financial position, results of operations, liquidity or capital resources.

Future litigation may be necessary to defend ourselves and our partners by determining the scope, enforceability and validity of third party proprietary rights or to establish the Company's proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

CROWN ELECTROKINETICS, CORP.

Notes to Condensed Financial Statements

Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

Note 10 - Subsequent Events

The Company has evaluated all subsequent events through the date of filing of this Quarterly Report on Form 10-Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the condensed financial statements as of June 30, 2022, and events which occurred after June 30, 2022, but which were not recognized in the condensed financial statements.

Series D Preferred Stock

On July 8, 2022, the Company's Board of Directors authorized 7,000 shares of Series D preferred stock with a par value of $0.0001 per share. Each preferred share of Series D preferred stock will have a stated valued of $1,000 per share, will be convertible into shares of the Company's common stock at an initial conversion price of $1.30 per share and will be entitled to a cash dividend of 12%. The Company may redeem all, but not less than all, of the Series D preferred stock for cash, at a price per share of Series D Preferred Stock equal to 125% of the stated value. The Series D preferred stock has no voting rights. As of June 30, 2022, the Company recorded $1.1 million of shares liability in its condensed balance sheet related to cash received for 1,058 shares of Series D preferred stock that were issued in July 2022.

In connection with the issuance of the 1,058 shares of Series D preferred stock, the Company issued 814,102 warrants to purchase shares of the Company's common stock with an exercise price of $1.30 per share.

Common Stock

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" included elsewhere in this report.

As an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay our adoption of such new or revised accounting standards. As a result of this election, our condensed financial statements may not be comparable to the condensed financial statements of other public companies.

Management's plans and basis of presentation:

The Company was incorporated in the State of Delaware on April 20, 2015. Effective January 14, 2016, the Company's name was changed to 3D Nanocolor Corp. ("3D Nanocolor") from 2D Nanocolor Corp. Subsequently, effective October 6, 2017, the Company's name was changed to Crown Electrokinetics Corp. from 3D Nanocolor Corp.

The Company is commercializing technology for smart or dynamic glass with its first product being the Smart Window Insert by DynamicTint. The Company's electrokinetic glass technology is an advancement on microfluidic technology that was originally developed by Hewlett-Packard Company.

On January 26, 2021, the Company completed its public offering, and its common stock began trading on the Nasdaq Capital Market (Nasdaq) under the symbol CRKN.

On January 22, 2021, the Company's Board of Directors authorized a reverse stock split at an exchange ratio of one (1) share of common stock for every three (3) shares of common stock. The reverse stock split was effective on January 25, 2021, such that every three (3) shares of common stock have been automatically converted into one (1) share of common stock. The Company will not issue fractional certificates for post-reverse split shares in connection with the reverse stock split. Rather, all shares of common stock that are held by a stockholder will be aggregated and each stockholder shall be entitled to receive the number of whole shares resulting from the combination of the shares so aggregated. Any fractions resulting from the reverse stock split computation shall be rounded up to the next whole share.

On January 26, 2021, the Company entered into an underwriting agreement relating to the Company's public offering of its common stock, par value $0.0001 per share. The Company agreed to sell 4,150,000 shares of its common stock to the underwriters, at a purchase price per share of $4.14 (the offering price to the public of $4.50 per share minus the underwriters' discount), pursuant to the Company's registration statement on Form S-1 (File No. 333-249833), as amended, under the Securities Act of 1933, as amended, and the related registration statement on Form S-1 (File No. 333-252418) that was filed by the Company under Rule 462(b) under the Securities Act. The Company has also granted the underwriters a 30-day option to purchase up to 622,500 additional shares of common stock to cover over-allotments. On January 28, 2021, the Company received net proceeds from its public offering of approximately $19.3 million, net of underwriter fees and commissions of approximately $1.7 million, and offering costs of $0.4 million.

Additionally, there were 251 shares of our Series A Preferred Stock issued and outstanding, 1,443 shares of our Series B Preferred Stock issued and 500,756 shares of our Series C Preferred Stock issued, with one shareholder of record of each such series of our preferred stock.

On July 19, 2022, the Company entered into an underwriting agreement relating to the Company's public offering of its common stock, par value $0.0001 per share. The Company agreed to sell 1,250,000 shares of its common stock to the underwriters, at a purchase price per share of $0.744 (the offering price to the public of $0.80 per share minus the underwriters' discount), pursuant to the Company's registration statement on Form S-3 (File No. 333-262122), under the Securities Act of 1933, as amended. The Company has also granted to the underwriters a 30-day option to purchase up to 187,500 additional shares of common stock to cover over-allotments. On July 22, 2022, the Company received net proceeds of approximately $0.86 million, net of underwriter fees and commissions of approximately $0.07 million, and offering costs of $0.08 million.

Crown's Research & Development Operation currently occupies 1,700 square feet of space, located on the HP Inc. campus in Corvallis, Oregon in the Advanced Technology and Manufacturing Institute (ATAMI). ATAMI is an academic-industrial research center and business incubator designed to provide an advanced materials development environment to private sector partner tenants performing research and development. The facility includes access to shared state-of-the-art tooling capabilities. ATAMI has grown to 80,000 square feet since its inception in 2004.

On March 4, 2021, the Company entered into a standard office lease with Hudson 11601 Wilshire, LLC, to lease 3,500 square feet of office space located at 11601 Wilshire Boulevard, Los Angeles, California 90025. The base monthly rent for the first year of the lease is $18,375 per month, which increases to $19,018.13 per month for the second year, $19,683.76 for the third year and $20,372.69 for the final three months of the lease. The lease expires on June 30, 2024. We believe that our facilities are adequate to meet our needs for the immediate future and that, should it be needed, we will be able to secure additional space to accommodate the expansion of our operations. This office space, along with ATAMI, offers Crown all the space requirements it needs for the foreseeable future.

On March 25, 2022, Crown executed a Master Supply Agreement (the "BDN MSA") with Brandywine Operating Partnerships L.P. to install its Smart Window Inserts powered by DynamicTintTM in Brandywine office buildings. The BDN MSA provides the master terms and conditions under which purchase orders will be executed for Crown to supply units to retrofit windows at certain locations.

On December 27, 2021, Crown executed a Master Supply Agreement (the "HPP MSA") with Hudson Pacific Properties L.P. for the installation of Crown's energy saving Smart Window Inserts in several office properties across its West Coast portfolio. The HPP MSA provides the master terms and conditions under which purchase orders will be executed for Crown to supply units to retrofit windows at certain locations.

Prior to this, on September 27, 2021, Crown had entered into a Master Supply Agreement with MetroSpaces Inc., Crown's first commercial customer, install its Smart Window Inserts in MetroSpaces' 70,000 square-foot Houston, Texas office building.

In the future, Crown and each of these customers may enter into multiple specific transactions by executing purchase orders for additional buildings.

Additionally, discussions with multiple other building owners to buy Crown Smart Window Inserts are progressing as the regulatory and consumer pressure to reduce the level of energy consumption and carbon emissions, continues to build.

Results of Operations for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 (in thousands):

	Three months ended June 30,
	2022			2021
Research and development	$	(1,473	)		$	(435	)
Selling, general and administrative		(3,002	)			(4,961	)
Other (income)/expense		(2	)			(2	)
Net loss	$	(4,477	)		$	(5,398	)

Research and Development

Research and development expenses were $1.5 million for the three months ended June 30, 2022 compared to $0.4 million for the three months ended June 30, 2021. The increase of $1.0 million is primarily related to stock-based compensation, and the salaries and benefits of the additional manufacturing employees Crown has employed.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses were $3.0 million and $5.0 million for the three months ended June 30, 2022 and 2021, respectively. The $2.0 million decrease in SG&A expenses is primarily due to a decrease in stock-based compensation of $1.5 million, a decrease of salaries of $0.5 million, a decrease of professional fees of $0.2 million, offset by an increase of rent expense of $0.1 million, and an increase of other SG&A expenses $0.1million.

Other (Income) Expense

Other (income) expense was immaterial for the three months ended June 30, 2022 and 2021.

Results of Operations for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 (in thousands):

	Six months ended June 30,
	2022		2021
Research and development	$	2,568		$	1,340
Selling, general and administrative		6,474			9,318
Other (income)/expense		5			15,413
Net loss	$	9,047		$	26,071

Research and Development

Research and development expenses were $2.6 million for the six months ended June 30, 2022 compared to $1.3 million for the six months ended June 30, 2021. The increase of $1.3 million is primarily related to additional stock-based compensation expense granted to new manufacturing employees.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses were $6.5 million and $9.3 million for the six months ended June 30, 2022 and 2021, respectively. The $2.8 million decrease in SG&A expenses is primarily due to decrease in stock-based compensation of $3.4 million, a decrease in salaries and benefits of $0.2 million, offset by an increase of depreciation and amortization of $0.1 million, an increase in rent of $0.3 million, an increase of taxes of $0.1 million and an increase of travel expense of $0.2 million.

Other (Income) Expense

Other (income) expense was immaterial for the six months ended June 30, 2022. Other expense for the six months ended June 30, 2021 was $15.4 million, which consisted of a loss on extinguishment of debt of $13.8 million, interest expense recognized in connection with our convertible notes of $0.5 million, the change in fair value of our warrant liability of $1.0 million, and the change in fair value of our derivative liability of $0.1 million.

Liquidity

	Six months ended June 30,
	2022			2021
Cash and cash equivalents at the beginning of the period	$	6,130			$	36
Net cash used in operating activities		(5,943	)			(5,639	)
Net cash used in investing activities		(319	)			(1,637	)
Net cash provided by financing activities		1,116				19,718
Cash and cash equivalents at the end of the period	$	984			$	12,478

The Company had an accumulated deficit of approximately $82.7 million, and a net loss of $9.0 million, and used approximately $5.9 million in net cash in operating activities for the six months ended June 30, 2022. The Company expects to continue to incur ongoing administrative and other expenses, including public company expenses.

On March 23, 2022, the Company entered into an Irrevocable $10 million Standby Letter of Credit ("SLOC"). The SLOC accrues interest at a rate of 12% per annum and matures 2 years from the issuance date of the SLOC. Interest is payable quarterly. In connection with the SLOC, the Company issued a warrant for 200,000 shares of common stock with an exercise price of $2. Additionally, the Company will issue 50,000 shares of its restricted common stock with each cash draw of $1.0 million. Drawdowns are capped at a maximum of $5 million in the first six months. The Company intends to sign and drawdown on the available funds as necessary in 2022 and 2023.

Cash Flows

Operating Activities

For the six months ended June 30, 2022, net cash used in operating activities was $5.9 million, which primarily consisted of our net loss of $9.0 million, adjusted for non-cash expenses of $3.1 million which primarily consisted of stock-based compensation expenses totaling $2.5 million, and depreciation and amortization of $0.2 million, The net change in operating assets and liabilities was $0.05 million, primarily consisting of an increase in accounts payable of $0.4 million, offset by decreases in accrued expenses of $0.2 million and our lease liability of $0.15 million.

For the six months ended June 30, 2021, net cash used in operating activities was $5.6 million, which primarily consisted of our net loss of $26.1 million, adjusted for non-cash expenses of $21.5 million which primarily consisted of a loss on extinguishment of debt of $13.8 million, stock-based compensation expenses totaling $6.0 million, depreciation and amortization of $0.1 million, a change in our warrant liability of $1.0 million, amortization of debt discount of $0.5 million in connection with our convertible notes, and the change in fair value of our derivative liability of $0.1 million. The net change in operating assets and liabilities was $1.1 million and was primarily due to decreases in accounts payable and accrued expenses.

Investing Activities

For the six months ended June 30, 2022, net cash used in investing activities was approximately $0.3 million

For the six months ended June 30, 2021, net cash used in investing activities was approximately $1.6 million, consisting of $1.5 million for the purchase of our HP patents and $0.1 million for the purchase of equipment.

Financing Activities

For the six months ended June 30, 2022, net cash provided by financing activities was $1.1 million, related to the proceeds from a deposit for the Series D preferred stock (Share liabilities).

For the six months ended June 30, 2021, net cash provided by financing activities was $19.7 million, consisting of $19.3 million for the issuance of common stock, $0.2 million received from the exercise of common stock warrants, and $0.2 million of proceeds received from our PPP loan.

Off-balance sheet arrangements

We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have any off-balance sheet arrangements, as defined in the SEC rules and regulations.

Revenue Recognition

We adopted the new revenue standard, ASC 606, on March 31, 2019 using the full retrospective approach. The adoption did not have an effect on 2020 or 2019 revenue recognition or a cumulative effect on opening equity, as the timing and measurement of revenue recognition is materially the same as under ASC 605. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

●

Step 1: Identify the contract with the customer

●

Step 2: Identify the performance obligations in the contract

●

Step 3: Determine the transaction price

●

Step 4: Allocate the transaction price to the performance obligations in the contract

●

Step 5: Recognize revenue when the company satisfies a performance obligation

For contracts where the period between when we transfer a promised good or service to the customer and when the customer pays is one year or less, we have elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component.

Our performance obligation is to provide a development service that enhances an asset that the customer controls. We receive upfront payments in advance of providing services and payment upon reaching milestones.

We are not able to reasonably measure the outcome of our performance obligations that are satisfied over time because we are in the early stages of the contracts. Therefore, the amount of performance that will be required in our contracts cannot be reliably estimated and we recognize revenue up to the amount of costs incurred.

No revenue was recognized by the Company during the six months ended June 30, 2022 and 2021.

Stock-based compensation

We measure and recognize compensation expense for all options based on the estimated fair value of the award on the grant date. We use the Black-Scholes option-pricing model to estimate the fair value of option awards. The fair value is recognized as expense on a straight-line basis over the requisite service period. We account for forfeitures as they occur. We recognize expense for awards where vesting is subject to a market or performance condition based on the derived service period. Expense for awards with performance conditions would be estimated and adjusted on a quarterly basis based upon our assessment of the probability that the performance condition will be met.

The determination of the grant date fair value of options using an option pricing model is affected principally by our estimated fair value of shares of our common stock and requires management to make a number of other assumptions, including the expected life of the option, the volatility of the underlying shares, the risk-free interest rate and expected dividends. The assumptions used in our Black-Scholes option-pricing model represent management's best estimates at the time of measurement. These estimates are complex, involve a number of variables, uncertainties and assumptions and the application of management's judgment, as they are inherently subjective. If any assumptions change, our stock-based compensation expense could be materially different in the future.

These assumptions are estimated as follows:

●

Expected Term. The expected term of options represents the period that our stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term. The simplified method was used because we do not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term.

●

Expected Volatility. We historically have lacked company-specific historical and implied volatility information. Therefore, we estimate our expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded stock price.

●

Risk-Free Interest Rate. We base the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.

●

Expected Dividend Yield. We have never declared or paid any cash dividends on our common shares and do not plan to pay cash dividends in the foreseeable future, and, therefore, we use an expected dividend yield of zero in our valuation models.

We account for forfeited awards as they occur.

Fair Value of Common Stock

Historically, the fair values of the shares of common stock underlying our options were estimated on each grant date by our board of directors. In order to determine the fair value, our board of directors considered, among other things, contemporaneous valuations of our common stock and preferred stock prepared by unrelated third-party valuation firms in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held- Company Equity Securities Issued as Compensation, or the Practice Aid. Given the absence of a public trading market of our capital stock, our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including:

●

contemporaneous third-party valuations of our common stock;

●

the prices, rights, preferences and privileges of our preferred stock relative to our common stock;

●

our business, financial condition and results of operations, including related industry trends affecting our operations;

●

the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company, given prevailing market conditions;

●

the lack of marketability of our common stock;

●

the market performance of comparable publicly traded companies; and

●

U.S. and global economic and capital market conditions and outlook.

Critical accounting policies and significant judgments and estimates

Our condensed financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our condensed financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. Our most critical accounting policies are summarized below. See Note 3 to our condensed financial statements for a description of our other significant accounting policies.

Recent accounting pronouncements

See Note 3 to our condensed financial statements for a description of recent accounting pronouncements applicable to our condensed financial statements.

JOBS Act Transition Period

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for a Smaller Reporting Company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.

The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

With respect to the quarter ended June 30, 2022, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures are effective.

Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

Changes in Internal Control over Financial Reporting:

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2022 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are also involved in various other claims and legal actions that arise in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity or capital resources.

Future litigation may be necessary to defend ourselves and our partners by determining the scope, enforceability and validity of third party proprietary rights or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Other than those previously disclosed by the Company in its current reports on Form 8-K as filed with the SEC, there have been no unregistered sales of the Company's equity securities during the period covered by this Quarterly Report.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

N/A

Item 5. Other Information

N/A

Item 6. Exhibits

31.1		Certification of the Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certifications of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

	Crown Electrokinetics Corp.

Dated: August 15, 2022	/s/ Doug Croxall
	Doug Croxall
	Chief Executive Officer and
	Principal Executive Officer

Dated: August 15, 2022	/s/ Joel Krutz
	Joel Krutz
	Chief Financial Officer and
	Principal Financial Officer

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