The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the 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.

Management's plans and basis of presentation:

Crown Electrokinetics Corp. (the "Company" "we", "our", or "us"), 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").

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 Hewlett-Packard Company.

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 and now offers Crown all the space requirements it needs for the foreseeable future.

On November 15, 2017, the Company entered into a license agreement with Asahi Glass Co., Ltd. ("Asahi"). The Asahi agreement provides that the Company will provide samples to be used by Asahi for the sole purpose of determining the feasibility of integrating the Company's film technology in Asahi's auto and train glass products. The Company began performing development activities in April of 2018. On February 1, 2019, the Company and Asahi entered into a new license agreement, terminating the prior agreement. Under such new license agreement, the Company will provide samples to be used by Asahi to evaluate the appearance of and measure optical properties of the Company's film technology. At Asahi's option, the Company will provide additional samples to be used by Asahi to measure the durability of such sample for the purpose of determining the feasibility of integrating the Company's film technology in Asahi's auto and train glass products. The performance related to the new agreement is a continuation of the work being performed as of April 2018. On November 14, 2019, the Company entered into a new agreement with Asahi, which terminates the February 1, 2019 agreement as of June 16, 2019, (the "Effective Date") of the new agreement. Under the terms of the new agreement, Asahi will pay the Company $0.1 million within 60 days of the Effective Date. On December 10, 2019, the Company received the $0.1 million payment from Asahi and the Company delivered three pieces of updated samples to Asahi on September 28, 2020.

On August 23, 2017, the Company entered into a collaborative agreement with Eastman Chemical Company ("Eastman"). The Eastman agreement provides that the Company and Eastman will jointly develop electrokinetic films and determine their suitability for commercial use in applied films and interlayers for automobile windows. The Company and Eastman will be exchanging Intellectual Property ("IP") for the development of the films. The Company began performing development activities in April of 2018.





Results of Operations for the three months ended June 30, 2020 and 2019
(income):



                                            Three Months Ended
                                                 June 30,
                                          2020              2019
Revenue                               $           -     $          -
Cost of revenue                                   -         (153,500 )
Research and development                 (1,372,522 )       (320,371 )
Selling, general and administrative      (7,937,557 )     (1,375,908 )
Other expense                            (1,151,951 )       (375,471 )
Net Loss                              $ (10,462,030 )   $ (2,225,250 )




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Revenue

The Company did not recognize revenue for the three months ended June 30, 2020 and 2019. We are not able to estimate the total amount of development service under an efforts-based perspective and, therefore, the amount of performance that will be required in our contracts cannot be reliably estimated under the proportional performance revenue recognition model. Accordingly, we recognize revenue up to the amount of costs incurred.





Cost of Revenue

There was no cost of revenue recognized during the three months ended June 30, 2020. The cost of revenue for the three months ended June 30, 2019, was approximately $154,000 million and consists of approximately $125,000 related to the costs incurred with respect to our contract with Eastman and approximately $30,000 with respect to our contract with Asahi.





Research and Development

Research and development expenses were $1.4 million for the three months ended June 30, 2020 compared to $0.3 million for the three months ended June 30, 2019. The increase of $1.1 million is primarily related to stock-based compensation expenses recognized for stock options granted to our employees and officers during the three months ended June 30, 2020.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses were $7.9 million and $1.4 million for the three months ended June 30, 2020 and 2019, respectively. The $6.5 million increase in SG&A expenses is primarily attributable to stock-based compensation of $3.6 million recognized with the issuance of 4,000,000 shares of restricted stock to our chief executive officer, and $2.7 million of stock-based compensation related to stock options granted to our employees and officers during the three months ended June 30, 2020.





Other Expense

Other expense was approximately $1.1 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively. The $0.7 million increase is primarily due to increased interest expense related to our convertible notes.





Liquidity



Going Concern

We have incurred substantial operating losses since our inception, and we expect to continue to incur significant operating losses for the foreseeable future, and may never become profitable. We had an accumulated deficit of approximately $26.9 million at June 30, 2020, a net loss of approximately $10.5 million, and approximately $1.3 million of net cash used in operating activities for the three months ended June 30, 2020.

We anticipate incurring additional losses until such time, if ever, that we can obtain marketing approval to sell, and then generate significant sales, of our technology that is currently in development. Substantial additional financing will be needed by the Company to fund our operations and to develop and commercialize our technology. These factors raise substantial doubt about the Company's ability to continue as a going concern.

We will seek to obtain additional capital through the sale of debt or equity financings or other arrangements to fund operations; however, there can be no assurance that we will be able to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued. Due to the uncertainty in the Company's ability to raise capital, we believe that there is substantial doubt in our ability to continue as a going concern for twelve months from the date of issuance of the financial statements.





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Cash Flows



                                                                   Three Months Ended
                                                                        June 30,
                                                                   2020            2019

Cash and cash equivalents at the beginning of the period $ 48,307 $ 99,447 Net cash used in operating activities

                            (1,286,656 )     (692,397 )
Net cash used in investing activities                                     -        (26,603 )
Net cash provided by financing activities                         1,830,200        620,000
Cash and cash equivalents at the end of the period             $    591,851     $      447




Operating Activities

For the three months ended June 30, 2020, net cash used in operating activities was $1.3 million, which primarily consisted of our net loss of $10.5 million, adjusted for non-cash expenses of $9.3 million including, $8.4 million of stock-based compensation expenses and $1.1 million of amortization related to the debt discount recognized for our convertible notes payable, offset by $0.1 million for the change in fair value of our warrant liability. The net change in operating assets and liabilities was $0.2 million and was primarily due to increases in accounts payable and accrued expenses totaling $0.3 million, offset by a $0.1 million decrease in accrued interest related to our convertible notes.

For the three months ended June 30, 2019, net cash used in operating activities was $0.7 million, which primarily consisted of our net loss of $2.2 million, adjusted for non-cash expenses of $1.4 million including, $1.1 million of stock-based compensation expenses, $0.4 million of amortization related to the debt discount recognized for our convertible notes payable, off-set by $0.1 million for the change in fair value of our warrant liability. The net change in operating assets and liabilities was $0.1 million and primarily due to the increase in accrued interest related to our convertible notes.





Investing Activities

There were no investing activities during the three months ended June 30, 2020.

For the three months ended June 30, 2019, net cash used in investing activities was approximately $27,000, related to the purchase of computer equipment and computer software.





Financing Activities

For the three months ended June 30, 2020, net cash provided by financing activities was $1.8 million. The net cash provided is primarily related to $2.1 million of proceeds received from the issuance of our senior secured convertible notes and the related stock warrants, and $0.2 million of proceeds received from our PPP loan, offset by $0.2 million for the repurchase of shares of our common stock and $0.2 million for the repayment of our senior secured promissory note.

For the three months ended June 30, 2019, net cash provided by financing activities was $0.6 million. The net cash provided is primarily related to $0.6 million of proceeds received from the issuance of our senior secured convertible notes and the related stock warrants.

Critical accounting policies and significant judgments and estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our 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 financial statements.





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JOBS Act Transition Period

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 financial statements may not be comparable to the financial statements of other public companies.

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