UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington, D.C.
20549
  FORM
10-QSB
  [X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
  For the
quarterly period ended March 31, 2008
  Or
  [
 ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
 EXCHANGE
ACT OF 1934
  For the
transition period from _____________ __, ____ to _____________ __,
____
  Commission
File Number: 000-30191
  KRONOS
ADVANCED TECHNOLOGIES, INC.
  (Exact
name of registrant as specified in its charter)
  Nevada
                  (State
      or other jurisdiction ofincorporation
      or organization)
                87-0440410
                  (I.R.S.
      Employer Identification No.)
  464
Common Street, Suite 301, Belmont, MA 02478
 (Address
of principal executive offices) (Zip Code)
  (617)
364-5089
 (Registrant's
telephone number, including area code)
  (Former
name, former address and former fiscal year,
 if
changed since last report)
  Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act 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.
  [X] Yes
[_] No
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
  [_] Yes
[X] No
  As of May
12, 2008, there were 487,626,791 shares outstanding of the issuer's common
stock.
  
 
 PART
I
  FINANCIAL
INFORMATION
  ITEM
1. FINANCIAL STATEMENTS
  The
following comprise our (unaudited) consolidated financial statements for the
nine months ended March 31, 2008.
  
 2
 
 KRONOS
ADVANCED TECHNOLOGIES, INC.
 CONSOLIDATED
BALANCE SHEETS
  March
      31,2008
                
                
                June
      30,(Unaudited)
                
                
                2007AssetsCurrent
      AssetsCash
                
                $
                3,579,377
                
                
                $
                363,955Accounts
      Receivable
                
                
                10,000
                
                
                
                5,027Other
      Current Assets
                
                
                12,138
                
                
                
                12,138Total
      Current Assets
                
                
                3,601,515
                
                
                
                381,120Net
      Property and Equipment
                
                
                8,083
                
                
                
                6,548Intangibles
                
                
                1,450,433
                
                
                
                1,723,150Total
      Assets
                
                $
                5,060,031
                
                
                $
                2,110,818Liabilities
      and Stockholders' EquityCurrent
      LiabilitiesAccounts
      payable
                
                $
                277,894
                
                
                $
                359,019Accrued
      interest expenses
                
                
                423,802
                
                
                
                21,303Accrued
      expenses
                
                
                83,893
                
                
                
                125,000Deferred
      revenue
                
                
                230,769
                
                
                
                -Notes
      payable, current portion
                
                
                1,487,000
                
                
                
                859,000Notes
      payable to directors and officers
                
                
                171,981
                
                
                
                225,006Total
      Current Liabilities
                
                
                2,675,339
                
                
                
                1,589,328Long
      Term LiabilitiesNotes
      payable
                
                
                4,773,559
                
                
                
                3,600,000Discount
      for Beneficial Conversion Feature
                
                
                (3,774,760
                )
                
                
                (3,365,845
                )Total
      Long Term Liabilities
                
                
                998,799
                
                
                
                234,155Total
      Liabilities
                
                
                3,674,138
                
                
                
                1,823,483Stockholders'
      Equity(Common
      stock, authorized 500,000,000 shares of $0.001 par value; Issued and
      outstanding - 487,626,691 and 242,342,803, respectively)
                
                
                487,627
                
                
                
                242,343Capital
      in excess of par value
                
                
                36,705,794
                
                
                
                33,513,598Accumulated
      deficit
                
                
                (35,807,528
                )
                
                
                (33,468,606
                )Total
      Stockholders' Equity
                
                
                1,385,893
                
                
                
                287,335Total
      Liabilities and Stockholders' Equity
                
                $
                5,060,031
                
                
                $
                2,110,818
 
 The
accompanying notes are an integral part of these financial
statements.
  3
 KRONOS ADVANCED TECHNOLOGIES,
INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 Three
      months ended March 31,
                
                
                Nine
      months ended March 31,2008
                
                
                2007
                
                
                2008
                
                
                2007(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Revenues
                
                $
                3,279,231
                
                
                $
                34,902
                
                
                $
                3,598,286
                
                
                $
                156,384Cost
      of revenues
                
                
                257,797
                
                
                
                1,754
                
                
                
                401,469
                
                
                
                93,373Gross
      Profit
                
                
                3,021,433
                
                
                
                33,138
                
                
                
                3,196,817
                
                
                
                63,011Selling,
      General and Administrative expensesCompensation
      and benefits
                
                
                588,135
                
                
                
                379,314
                
                
                
                1,705,987
                
                
                
                1,092,306(includes
      equity compensation of $541,444 and $148,394 for the nine months ended
      March 31, 2008 and 2007, respectively)Research
      and development
                
                
                106,654
                
                
                
                3,104
                
                
                
                228,447
                
                
                
                38,101Professional
      services
                
                
                191,905
                
                
                
                79,380
                
                
                
                552,066
                
                
                
                264,483Depreciation
      and amortization
                
                
                109,940
                
                
                
                108,632
                
                
                
                329,274
                
                
                
                336,322Insurance
                
                
                63,157
                
                
                
                18,272
                
                
                
                122,691
                
                
                
                112,819Facilities
                
                
                30,160
                
                
                
                28,975
                
                
                
                90,481
                
                
                
                70,538Other
                
                
                95,993
                
                
                
                114,410
                
                
                
                312,013
                
                
                
                387,855Selling,
      General and Administrative expenses
                
                
                1,185,944
                
                
                
                732,086
                
                
                
                3,340,959
                
                
                
                2,302,423Net
      Operating Gain (Loss)
                
                
                1,835,490
                
                
                
                (698,938
                )
                
                
                (144,142
                )
                
                
                (2,239,412
                )Accreation
      of Note
                
                
                (523,581
                )
                
                
                -
                
                
                
                (1,696,085
                )
                
                
                -Interest
      Expense
                
                
                (179,784
                )
                
                
                (87,981
                )
                
                
                (498,694
                )
                
                
                (261,936
                )Net
      Gain (Loss)
                
                $
                1,132,125
                
                
                $
                (786,919
                )
                
                $
                (2,338,921
                )
                
                $
                (2,501,349
                )Net
      Gain (Loss) Per Share-
      Basic and diluted
                
                $
                0.00
                
                
                $
                (0.00
                )
                
                $
                (0.01
                )
                
                $
                (0.01
                )Weighted
      average shares outstanding-
      Basic and diluted
                
                
                487,626,691
                
                
                
                226,619,118
                
                
                
                325,658,791
                
                
                
                185,967,097
 
  The
accompanying notes are an integral part of these financial
statements.
  4
  KRONOS ADVANCED TECHNOLOGIES,
INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 For
      the nine months ended March 31,2008
                
                
                2007(Unaudited)
                
                
                (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss from operations
                
                $
                (2,338,921
                )
                
                $
                (2,501,349
                )Adjustments
      to reconcile net loss to net cash used in operations:Accreation
      of note discount
                
                
                1,696,084
                
                
                
                -Stock
      options granted for compensation/services
                
                
                577,513
                
                
                
                240,942Depreciation
      and amortization
                
                
                329,274
                
                
                
                336,322Change
      provided (used) in:Accounts
      receivable
                
                
                (4,973
                )
                
                
                9,067Prepaid
      expenses and other assets
                
                
                -
                
                
                
                26,232Transfer
      of patents
                
                
                257,797
                
                
                
                -Deferred
      revenue
                
                
                230,769
                
                
                
                (20,000
                )Accounts
      payable
                
                
                (81,125
                )
                
                
                240,515Accrued
      expenses and other liabilities
                
                
                344,100
                
                
                
                108,205Net
      cash Provided (Used) in Operations
                
                
                1,010,518
                
                
                
                (1,560,067
                )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      on property & equipment
                
                
                (5,396
                )
                
                
                (2,194
                )Investment
      in patent protection
                
                
                (310,488
                )
                
                
                (83,087
                )Net
      cash Used in Investing Activities
                
                
                (315,884
                )
                
                
                (85,281
                )CASH
      FLOWS FROM FINANCING ACTIVITIESIssuance
      of common stock
                
                
                754,967
                
                
                
                1,379,938Proceeds
      from short-term borrowings
                
                
                628,000
                
                
                
                -Repayments
      of short-term borrowings
                
                
                (35,739
                )
                
                
                130,476Proceeds
      from long-term borrowings
                
                
                1,905,000
                
                
                
                (438,237
                )Repayments
      of long term debt
                
                
                (731,440
                )
                
                
                -Net
      cash Provided by Financing Activities
                
                
                2,520,788
                
                
                
                1,072,217NET
      INCREASE (DECREASE) IN CASH
                
                
                3,215,422
                
                
                
                (573,170
                )CASHBeginning
      of period
                
                
                363,954
                
                
                
                598,323End
      of period
                
                $
                3,579,376
                
                
                $
                25,153Supplemental
      schedule of non-cash investing and financing activities:Interest
      paid in cash
                
                $
                59,573
                
                
                $
                194,000Accounts
      payable/accrued expenses converted to notes payable
                
                $
                731,440
                
                
                $
                130,476
  The
accompanying notes are an integral part of these financial
statements.
  5
 
 KRONOS
ADVANCED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 (UNAUDITED)
  NOTE
1 - ORGANIZATION AND NATURE OF OPERATIONS
  Kronos
Advanced Technologies, Inc. ("Kronos" or the "Company") is a Nevada corporation.
The Company's shares began trading on the over-the-counter bulletin board
exchange on August 28, 1996 under the symbol "TSET." Effective January 12, 2002,
the Company began doing business as Kronos Advanced Technologies, Inc. and, as
of January 18, 2002, it changed the Company ticker symbol to "KNOS." On March
31, 2008, AirWorks Funding LLLP ("AirWorks") and Hilltop Holding Company, LP
("Hilltop") converted $731,440 of their Secured Convertible Promissory Notes
into 243,813,400 shares of Kronos common stock resulting in a change of control
of Kronos (refer to Note 9 - Commitments and Contingencies).
  NOTE
2 - BASIS OF PRESENTATION
  The
accompanying unaudited consolidated financial statements of Kronos have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary to
present fairly the information set forth therein have been included. Operating
results for the three and nine months ended March 31, 2008 are not necessarily
indicative of the results that may be experienced for the fiscal year ending
June 30, 2008.
  These
consolidated financial statements are those of the Company and its wholly-owned
subsidiary. All significant inter-company accounts and transactions have been
eliminated in the preparation of the consolidated financial
statements.
  The
accompanying consolidated financial statements should be read in conjunction
with the Kronos Advanced Technologies, Inc. Form 10-KSB for the fiscal year
ended June 30, 2007, which was filed on September 28, 2007.
  NOTE
3 - REALIZATION OF ASSETS AND GOING CONCERN
  The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. The Company
has sustained losses from operations in recent years, and such losses have
continued through the year ended June 30, 2007. Prior to the nine months ended
March 31, 2008, the Company had used more cash than that provided from cash in
its operations. The Company is currently using its resources to commercialize
its technology and develop viable commercial products, and to provide for its
working capital needs.
  In view
of the matters described in the preceding paragraph, recoverability of a major
portion of the asset amounts shown in the accompanying balance sheet is
dependent upon continued operations of the Company, which in turn is dependent
upon the Company's ability to meet its financing requirements on a continuing
basis and to succeed in its future operations. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue in
existence.
  Management
has taken the following steps with respect to its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue in existence:
  Tessera. In March 2008,
Kronos executed an Intellectual Property Transfer and License Agreement with
Tessera Technologies, Inc. (“Tessera”) for the transfer and license of certain
intellectual property (“IP”) rights related to Kronos proprietary technologies
to Tessera.  Kronos received $3.5 million from Tessera in exchange for
the transfer of select Kronos patents covering micro-cooling applications and
for an exclusive license to the Kronos technology for ionic micro-cooling of
integrated circuit devices or discrete electrical components. Kronos retained
the rights to use these patents for all applications outside of the field of
micro-cooling. Tessera further has the right to acquire additional Kronos IP
relating to micro-cooling applications for four quarterly payments of $0.5
million each beginning in July 1, 2008.
  Washington Technology Center.
In June 2007, the Washington Technology Center awarded the Company, in
conjunction with the University of Washington and Intel Corporation, continued
funding for a research and development project based on a novel cooling system
for microelectronics and computer chips. This Phase III award follows the
Company's Phase 1 and Phase II awards in December 2005 and June 2006,
respectively.
  6
 Retailer.In October 2007,
Kronos executed a Letter of Intent for the development, manufacture and sale of
air purification devices based upon Kronos' proprietary air movement and
purification technology with a leading national retailer. It is expected that
Kronos and the retailer would enter into a definitive purchase and supply
agreement providing for the exclusive sale of private label residential
standalone air purifiers through the retailer's distribution channels. Actual
purchases of the products are dependent on the successful development of the
product, the negotiation of a definitive purchase and supply agreement
incorporating the terms of the letter of intent, other usual and customary terms
and the retailers' discretion. Under the terms of the Letter of Intent, the
retailer has paid Kronos $250,000 towards the development costs of the new
products and will contribute marketing resources to assist in the product
development process. The intent of the parties is for Kronos to lead and manage
all development, production and manufacturing activities for the Kronos air
purifier and for the retailer to actively market the Kronos air purifier through
their distribution channels. In December 2007, Kronos completed design and
developed of an Alpha Prototype for the customer. In January 2008, the parties
initiated negotiations of a definitive Product Development and Purchase
Agreement. In February 2008, the retailer filed for bankruptcy, which could
negatively impact the Company’s ability to finalize a definitive agreement and
receive additional funds from the retailer. In March 2008, Kronos’ contract
manufacturing partner completed development of a Beta
Prototype.  During the nine months ended March 31, 2008, Kronos
received $250,000 in product development fees.
  EOL. In December 2005, Kronos
executed a non-exclusive License Agreement with EOL LLC, a Russian Federation
corporation ("EOL"), based in Korolev, Moscow Region. EOL is leveraging the
Kronos technology to produce, market, and distribute Kronos commercial air
purification products, bacteriological and virus destruction devices in select
Commonwealth of Independent States. The agreement comes after successful
completion of multiple tests in Eastern Europe, which found the Kronos
technology capable of decontaminating rooms infected with airborne viruses and
bacteria. Under the terms of the five-year agreement, EOL is providing Kronos a
fixed percentage royalty on every product sold, as well as upfront licensing and
quarterly maintenance fees. The initial medical products are currently being
marketed in Russia and Ukraine and marketing plans are being put in place in,
Kazakhstan, Moldova and Byelorussia. During the fiscal year ended June 30, 2007,
Kronos earned $104,000 in revenue from the sale of power supplies, other
electrical components and engineering services and from the royalty from the
sale of finished products by EOL. During the nine months ended March 31, 2008,
Kronos earned $45,000 in licensing fees.
  Global Appliance
Manufacturers. In October 2006, a leading global home appliance
manufacturer committed to fund 20% of the cost for Kronos to manufacturer a
silent kitchen range hood product. This next generation range hood device
represented the culmination of more than twelve months of product design and
development effort by Kronos to apply our technology to this unique embedded
residential application. The product was shipped to the customer in October
2006. In January 2007, the prototype design was modified based on customer input
and a revised unit was shipped to the customer. In addition to financial
support, the customer has also provided Kronos with product components for
Kronos testing and evaluation. In February 2007, a second global appliance
manufacturer committed to purchase additional prototypes from Kronos. During the
fiscal year ended June 30, 2007, Kronos earned $37,000 in revenue from the
development of prototype devices for the residential range hood market place. In
October 2007, Kronos shipped the additional prototypes to the customer for
testing and evaluation. During the nine months ended March 31, 2008, Kronos
earned $34,000 in product development fees.
  NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Accounting Method.The
Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a June 30 fiscal year
end.
  Principles of Consolidation.The consolidated financial statements of the Company include those of the
Company and its subsidiary for the periods in which the subsidiary was owned by
the Company. All significant intercompany accounts and transactions have been
eliminated in the preparation of the consolidated financial statements. At March
31, 2008, the Company had only one subsidiary, Kronos Air Technologies,
Inc.
  Use of Estimates.The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America 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 dates of the financial statements and the reported amounts of revenues and
expenses during the periods. Actual results could differ from those
estimates.
  Concentrations of Credit Risk.Financial instruments which can potentially subject the Company to
concentrations of credit risk consist principally of trade account receivables.
The Company manages its exposure to risk through ongoing credit evaluations of
its customers and generally does not require collateral. The Company maintains
an allowance for doubtful accounts for potential losses and does not believe it
is exposed to concentrations of credit risk that are likely to have a material
adverse impact on the Company's financial position or results of
operations.
  Cash and Cash Equivalents.The Company considers all highly liquid short-term investments, with a
remaining maturity when purchased of three months or less, to be cash
equivalents. The Company maintains cash and cash equivalents with high-credit,
quality financial institutions. At March 31, 2008 the cash balances held at
financial institutions were in excess of federally insured limits.
  Accounts Receivable.The
Company provides an allowance for potential losses, if necessary, on trade
accounts receivables based on a review of the current status of existing
receivables and management's evaluation of periodic aging of accounts. Accounts
receivable are shown net of allowances for doubtful accounts of $0 at March 31,
2008 and June 30, 2007. The Company charges off accounts receivable against the
allowance for losses when an account is deemed to be uncollectable.
  7
 Property and Equipment.
Property and equipment are recorded at cost. Depreciation is provided over the
estimated useful lives of the assets, which range from three to seven years.
Expenditures for major renewals and betterments that extend the original
estimated economic useful lives of the applicable assets are capitalized.
Expenditures for normal repairs and maintenance are charged to expense as
incurred. The cost and related accumulated depreciation of assets sold or
otherwise disposed of are removed from the accounts, and any gain or loss is
included in operations.
  Intangibles.The Company uses
assumptions in establishing the carrying value, fair value and estimated lives
of the Company's long-lived assets and goodwill. The criteria used for these
evaluations include management's estimate of the asset's continuing ability to
generate positive income from operations and positive cash flow in future
periods compared to the carrying value of the asset, the strategic significance
of any identifiable intangible asset in its business objectives, as well as the
market capitalization of the Company. Cash flow projections used for
recoverability and impairment analysis use the same key assumptions and are
consistent with projections used for internal budgeting, and for lenders and
other third parties. If assets are considered to be impaired, the impairment
recognized is the amount by which the carrying value of the assets exceeds the
fair value of the assets. Useful lives and related amortization or depreciation
expense are based on the Company's estimate of the period that the assets will
generate revenues or otherwise be used by Kronos. Factors that would influence
the likelihood of a material change in the Company's reported results include
significant changes in the asset's ability to generate positive cash flow, loss
of legal ownership or title to the asset, a significant decline in the economic
and competitive environment on which the asset depends, significant changes in
the Company's strategic business objectives, and utilization of the asset. The
Company capitalizes to Intangibles the legal cost and filings fees for securing
patents for the Company's proprietary technology.
  Income Taxes.Income taxes
are accounted for in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amounts expected to be realized, but no less than quarterly.
  Research and Development
Expenses. Costs related to research and development are charged to
research and development expense as incurred.
  Net Loss Per Share.Basic
loss per share is computed using the weighted average number of shares
outstanding. Diluted loss per share is computed using the weighted average
number of shares outstanding adjusted for the incremental shares attributed to
outstanding options and warrants to purchase common stock, when their effect is
dilutive.
  Revenue Recognition.The
Company recognizes revenue in accordance with Staff Accounting Bulletin (SAB)
104, which requires evidence of an agreement, delivery of the product or
services at a fixed or determinable price, and assurance of collection within a
reasonable period of time. Further, Kronos Air Technologies recognizes revenue
on the sale of the custom-designed contract sales under the
percentage-of-completion method of accounting in the ratio that costs incurred
to date bear to estimated total costs. For uncompleted contracts where costs and
estimated profits exceed billings, the net amount is included as an asset in the
balance sheet. For uncompleted contracts where billings exceed costs and
estimated profits, the net amount is included as a liability in the balance
sheet. Sales are reported net of applicable cash discounts and allowances for
returns.
  License Revenue.
Nonrefundable, up-front perpetual license fees with standalone value that are
not dependent on any future performance by the Company under the arrangements
are recognized as revenue upon the earlier of when payments are received or
collection is assured, but are deferred if we have continuing performance
obligations. Term license fees are recognized over the term of the
license.
  Stock, Options and Warrants Issued
for Services.Issuances of shares of the Company's stock to employees or
third-parties for compensation or services is valued using the closing market
price on the date of grant for employees and the date services are completed for
non-employees. Issuances of options and warrants of the Companies stock are
valued using the Black-Scholes option model.
  Stock Options.In December
2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123R,
Share-Based Payment ("SFAS No. 123R"). This statement is a revision of SFAS No.
123, Accounting for Stock-Based Compensation, and supersedes Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
its related implementation guidance. SFAS No. 123R focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123R requires entities to recognize
stock compensation expense for awards of equity instruments to employees based
on the grant-date fair value of those awards (with limited exceptions). Kronos
elected to implement the provisions of SFAS No. 123R in the fiscal year ended
June 30, 2005.
  8
 Recent
Accounting Pronouncements
  In
February 2007, the FASB issued FASB Statement No. 159 "The Fair Value Option for
Financial Assets and Financial Liabilities--Including an amendment of FASB
Statement No. 115." This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This statement is expected to expand the use of fair value
measurement, which is consistent with the FASB's long-term measurement
objectives for accounting for financial instruments. This statement applies to
all entities, including not-for-profit organizations. Most of the provisions of
this statement apply only to entities that elect the fair value option. However,
the amendment to FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities, applies to all entities with available-for-sale and
trading securities. Some requirements apply differently to entities that do not
report net income. Management believes this statement will have no impact on the
financial statements of the Company once adopted.
  In
December 2007, the FASB issued FASB Statement No. 141 (revised 2007), "Business
Combinations." This statement replaces FASB Statement No. 141, Business
Combinations. This statement retains the fundamental requirements in Statement
141 that the acquisition method of accounting (which Statement 141 called the
purchase method) be used for all business combinations and for an acquirer to be
identified for each business combination. This statement defines the acquirer as
the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. This statement's scope is broader than that of Statement 141,
which applied only to business combinations in which control was obtained by
transferring consideration. By applying the same method of accounting--the
acquisition method--to all transactions and other events in which one entity
obtains control over one or more other businesses, this statement improves the
comparability of the information about business combinations provided in
financial reports. This statement requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. This replaces Statement
141's cost-allocation process, which required the cost of an acquisition to be
allocated to the individual assets acquired and liabilities assumed based on
their estimated fair values. This statement applies to all transactions or other
events in which an entity (the acquirer) obtains control of one or more
businesses (the acquirer), including those sometimes referred to as "true
mergers" or "mergers of equals" and combinations achieved without the transfer
of consideration, for example, by contract alone or through the lapse of
minority veto rights. This statement applies to all business entities, including
mutual entities that previously used the pooling-of-interests method of
accounting for some business combinations. It does not apply to: (a) the
formation of a joint venture, (b) the acquisition of an asset or a group of
assets that does not constitute a business, (c) a combination between entities
or businesses under common control, or (d) a combination between not-for-profit
organizations or the acquisition of a for-profit business by a not-for-profit
organization. This statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. Management believes this statement will have no
impact on the financial statements of the Company once adopted.
  In
December 2007, the FASB issued FASB Statement No. 160, "Noncontrolling Interests
in Consolidated Financial Statements," which was an amendment of ARB No. 51.
This statement applies to all entities that prepare consolidated financial
statements, except not-for-profit organizations, but will affect only those
entities that have an outstanding noncontrolling interest in one or more
subsidiaries or that deconsolidate a subsidiary. This statement amends ARB 51 to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. Before this statement was issued, limited guidance existed
for reporting noncontrolling interests. As a result, considerable diversity in
practice existed. So-called minority interests were reported in the consolidated
statement of financial position as liabilities or in the mezzanine section
between liabilities and equity. This statement improves comparability by
eliminating that diversity. A noncontrolling interest, sometimes called a
minority interest, is the portion of equity in a subsidiary not attributable,
directly or indirectly, to a parent. The objective of this statement is to
improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards that require: (a)
the ownership interests in subsidiaries held by parties other than he parent be
clearly identified, labeled, and presented in the consolidated statement of
financial position within equity, but separate from the parent's equity, (b) the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the
consolidated statement of income, (c) changes in a parent's ownership interest
while the parent retains its controlling financial interest in its subsidiary be
accounted for consistently. A parent's ownership interest in a subsidiary
changes if the parent purchases additional ownership interests
in its subsidiary or if the parent sells some of its ownership interests in its
subsidiary. It also changes if the subsidiary reacquires some of its ownership
interests or the subsidiary issues additional ownership interests. All of those
transactions are economically similar, and this statement requires that they be
accounted for similarly, as equity transactions, (d) when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value. The gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any
noncontrolling equity investment rather than the carrying amount of that
retained investment, and (e) entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. This statement is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Earlier adoption is prohibited. This statement shall be
applied prospectively as of the beginning of the fiscal year in which this
statement is initially applied, except, for the presentation and disclosure
requirements. The presentation and disclosure requirements shall be applied
retrospectively for all periods presented. Management believes this statement
will have no impact on the financial statements of the Company once adopted.
Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future date
are not expected to have a material impact on the financial statements upon
adoption.
  9
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133,” which requires additional disclosures about the objectives of the
derivative instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations, and a
tabular disclosure of the effects of such instruments and related hedged items
on our financial position, financial performance, and cash flows. SFAS
No. 161 is effective for the Company beginning January 1, 2009.
Management believes that, for the foreseeable future, this Statement will have
no impact on the financial statements of the Company once adopted.
 
 NOTE
5 – TESSERA TRANSACTION
 
 On March
31, 2008, Kronos executed an Intellectual Property Transfer and License
Agreement with Tessera Technologies, Inc. (“Tessera”) for the transfer and
license of certain intellectual property (“IP”) rights related to Kronos
proprietary technologies to Tessera.  Kronos received an upfront and
nonrefundable fee of $3.5 million from Tessera in exchange for the transfer of
select Kronos patents covering micro-cooling applications, an exclusive license
to Kronos’ additional U.S. Patents and patents pending  and related
foreign patent applications for ionic micro-cooling of integrated circuit
devices or discrete electrical components (“Ionic Micro-cooling”); as well as a
twelve month term option license  to acquire additional Kronos’ U.S.
Patents and related foreign patents for Ionic Micro-cooling..  Tessera
further has the right to acquire this additional Kronos IP relating to
micro-cooling applications for $2 million payable in four quarterly payments of
$0.5 million each beginning in July 1, 2008. Kronos retained the rights to use
all its patents for all applications outside of the field of micro-cooling. Upon
the receipt of the $3.5 million from Tessera, Kronos recognized $3,269,231 as
revenue for the nonrefundable, up-front license and IP transfer granted to
Tessera and $230,769 as deferred revenue for term license granted to Tessera.
The deferred revenue will be recognized over the twelve month term of the
license.
  NOTE
6 -- INCOME TAXES
  The
composition of deferred tax assets and the related tax effects at March 31, 2008
and June 30, 2007 were as follows:
  March
      31, 2008(unaudited)
                
                
                June
      30, 2007Benefit
      from carryforward of capitaland
      net operating losses
                
                $
                (7,687,000
                )
                
                $
                (7,698,000
                )Other
      temporary differences
                
                
                (157,000
                )
                
                
                (157,000
                )Options
      issued for services
                
                
                (208,000
                )
                
                
                (551,000
                )Less:Valuation
      allowance
                
                
                8,052,000
                
                
                
                8,406,000Net
      deferred tax asset
                
                $
                -
                
                
                $
                -
  The other
temporary differences shown above relate primarily to impairment reserves for
intangible assets, and accrued and deferred compensation. The difference between
the income tax benefit in the accompanying statements of operations and the
amount that would result if the U.S. Federal statutory rate of 34% were applied
to pre-tax loss is as follows:
  March
      31, 2008(Unaudited)
                
                
                June
      30,2007%
      of
                
                
                
                
                
                %
      ofAmount
                
                
                Pre-Tax
      Loss
                
                
                Amount
                
                
                Pre-Tax
      LossBenefit
      for income tax at:Federal
      statutory rate
                
                $
                266,000
                
                
                
                34.0
                %
                
                $
                (799,000
                )
                
                
                (34.0
                )%State
      statutory rate
                
                
                16,000
                
                
                
                2.0
                %
                
                
                (47,000
                )
                
                
                (2.0
                )%Non-deductible
      expenses
                
                
                72,000
                
                
                
                2.4
                %
                
                
                24,000
                
                
                
                1.0
                %Increase
      in valuation allowance
                
                
                (354,000
                )
                
                
                (33.6
                )%
                
                
                822,000
                
                
                
                35.0
                %$
                -
                
                
                
                0.0
                %
                
                $
                -
                
                
                
                0.0
                %
  The
non-deductible expenses shown above related primarily to the amortization of
intangible assets and to the accrual of stock options for compensation using
different valuation methods for financial and tax reporting
purposes.
  10
 At March
31, 2008, the Company has approximately $20.3 million of unused Federal net
operating losses, $2.3 million of capital losses and $16.1 million of state net
operating losses available for carryforward to future years. As a result of the
conversion of certain of the Secured Convertible Promissory Notes in December
2007, the Company has had a "change of ownership" as defined under section 382
of the Internal Revenue Code. Due to this change of ownership, the Company's net
operating losses, as of the date of change, are subject to an annual limitation.
This limitation is equal to the value of the Company's stock at the date of
change, multiplied by an interest factor (approximately 4.5%). Any losses
incurred after the date of change are not subject to limitation.
  NOTE
7 - SEGMENTS OF BUSINESS
  The
Company has only one reportable segment, which consists of developing,
licensing, manufacturing and distributing air movement and purification devices
utilizing the Kronos technology. For the nine months ended March 31, 2008 and
the fiscal year ended June 30, 2007 the Company operated only in the
U.S.
  NOTE
8 - EARNINGS PER SHARE
  Weighted
average shares outstanding used in the earnings per share calculation were
325,658,791 and 185,967,097 for the nine months ended March 31, 2008 and 2007,
respectively.
  As of
March 31, 2008, there were outstanding options to purchase 90,259,775 shares of
the Company's common stock and outstanding warrants to purchase 15,792,342
shares of the Company's common stock. These options and warrants have been
excluded from the earnings per share calculation as their effect is
anti-dilutive. As of March 31, 2007, there were outstanding options to purchase
25,499,538 shares of the Company's common stock and outstanding warrants to
purchase 42,300,000 shares of the Company's common stock. These options and
warrants have been excluded from the earnings per share calculation as their
effect is anti-dilutive.
  NOTE
9 - CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE
  The
Company had the following obligations as of as of March 31, 2008 and June 30,
2007:
  March
      31, 2008(Unaudited)
                
                
                June
      30, 2007Obligations
      to AirWorks Funding LLLP (1)
                
                $
                3,928,535
                
                
                $
                2,480,000Obligations
      to Hilltop Holding Company, LP (1)
                
                
                1,273,024
                
                
                
                920,000Obligations
      to Sands Brothers (2)
                
                
                859,000
                
                
                
                859,000Obligations
      to Gumbinner and Sun (1)
                
                
                200,000
                
                
                
                200,000Obligation
      to current employees (3)
                
                
                166,572
                
                
                
                202,307Discount
      for beneficial conversion feature (4)
                
                
                (3,774,760
                )
                
                
                (3,365,845
                )2,652,371
                
                
                
                1,295,462Less:
      Current portion
                
                
                1,653,572
                
                
                
                1,061,307Total
      long term obligations, net ofcurrent portion
                
                $
                998,799
                
                
                $
                234,155
  (1) These
notes bear interest at the rate of 12%, are secured by the assets of the Company
and are convertible into shares of Kronos common stock at $0.003 or are payable
in full on June 19, 2010.  On April 1, 2008, the Company made a
$628,000 principle payment on the notes to AirWorks and
Hilltop.  Under the terms of a Letter Agreement between AirWorks,
Hilltop and the Company dated April 22, 2008 amending the Funding Agreement and
Letter Agreement between Sun, Gumbinner and the Company dated April 30, 2008,
AirWorks, Hilltop, Sun and Gumbinner may not convert prior to June 30, 2008 any
outstanding principal amount of their respective notes, or any accrued and
unpaid interest thereon, to the extent such conversion would require the Company
to issue shares of Common Stock in excess of Kronos’ authorized and unissued
shares of Common Stock.
 (2) These
notes bear interest at the rate of 12%, are secured by the assets of the Company
and are payable in full on April 30, 2008.  The notes were paid in
full by the Company on April 1, 2008.
 (3) These
notes bear interest at the rate of 12%. They represent obligations to current
employees of the Company, which are currently due in full.
 (4) Under
GAAP, the Company recorded a discount for the beneficial conversion feature
("BCF") on the amount of the convertible debt issued to AirWorks, Hilltop, Sun
and Gumbinner. The amount of BCF discount was calculated using the Black-Scholes
model. Because the maximum value of the BCF discount can not exceed the full
value of the issued debt, the Company recorded the discount at the full value of
the debt. The Company is amortizing the BCF discount over the three year life of
the debt. For the nine months ended March 31, 2008, the Company recorded a BCF
discount amortization of $1,696,085.
 
 NOTE
10 - COMMITMENTS AND CONTINGENCIES
  In June
2007, Kronos entered into a Funding Agreement with a group of lenders providing
for a loan, at the discretion of the lenders, in the aggregate amount of up to
$18,159,000. At the initial closing, the Company received an initial advance of
$4,259,000. After payment in full of the amounts due under a convertible
debenture issued to Cornell Capital Partners and the settlement agreement
obligation to HoMedics and payment of the expenses of the transaction, the
remainder of $1,069,000 was used for working capital purposes. The initial new
lenders were: (i) AirWorks Funding LLLP, a newly-formed limited partnership;
(ii) Critical Capital Growth Fund, L.P. and various Sands Brothers Venture
Funds, all of which are affiliates of Laidlaw and Co. (UK) Ltd. and (iii) RS
Properties I LLC, a New York-based private investment company. RS Properties
assigned to Hilltop Holding Company, LP, a Delaware limited partnership,
("Hilltop") its promissory note together with certain other rights and
agreements relating thereto, including, without limitation, its rights and
obligations under the Funding Agreement. During the nine months ended March 31,
2008, the Company received an additional $2,533,000 in funding under the terms
of the Funding Agreement and related notes.
  11
 The loan
is secured by all of the Company's assets and is convertible into shares of the
Company's common stock at a conversion price of $0.003 per share, subject to
adjustment under certain circumstances.  The Company recorded a
discount for BCF on the amount of the convertible debt. The amount of BCF
discount was calculated using the Black-Scholes model. Because the maximum value
of the BCF discount can not exceed the full value of the issued debt, the
Company recorded the discount at the full value of the debt. The Company is
amortizing the BCF discount over the three year life of the debt. A Under the
terms of a Letter Agreement between AirWorks, Hilltop and the Company dated
April 22, 2008 amending the Funding Agreement, AirWorks and Hilltop may not
convert prior to June 30, 2008 any outstanding principal amount of the Airworks
Note or the Hilltop Note, or any accrued and unpaid interest thereon, to the
extent such conversion would require the Company to issue shares of Common Stock
in excess of Kronos’ authorized and unissued shares of Common Stock. Future
installments under the Funding Agreement, up to $11,995,000, may be advanced at
the discretion of the lenders, even if not requested by the Company. Under the
Funding Agreement and related notes, the Company pays interest on the notes at
the rate of 12% per annum. Of the total amount of the initial advance, monthly
interest payments commenced on July 1, 2007 on $859,000, which represented the
Critical Capital and Sands note. On March 13, 2008, Critical Capital and Sands
Brothers agreed to extend the maturity date of their note until April 30, 2008.
On April 1, 2008, the Company repaid Critical Capital and Sands Brothers the
full principal amount and interest on the note.  With respect to all
other loan amounts, interest is paid quarterly starting January 1, 2008 and
outstanding principal is due and payable June 19, 2010, unless earlier converted
at the option of the lenders. The interest owed had been accrued but not paid by
the Company.  On May 13, 2008, the Company paid the interest
($107,442) owed through March 31, 2008 to Hilltop.  The maximum loan
amount is advanced under the Funding Agreement and related notes and the lenders
convert the entire amount of the loan into Kronos common stock at the noted
conversion price, the lenders would own approximately 93.3% of the Company's
total equity on a fully diluted, as converted basis. On December 31, 2007,
AirWorks and Hilltop converted $731,440 of their Secured Convertible Promissory
Notes into 243,813,400 shares of Kronos common stock resulting in a change of
control of Kronos. On April 1, 2008, the Company repaid $628,000 of the AirWorks
and Hilltop notes.
  In April
2007, Kronos entered into Convertible Promissory Notes with two accredited
investors, Fred R. Gumbinner and Richard A. Sun. The Company received $200,000
in funding.  In June 2007, the terms of the Convertible Promissory
Notes were modified to match the funding terms of the AirWorks and Hilltop
notes.  The loan is secured by all of the Company's assets and is
convertible into shares of the Company's common stock at a conversion price of
$0.003 per share, subject to adjustment under certain circumstances. The Company
recorded a discount for BCF on the amount of the convertible debt. The amount of
BCF discount was calculated using the Black-Scholes model. Because the maximum
value of the BCF discount can not exceed the full value of the issued debt, the
Company recorded the discount at the full value of the debt. The Company is
amortizing the BCF discount over the three year life of the debt. Under the
terms of Letter Agreements between Gumbinner, Sun and the Company dated April
30, 2008, Gumbinner and Sun may not convert prior to June 30, 2008 any
outstanding principal amount of their notes, or any accrued and unpaid interest
thereon, to the extent such conversion would require the Company to issue shares
of Common Stock in excess of Kronos’ authorized and unissued shares of Common
Stock. Interest is paid quarterly starting January 1, 2008 and outstanding
principal is due and payable June 19, 2010, unless earlier converted at the
option of the lenders.
  Daniel R.
Dwight, President and Chief Executive Officer, and the Company entered into an
employment agreement effective as of November 15, 2001. The initial term of Mr.
Dwight's employment agreement was for two years and will automatically renew for
successive one year terms unless Kronos or Mr. Dwight provide the other party
with written notice within three months of the end of the initial term or any
subsequent renewal term. Mr. Dwight's employment agreement was last renewed on
August 15, 2007. In April 2006, the Board of Directors increased Mr. Dwight's
base cash compensation to $225,000 per year effective April 15, 2006. Mr. Dwight
is eligible for annual incentive bonus compensation in an amount equal to Mr.
Dwight's annual salary based on the achievement of certain bonus objectives. Mr.
Dwight is entitled to fully participate in any and all 401(k), stock option,
stock bonus, savings, profit-sharing, insurance, and other similar plans and
benefits of employment.
  Richard
F. Tusing, Chief Operating Officer, and the Company entered into an employment
agreement effective as of January 1, 2003. The initial term of Mr. Tusing's
employment agreement was for two years and will automatically renew for
successive one year terms unless Kronos or Mr. Tusing provide the other party
with written notice within three months of the end of the initial term or any
subsequent renewal term. Mr. Tusing's employment agreement was last renewed on
November 1, 2007. Mr. Tusing's employment agreement provides for base cash
compensation of $160,000 per year. Mr. Tusing will be entitled to fully
participate in any and all 401(k), stock option, stock bonus, savings,
profit-sharing, insurance, and other similar plans and benefits of
employment.
  In
October 2006, Thompson E. Fehr filed a complaint in the Second Judicial District
Court of Weber County in the state of Utah against Kronos with respect to prior
services rendered to High Voltage Integrated, Inc. totaling $47,130, excluding
claims for damages and legal costs. The Company is rigorously defending itself.
As the Company believes this complaint is without merit, the Company believes a
financial loss is remote and therefore has not recorded a contingent liability
for this matter in its financial statements.
  12
 In March
2007, Allstate Insurance Company, as subrogee of David Buell, filed a complaint
in the Circuit Court for the County of Oakland in the state of Michigan against
HoMedics, Inc. and Kronos with respect to damages related to a fire in the home
of Mr. Buell which resulted in $244,155 in damages. In May, 2007 the case was
transferred to United States District Court, in the Eastern District of
Michigan. In December 2007, all the parties agreed to full resolution of this
matter without any admission of liability by Kronos and without any payments by
Kronos. Kronos obtained a full release from Allstate. In January 2008, the
District Court dismissed the case as to Kronos with prejudice.
  NOTE
11 - SUBSEQUENT EVENTS
  On April
1, 2008, the Company repaid $859,000 plus all the interest and fees ($59,487)
owed on the Critical Capital and Sands Brothers Note and made a partial
principal payment of $628,000 on the AirWorks and Hilltop Notes.
  On May
13, 2008, the Company paid the interest ($107,442) owed on the Hilltop Note
through March 31, 2008 to Hilltop.
  
 13
 
 ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
  INTRODUCTORY
STATEMENTS
  FORWARD
LOOKING STATEMENTS AND ASSOCIATED RISKS
  THIS
REPORT CONTAINS FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS REGARDING,
AMONG OTHER THINGS: (A) OUR PROJECTED SALES AND PROFITABILITY, (B) OUR GROWTH
STRATEGIES, (C) ANTICIPATED TRENDS IN OUR INDUSTRY, (D) OUR FUTURE FINANCING
PLANS, (E) OUR ANTICIPATED NEEDS FOR WORKING CAPITAL, AND (F) THE BENEFITS
RELATED TO OUR OWNERSHIP OF KRONOS AIR TECHNOLOGIES, INC. IN ADDITION, WHEN USED
IN THIS FILING, THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS," "IN ANTICIPATION
OF," "EXPECTS," AND SIMILAR WORDS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE BASED LARGELY ON OUR
EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, MANY OF
WHICH ARE BEYOND OUR CONTROL. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING, WITHOUT
LIMITATION, THE RISKS OUTLINED UNDER "FACTORS AFFECTING KRONOS' BUSINESS AND
PROSPECTS" AND MATTERS DESCRIBED IN THIS REPORT GENERALLY. IN LIGHT OF THESE
RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS REPORT WILL IN FACT OCCUR. WE DO NOT UNDERTAKE ANY
OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR
CIRCUMSTANCES.
  GENERAL
  Kronos is
a product development, production and licensing company that continues to
develop and patent technology that, among other things, fundamentally changes
the way air is moved, filtered and sterilized. Kronos is pursuing
commercialization of its proprietary technology in a limited number of markets;
and if we are successful and funds are available, we intend to enter additional
markets in the future. The Company currently has been issued thirteen U.S.
patents and six international patents. To date, our ability to execute our
strategy has been restricted by our limited amount of capital.
  Kronos is
focused on developing proprietary technology for air movement and purification
applications to address the indoor air quality market. The Kronos technology has
numerous valuable characteristics for applications in the indoor air quality
market, including moving air and gases at high velocities while filtering odors,
smoke and particulates and sterilizing air from bacteria and virus
contamination. A number of the scientific claims of the Kronos technology have
been tested by the U. S. and foreign governments, multi-national companies and
independent testing facilities (see "Independent Testing - Product Claims
Platform" below).
  The
Company has begun establishing strategic partners with select companies both
domestically and internationally for standalone and embedded applications of our
proprietary technology. The Company and its partners are in various stages of
developing Kronos-based products.
  Technology
Description and Benefits
  The
proprietary Kronos technology involves the management of corona discharge by
applying high voltage management across paired electrical grids to create an ion
exchange. Applications for efficient high voltage management, efficient corona
discharge and ion exchange include but are not limited to:
  ·
              air
      movement, including dielectric fluid movement and
    propulsion;
  ·
              air
      purification, including particulate removal, bacteria and viral removal,
      biohazard destruction, and odor
removal;
  ·
              temperature
      and environmental management, including space heating and
      cooling;
  ·
              microchip,
      MEMS and other electronics devices and components
  cooling;
  ·
              air
      management, including sorting and separation of air streams by particle
      content;
  ·
              sound
      generation, including high fidelity sound recreation and active noise
      cancellation;
  ·
              high
      voltage management, including development of high voltage power supplies
      and control of energy surges and electrical
  discharges;
  ·
              control
      of water and moisture content in air streams, including dehumidification
      and humidification; and
  ·
              water
      treatment, including water purification, ionization and water
      desalination.
  14
 Independent
Testing - Product Claims Platform
  A number
of the scientific claims of the Kronos technology have been tested by the U. S.
and foreign governments, multi-national companies and independent testing
facilities. To date, independent laboratory testing has verified the filtration
and sterilization capability of the Kronos technology.  Summary
results from select independent testing facilities are provided
below.  The tests were conducted in the U.S. unless otherwise
indicated.
  Filtration
Testing Results:
  ·
              Environmental
      Health and Engineering - reduced particle matter by up to 47% compared to
      days when the Kronos air purifiers were not operating in the waiting room
      of a pediatric office while patients were
  present.
  ·
              Aerosol
      and Air Quality Research Laboratory - up to 99.8% filtration of 0.02 to
      0.20 micron (20 to 200 nanometers) size
  particles;
  ·
              LMS
      Industries - removal of over 99.97% of 0.10 micron (100 nanometers) and
      above size particles using HVAC industry's ASHRAE 52.2 testing standard
      for filtration;
  ·
              MicroTest
      Laboratories - HEPA Clean Room Class 1000 quality particulate reduction;
      and
  ·
              Intertek
      - tobacco smoke elimination tests in accordance with ANSI/AHAM AC-1-1988
      standard entitled "American National Standard Method for Measuring
      Performance of Portable Household Electric Cord-Connected Room Air
      Cleaners," which demonstrated a Clean Air Delivery Rate ("CADR") for the
      Kronos air purifier of over 300 for the larger size Kronos air purifier
      and 80 for the smaller size using consumer filtration testing standards
      for the Association of Home Appliance Manufacturers
    ("AHAM").
  Sterilization
Testing Results:
  ·
              Environmental
      Health and Engineering (viral analysis by the University of Wisconsin
      Department of Pediatrics and
Medicine):
 -
              collection
      and removal of a wide range of respiratory viruses, including influenza
      A,  influenza B, human rhinoviruses, human coronavirus,
      respiratory syncytial virus, adenovirus, and bocavirus, from the waiting
      room of a pediatric office while patients were
  present.
  ·
              Scientific
      Institution of Health Care, Central Clinical Hospital #2 in Moscow
      (clinical trial):
 -
              100%
      decontamination of bacteria (Staphylococcus aureus) in under one hour and
      80% decontamination of general bacteria in under 24 hours from a 48m(3)
      hospital room while people were
present.
  ·
              Pulmonary
      Department of Municipal Hospital #2 in Moscow (clinical
      trial):
 -
              100%
      decontamination of bacteria (Staphylococcus aureus) in under five hours
      from a 66m(3) hospital room while four patients were present;
      and
 -
              100%
      decontamination of mildew fungi in under two hours from a 113.2m(3)
      hospital room.
  ·
              Disinfection
      Research Institute Sterilization Laboratory in
  Moscow:
 -
              disinfected
      a room completely contaminated with
  Bacteriophage
 -
              a
      microorganism which lives in the E. Coli bacteria. (Bacteriophage is
      widely used in virus testing because the microorganism's biological
      structure and size share many functional similarities with a wide range of
      viruses); and
 -
              100%
      decontamination of room infected with bacteria (Staphylococcus aureus
      strain 906 (S. aureus) and Bacillus cereus strain 96 (B.
      cereus)
 -
              S.
      aureus is a known cause of hospital-acquired infections, including skin
      lesions such as boils and furunculosis and more serious infections such as
      pneumonia and meningitis.
  ·
              Institute
      for Veterinary Medicine in the Ukraine - destroy and sterilize air which
      had been inseminated with Anthrax and E.coli
  spores;
  ·
              New
      Hampshire Materials Laboratory - up to 95% reduction of hazardous gases,
      including numerous carcinogens found in cigarette
  smoke;
  ·
              Battelle
      PNNL - 95% destruction of Bg (anthrax simulant);
  and
  ·
              Dr.
      Sergey Stoylar, a bacteriologist from the American Bacteriological Society
      - 100% destruction of Bacillus subtilis 168 (bacteria
      simulant).
  
 15
  Medical
Product Approval
  In
September 2006, the Russian Research Institute of Medical Equipment approved
EOL's Kronos-based Tree air purification device for use in hospitals and other
healthcare facilities. The device received Category I approval, which means the
product has met the strictest regulations required for a device to be used in
operating rooms and other areas that require a sterile environment. In November
2006, following the Russian Research Institute approval, the Ministry of Health
Care and Social Development of the Russian Federation issued a Registration
Certificate that designates the Kronos-based Tree air purification device for
medical use.
  Market
Segmentation
  Kronos'
initial business development strategy is to develop and produce products based
on the Kronos technology to six distinct air quality market segments: (1) air
movement and purification (residential, health care, hospitality, and commercial
facilities); (2) embedded cooling and cleaning (electronic devices and medical
equipment); (3) air purification for unique spaces (clean rooms, airplanes,
automotive, and cruise ships); (4) specialized military (naval vessels, closed
vehicles and mobile facilities); (5) industrial scrubbing (produce storage and
diesel and other emissions); and (6) hazardous gas destruction (incineration and
chemical facilities).
  Kronos'
current focus is on the first three of these market segments, which are
described in more detail below:
  ·
              Air
      Movement and Purification - Indoor air pollution, including sick building
      syndrome, second hand cigarette smoke and various bacterial and viral
      contaminants, is primarily caused by inadequate ventilation, chemical
      contaminants from indoor and outdoor sources and biological contaminants.
      There is also a demand for smaller devices that move, heat and deodorize
      the indoor air stream. The addressable air movement and purification
      segment is made up of four principal target markets:  (1)
      residential, (2) health care, (3) hospitality and (4) commercial
      facilities.
  ·
              Embedded
      Cooling - Heat generation is becoming a major bottleneck in high density
      electronics. We believe that the embedded cooling market segment offers
      Kronos a near term opportunity to develop an alternative to fans for air
      movement and cooling inside of personal computers , servers and medical
      diagnostic equipment and a long term opportunity to develop micro channel
      cooling solutions for future generation
  microchips.
  ·
              Air
      Purification for Unique Spaces - Electronics, semiconductor,
      pharmaceutical, aerospace, medical and many other producers depend on
      clean room technology. As products, such as electronic devices become
      smaller, the chance of contamination in manufacturing becomes higher. For
      pharmaceutical companies, clean, safe and contaminant-free products are
      imperative to manufacturing and distributing a viable product. Other
      potential applications for the Kronos technology include closed
      environments, such as automobiles, aircraft, cruise ships and other
      transportation modes, that require people to breathe contaminated,
      re-circulated air for extended
periods.
  Kronos is
currently developing products for the air movement and purification and air
purification for unique spaces markets through specific customer contracts.
Kronos has granted an exclusive license to Tessera for ionic micro-cooling of
integrated circuit devices or discrete electrical components. These contracts
are described in more detail in the Technology Application and Product
Development section of this filing.
  Technology
Application and Product Development
  To best
serve Kronos' targeted market segments, our Company is developing specific
product applications across two distinct product application platforms. A Kronos
device can be either used as a standalone product or can be embedded. Standalone
products are self-contained and only require the user to plug the Kronos device
into a wall outlet to obtain air movement and filtration for their home, office
or hotel room. Embedded applications of the Kronos technology require the
technology be added into another system, such as a building ventilation system
for more efficient air movement and filtration or into an electrical device such
as computer or medical equipment to replace the cooling fan or heat sink.
  Standalone
Platform
  Residential Products. In
October 2007, Kronos executed a Letter of Intent for the development,
manufacture and sale of air purification devices based upon Kronos' proprietary
air movement and purification technology with a leading national retailer. It is
expected that Kronos and the retailer would enter into a definitive purchase and
supply agreement providing for the exclusive sale of private label residential
standalone air purifiers through the retailer's distribution channels. Actual
purchases of the products are dependent on the successful development of the
product, the negotiation of a definitive purchase and supply agreement
incorporating the terms of the letter of intent, other usual and customary terms
and the retailers' discretion. Under the terms of the Letter of Intent, the
retailer has paid Kronos $250,000 towards the development costs of the new
products and will contribute marketing resources to assist in the product
development process. The intent of the parties is for Kronos to lead and manage
all development, production and manufacturing activities for the Kronos air
purifier and for the retailer to actively market the Kronos air purifier through
their distribution channels. In December 2007, Kronos completed design and
developed of an Alpha Prototype for the customer. In January 2008, the parties
initiated negotiations of a definitive Product Development and Purchase
Agreement. In February 2008, the retailer filed for bankruptcy, which could
negatively impact the Company’s ability to finalize a definitive agreement and
receive additional funds from the retailer. In March 2008, Kronos’ contract
manufacturing partner completed development of a Beta
Prototype.  During the nine months ended March 31, 2008, Kronos earned
$250,000 in product development fees.
  16
 Medical Products.In December
2005, the Company executed a non-exclusive license agreement with EOL LLC, a
Russian Federation company ("EOL"), for manufacturing and distributing
Kronos-based commercial standalone products in Russia and other select
Commonwealth of Independent States. The initial medical products are currently
being marketed in Russia and Ukraine and marketing plans are being implanted in,
Kazakhstan, Moldova and Byelorussia. In November 2006, the Ministry of Health
Care and Social Development of the Russian Federation issued a Registration
Certificate for the product that designates the product for medical use. During
the fiscal year ended June 30, 2007, Kronos earned $104,000 in revenue from the
sale of power supplies, other electrical components and engineering services and
from the royalty from the sale of finished products by EOL. During the nine
months ended March 31, 2008, Kronos earned $35,000 in revenue from licensing
fees.
  In August
2006, the Russian Research Institute of Medical Equipment began the process for
product certification of the EOL's Kronos-based Tree air purification device for
use in medical facilities, including a successful clinical trial of EOL products
in the Pulmonary Department of Municipal Hospital #2 in Moscow. In October 2006,
Scientific Institution of Health Care, Central Clinical Hospital #2 in Moscow
completed a second clinical trial. As a result of these clinical trials, the
Russian Research Institute approved the Kronos-based Tree air purification
device for use in hospitals and other healthcare facilities. The device received
Category I approval, which means the product has met the strictest regulations
required for a device to be used in operating rooms and other areas that require
a sterile environment. In November 2006, following the Russian Research
Institute approval, the Ministry of Health Care and Social Development of the
Russian Federation issued a Registration Certificate that designates the
Kronos-based Tree air purification device for medical use.
  The
Company is in discussions to enter the U.S. medical market with one or more
medical products distribution companies.
  Commercial and Other Standalone
Products.Utilizing our expanded product development resources, Kronos
completed the initial design, development and production of a series of small
multifunctional devices that can be used as space heaters, vaporizers,
disinfectors, deodorizers and/or fans. Based on the proprietary Kronos
technology, these devices are currently undergoing testing and evaluation.
Kronos has been meeting with potential strategic partners for manufacturing,
marketing, selling and distributing these Kronos-based products.
  Embedded
Platform
  Microelectronics Cooling
Products. In December 2004, Kronos and the University of Washington were
awarded a Phase I grant for a research and technology development project
entitled "Heat Transfer Technology for Microelectronics and MEMS" by the
Washington Technology Center (the "WTC"). The objective of the project is to
develop a novel energy-efficient heat transfer technology for cooling
microelectronics. In January 2006, Kronos and the University of Washington
conducted a successful bench scale demonstration of micron cooling of a MEMS
chip. In June 2006, the Company and the University of Washington were awarded a
Phase II grant for continued funding in its novel cooling system for
microelectronics and computer chips. The WTC contributed $100,000 as a Phase II
grant for the project. Kronos provided $35,000 in funding and $38,000 in in-kind
services, including use of the Kronos Research and Product Development Facility.
Dr. Alexander Mamishev of the University of Washington Electrical Engineering
Department is the principal investigator on the project and is leading a team of
scientists and engineers from Kronos and Intel Corporation who are also
collaborating on the project. In September 2006, Kronos hired a former Intel
employee to lead Kronos' development of micro cooling applications. In June
2007, the Company and the University of Washington were awarded a Phase III
grant for continued funding. This additional funding is to support the further
development of prototype products. The WTC is contributing $100,000. Kronos will
provide $20,000 in funding and $20,000 in in-kind services, including use of the
Kronos Research and Product Development Facility.
  Thermal
management for microelectronics and MEMS systems is a challenge. Existing
cooling devices aren't meeting increasing needs for energy consumption and heat
dissipation. Kronos air handling technology is an emerging technology that uses
an electric field to exert force on ionized gas. Kronos is attempting to develop
an improved microchip air handling system that is smaller in size, has high
speed airflow, allows more targeted delivery of cooling to areas of highest heat
and is compatible with current processes.
  In March
2008, Kronos executed an Intellectual Property Transfer and License Agreement
with Tessera Technologies, Inc. (“Tessera”) for the transfer and license of
certain intellectual property (IP) rights related to Kronos proprietary
technologies to Tessera.  Kronos received $3.5 million from Tessera in
exchange for the transfer of select Kronos patents covering micro-cooling
applications and for an exclusive license to the Kronos technology for the field
of ionic micro-cooling of integrated circuit devices or discrete electrical
components. Kronos retained the rights to use these patents for applications
outside of the field of micro-cooling. Tessera has the further right to acquire
additional Kronos IP relating to micro-cooling applications for four quarterly
payments of $0.5 million each beginning in July 1, 2008. The two companies have
the option to continue to jointly develop new technologies in this
field.
  17
 Residential Products.In
October 2006, a leading global home appliance manufacturer committed to fund 20%
of the cost for Kronos to manufacturer a silent kitchen range hood product. This
next generation range hood device represented the culmination of more than
twelve months of product design and development effort by Kronos to apply our
technology to this unique embedded residential application. The product was
shipped to the customer in October 2006. In January 2007, the prototype design
was modified based on customer input and a revised unit was shipped to the
customer. In addition to financial support, the customer has also provided
Kronos with product components for Kronos testing and evaluation. In February
2007, a second global appliance manufacturer committed to purchase additional
prototypes from Kronos. During the year ended June 30, 2007, Kronos earned
$37,000 in revenue from the development of prototype devices for the residential
range hood market place. In October 2007, Kronos shipped the additional
prototypes to the customer for testing and evaluation. During the nine months
ended March 31, 2008, Kronos earned $34,000 in product development fees.
  Commercial Products. In June
2006, the Company executed its first license for embedded applications of Kronos
technology with DESA LLC ("DESA"). The agreement provides DESA the opportunity
to embed the Kronos electrostatic air movement technology within fireplaces,
hearth systems, zone heaters and mounted electric fans and heaters. In October
2006, DESA approved Kronos' designs for the first Kronos-based product and
committed to the funding of the product development by Kronos. In January 2007,
DESA committed additional funds for Kronos exploration of a second Kronos-based
product application. By May 2007, various prototype configurations for each of
the two product applications were under test and evaluation by Kronos and DESA.
During the nine months ended March 31, 2008, Kronos and DESA developed a plan
for product commercialization. During the nine months ended March 31, 2008,
Kronos and DESA developed a plan for product commercialization, which the
Company has not begun implementing pending the prioritization of
resources.
  In
addition, Kronos has developed an air filtration and purification mechanism
capable of performing to HEPA quality standards, while eliminating bacteria and
viruses. The Company believes that Kronos devices could replace current HEPA
filters with a permanent, easily cleaned, low-cost solution. Among the technical
advantages of the Kronos technology over HEPA filters is the ability of the
Kronos-based devices to eliminate the energy burden on air handling systems,
which must generate high levels of backpressure necessary to move air through
HEPA-based systems. Kronos-based devices enhance the air flow while providing
better than HEPA level filtration and purification. Kronos is seeking one or
more strategic partners to commercialize, market and distribute Kronos based
commercial embedded air filtration and purification devices.
  Transportation Products. In
April 2006, Kronos was invited to serve as a member and an industrial partner in
the Federal Aviation Administration's (the "FAA") Air Transportation Airliner
Cabin Environment Research Center of Excellence. In this capacity, Kronos is
providing its real-time decontamination, air filtration, purification and
technology expertise to evaluate and develop solutions that proactively address
and improve cabin air quality. The program, led by the FAA, includes senior
executives from aerospace equipment manufacturers and leading American
universities.
  Patents
and Intellectual Property
  Kronos
has been issued thirteen patents by the United States Patent and Trademark
Office and six international patents. These patents are considered utility
patents which describe fundamental innovations in the generation, management and
control of electrostatic fluids, including air movement, filtration and
purification. Each of the patents contain multiple part claims for both general
principles as well as specific designs for incorporating the Kronos technology
into air movement, filtration and purification products. The patents provide
protection for both specific product implementations of the Kronos technology,
as well as more general processes for applying the unique attributes and
performance characteristics of the technology.
  Date
                U.S.
      Patent #
                Patent Title
                Description
                ProtectionAugust
                7,262,564
                Alternative
                geometry,
      voltage ratios
                20242007
                
                Geometries
      and
                and
      power requirementsVoltage
      Supply
                for
      improved operationalManagement
                performanceJuly
                7,248,003
                Electric
      Field
                effective
      electric field
                20252007
                
                Management
                management
      for reducedsparkingOctober
                7,122,070
                Method
      of and
                inertialess
      power supply for
                20252006
                
                Apparatus
      for
                safe
      operation and sparkElectrostatic
      Fluid
                preventionAccelerationAugust
                7,157,704
                Corona
      Discharge
                method
      of generating air
                20232006
                
                Electrode
      and Method
                flow
      and air cleaning withof
      Operating
                reduced
      amount of ozone by-product
      and with extendedlife-span
      of the electrodesJuly
                7,150,780
                Electrostatic
      Air
                method
      for improving the
                20242006
                
                Cleaning
      Device
                efficiency
      of electrodes forfiltering
      micron and sub-micron
      size particles
  18
 May
                7,053,565
                Electrostatic
      Fluid
                effective
      powering of the
                20242006
                
                Accelerator
      - Power
                electrodes
      for high level ofManagement
                air
      velocityNovember
                6,963,479
                Electrostatic
      Fluid
                advanced
      voltage management
                20232005
                
                Accelerator
      -
                impacts
      air filtration andAdvanced
      Geometries
                sterilization,
      air flow andozone
      as well as safe operationand
      spark preventionAugust
                6,937,455
                Spark
      Management
                analysis,
      detection and
                20222005
                
                Method
      and Device
                prevention
      of sparks in ahigh
      voltage field -creating
      safe, effectiveelectrostatic
      technologyproductsJuly
                6,919,698
                Voltage
      Management
                materials
      and geometry
                20232005
                
                for
      Electrostatic
                allowing
      for spark freeFluid
      Accelerator
                operation
      and use of lightweight,
      inexpensivematerials
      as the electrodesMay
                6,888,314
                Electrostatic
      Fluid
                electrode
      design geometries
                20222005
                
                Accelerator
      -
                and
      attributes includingElectrode
      Design
                micro
      channeling to achieveGeometries
                unique
      air movement andpurification
      performanceApril
                6,727,657
                Electrostatic
      Fluid
                synchronization
      of multiple
                20222004
                
                Accelerator
      for and
                stages
      of arrays -a
      Method of
                increasing
      air flow and airControlling
      Fluid
                flow
      efficiencyDecember
                6,664,741
                Method
      of and
                ratio
      of voltage for
                20222003
                
                Apparatus
      for
                producing
      ion discharge toElectrostatic
      Fluid
                create
      air movement andAcceleration
      Control
                base
      level filtrationof
      a Fluid FlowJanuary
                6,504,308
                Electrostatic
      Fluid
                electrode
      density core for
                20192003
                
                Accelerator
                producing
      ion discharge tocreate
      air movement andbase
      level filtration
  International Patents
  Kronos
has received formal notification from the Canadian Intellectual Property Office,
the Mexican Institute of Industrial Property, Commonwealth of Australia Patent
Office, the Intellectual Property Office of New Zealand and the Ukrainian Patent
Office indicating that six patents have been examined and allowed for issuance
as patents. There are a number of other patent applications corresponding to
Kronos' thirteen U.S. Patents that have been filed and are pending outside of
the United States.
  Kronos
intends to continue to aggressively file patent applications in the U.S. and
internationally. A number of additional patent applications have been filed for,
among other things, the control and management of electrostatic fluid
acceleration. These additional patent applications are either being examined or
are awaiting examination by the Patent Office
  Intellectual
Property Transfer
  In March
2008, Kronos transferred U.S. Patents 6,919,698 and 7,157,704 and related
foreign patents and patent applications to Tessera in conjunction with the
execution of the Intellectual Property Transfer and License Agreement and the
receipt of $3.5 million from Tessera.  The Agreement provides Tessera
the additional right to acquire U.S. Patents 6,504,308 and 6,888,314 and related
foreign patents upon the payment of an additional $2.0 million.
  CRITICAL
ACCOUNTING POLICIES
  Use of Estimates. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 19
 
 Allowance for Doubtful Accounts.We provide a reserve against our receivables for estimated losses that
may result from our customers' inability to pay. These reserves are based on
potential uncollectible accounts, aged receivables, historical losses and our
customers' credit-worthiness. Should a customer's account become past due, we
generally will place a hold on the account and discontinue further shipments
and/or services provided to that customer, minimizing further risk of
loss.
  Valuation of Goodwill, Intangible
and Other Long Lived Assets.We use assumptions in establishing the
carrying value, fair value and estimated lives of our long-lived assets and
goodwill. The criteria used for these evaluations include management's estimate
of the asset's ability to generate positive income from operations and positive
cash flow in future periods compared to the carrying value of the asset, the
strategic significance of any identifiable intangible asset in our business
objectives, as well as the market capitalization of Kronos. We have used certain
key assumptions in building the cash flow projections required for evaluating
the recoverability of our intangible assets. We have assumed revenues from the
following applications of the Kronos technology: consumer stand-alone devices,
assisted care/skilled nursing stand-alone devices, embedded devices in the
hospitality industry and in specialized military applications. Expenses/cash out
flows in our projections include sales and marketing, production, distribution,
general and administrative expenses, research and development expenses and
capital expenditures. These expenses are based on management estimates and have
been compared with industry norms (relative to sales) to determine their
reasonableness. We use the same key assumptions for our cash flow evaluation as
we do for internal budgeting, lenders and other third parties; therefore, they
are internally and externally consistent with financial statement and other
public and private disclosures. We are not aware of any negative implications
resulting from the projections used for purposes of evaluating the
appropriateness of the carrying value of these assets. If assets are considered
to be impaired, the impairment recognized is the amount by which the carrying
value of the assets exceeds the fair value of the assets. Useful lives and
related amortization or depreciation expense are based on our estimate of the
period that the assets will generate revenues or otherwise be used by
Kronos.
 Factors
that would influence the likelihood of a material change in our reported results
include significant changes in the asset's ability to generate positive cash
flow, loss of legal ownership or title to the asset, a significant decline in
the economic and competitive environment on which the asset depends, significant
changes in our strategic business objectives, and utilization of the
asset.
  Valuation of Deferred Income Taxes.Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. The likelihood of a material
change in our expected realization of these assets is dependent on our ability
to generate future taxable income, our ability to deduct tax loss carryforwards
against future taxable income, the effectiveness of our tax planning and
strategies among the various tax jurisdictions that we operate in, and any
significant changes in the tax treatment received on our business
combinations.
  Revenue Recognition.We
recognize revenue in accordance with Securities and Exchange Commission Staff
Bulletin 104 ("SAB 104"). Further, Kronos Air Technologies recognizes revenue on
the sale of custom-designed contract sales under the percentage-of-completion
method of accounting in the ratio that costs incurred to date bear to estimated
total costs. For uncompleted contracts where costs and estimated profits exceed
billings, the net amount is included as an asset in the consolidated balance
sheet. For uncompleted contracts where billings exceed costs and estimated
profits, the net amount is included as a liability in the consolidated balance
sheet. Sales are reported net of applicable cash discounts and allowances for
returns.
  RESULTS
OF OPERATIONS
  Consolidated
Statement of Operations For the Nine Months Ended March 31, 2008 (“2008”)
Compared with the Nine Months Ended March 31, 2007 (“2007”).
  Our net
losses for 2008 and 2007 were $2,339,000 and $2,501,000, respectively. The
$162,000, or 6%, decrease in the net loss for 2008, as compared to 2007 was
principally the result of a $3,134,000 increase in gross profit, partially
offset by a $1,696,000 in accretion of note discount, a $1,039,000, or 45%,
increase in operating costs to $3,341,000, and $237,000, or 91%, increase in
interest expense to $499,000.
  Revenue.Revenues are
generated through the licensing of Kronos technology and through sales of
services for design and development of Kronos devices at Kronos Air
Technologies, Inc. Revenues for 2008 were $3,598,000 compared with $156,000 for
2007, an increase of $3,442,000. Revenues for 2008 were from our agreements with
Tessera, a national retailer, global consumer products company and EOL. In
comparison, revenues for 2007 were from our agreements with EOL, GE and
DESA.
  20
 
 Cost of Sales.Cost of sales
for 2008 was $401,000 compared with $93,000 for 2007, an increase of $308,000,
or 331%. Cost of sales for 2008 primarily consisted of the cost of the patents
transferred to Tessera and the product development costs associated with our
national retailer and global consumer products company agreements. In
comparison, cost of goods sold for 2007 primarily consisted of product
development costs associated with our EOL, GE and DESA agreements.
  Selling, General and Administrative
Expenses.Selling, General and Administrative expenses for 2008 increased
$1,039,000, or 45%, to $3,341,000. The increase was principally the result of a
$614,000, or 56%, increase in compensation and benefits primarily as a result of
a $393,000, or 266%, increase in the expense for amortization of stock options
that vested, a $288,000, or 109%, increase in professional services as a result
of an increase in advisory services from our majority shareholder, as well as
legal expenses and a $190,000, or 500%, increase in product development
costs.
  Accretion of Note Discount.Accretion of note discount for 2008 of $1,696,000 represented the
amortization of the beneficial conversion feature of the AirWorks, Hilltop, Sun
and Gumbinner promissory notes.
  Interest Expense.Interest
expense for 2008 was $499,000 compared to $262,000 for the corresponding period
of the prior year. The $237,000, or 90%, increase in interest expense for 2008,
as compared to 2007, was principally the result of the increase in the debt
outstanding in 2008 primarily to AirWorks, Hilltop, Sands and Critical Capital
compared with debt outstanding in 2007 primarily to
HoMedics.
  Consolidated
Balance Sheet as of March 31, 2008 Compared with June 30, 2007
  Our total
assets at March 31, 2008 were $5,060,000 compared with $2,111,000 at June 30,
2007. Total assets at March 31, 2008 and June 30, 2007 were comprised primarily
of $3,579,000 and $364,000, respectively, of cash and $1,450,000 and $1,723,000,
respectively, of patents/intellectual property. Total current assets at March
31, 2008 and June 30, 2007 were $3,602,000 and $381,000, respectively, while
total current liabilities for such periods were $2,675,000 and $1,589,000,
respectively. This created a working capital surplus of $927,000 at March 31,
2008 and a working capital deficit of $1,208,000 at June 30, 2007.
  Stockholders'
surplus as of March 31, 2008 was $1,386,000.  The recording of the
discount on the beneficial conversion feature on AirWorks, Hilltop, Sun and
Gumbinner promissory notes ($2,079,000), the issuance of equity from the
conversion of promissory notes into stock ($731,000), the issuance of stock
options for services ($604,000), and the issuance of stock for services
($24,000) were partially offset by the $2,339,000 net loss for
2008.
  LIQUIDITY
AND CAPITAL RESOURCES
  Historically,
we have relied principally on the sale of common stock and secured debt,
customer contracts for research and product development and licensing royalties
to finance our operations.
  Net cash
flow generated from operating activities was $1,011,000 for the nine months
ended March 31, 2008 principally as a result of the Tessera transaction. We
estimate that achievement of our business plan will require additional funding.
We anticipate that the source of funding will be obtained pursuant to equity
funding from the Funding Agreement and the potential for Tessera to exercise
their option to acquire additional IP from Kronos, which are described below.
There are no assurances that these sources of funding will be available to the
Company or adequate to meet our cash flow needs.
  In March
2008, Kronos executed an Intellectual Property Transfer and License Agreement
with Tessera Technologies, Inc. (“Tessera”) for the transfer and license of
certain intellectual property (“IP”) rights related to Kronos proprietary
technologies to Tessera.  Kronos received $3.5 million from Tessera in
exchange for the transfer of select Kronos patents covering micro-cooling
applications and for an exclusive license to the Kronos technology for ionic
micro-cooling of integrated circuit devices or discrete electrical components.
Kronos retained the rights to use these patents for all applications outside of
the field of micro-cooling. Tessera further has the right to acquire additional
Kronos IP relating to micro-cooling applications for four quarterly payments of
$0.5 million each beginning in July 1, 2008. The two companies have the option
to continue to jointly develop new technologies in this field.
  21
 
 In June
2007, Kronos entered into a Funding Agreement with a group of lenders providing
for a loan, at the discretion of the lenders, in the aggregate amount of up to
$18,159,000. At the initial closing, the Company received an initial advance of
$4,259,000. After payment in full of the amounts due under a convertible
debenture issued to Cornell Capital Partners and the settlement agreement
obligation to HoMedics and payment of the expenses of the transaction, the
remainder of $1,069,000 was used for working capital purposes. The initial new
lenders were: (i) AirWorks Funding LLLP, a newly-formed limited partnership;
(ii) Critical Capital Growth Fund, L.P. and various Sands Brothers Venture
Funds, all of which are affiliates of Laidlaw and Co. (UK) Ltd. and (iii) RS
Properties I LLC, a New York-based private investment company. RS Properties
assigned to Hilltop Holding Company, LP, a Delaware limited partnership,
("Hilltop") its promissory note together with certain other rights and
agreements relating thereto, including, without limitation, its rights and
obligations under the Funding Agreement. During the nine months ended March 31,
2008, the Company received an additional $2,533,000 in funding under the terms
of the Funding Agreement and related notes.
  The loan
is secured by all of the Company's assets and is convertible into shares of the
Company's common stock at a conversion price of $0.003 per share, subject to
adjustment under certain circumstances. Under the terms of a Letter Agreement
between AirWorks, Hilltop and the Company dated April 22, 2008 amending the
Funding Agreement, AirWorks and Hilltop may not convert prior to June 30, 2008
any outstanding principal amount of the Airworks Note or the Hilltop Note, or
any accrued and unpaid interest thereon, to the extent such conversion would
require the Company to issue shares of Common Stock in excess of Kronos’
authorized and unissued shares of Common Stock. Future installments under the
Funding Agreement, up to $11,995,000, may be advanced at the discretion of the
lenders, even if not requested by the Company. Under the Funding Agreement and
related notes, the Company pays interest on the notes at the rate of 12% per
annum. Of the total amount of the initial advance, monthly interest payments
commence on July 1, 2007 on $859,000, which was initially due and payable on
March 31, 2008. On March 13, 2008, Critical Capital and Sands Brothers agreed to
extend the maturity date of their note until April 30, 2008. On April 1, 2008,
the Company repaid Critical Capital and Sands Brothers the full principal amount
and interest on the note.  With respect to all other loan amounts,
interest is paid quarterly starting January 1, 2008 and outstanding principal is
due and payable June 19, 2010, unless earlier converted at the option of the
lenders. The interest owed had been accrued but not paid by the
Company.  On May 13, 2008, the Company paid the interest ($107,442)
owed on the Hilltop Note through March 31, 2008 to Hilltop.  The
maximum loan amount is advanced under the Funding Agreement and related notes
and the lenders convert the entire amount of the loan into Kronos common stock
at the noted conversion price, the lenders would own approximately 93.3% of the
Company's total equity on a fully diluted, as converted basis. On December 31,
2007, AirWorks and Hilltop converted $731,440 of their Secured Convertible
Promissory Notes into 243,813,400 shares of Kronos common stock resulting in a
change of control of Kronos. On April 1, 2008, the Company repaid $628,000 of
the AirWorks and Hilltop notes.
 GOING
CONCERN OPINION
  The
Report of Independent Registered Public Accounting Firm for the years ended June
30, 2007 and 2006 included an explanatory paragraph that stated that we do not
have significant cash or other material assets to cover our operating costs. Our
ability to obtain additional funding will largely determine our ability to
continue in business. Accordingly, there is substantial doubt about our ability
to continue as a going concern. Our consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
  We can
make no assurance that we will be able to successfully develop, manufacturer and
sell commercial products on a broad basis. While attempting to make this
transition, we will be subject to all the risks inherent in a growing venture,
including, but not limited to, the need to develop and manufacture reliable and
effective products, develop marketing expertise and expand our sales
force.
  FACTORS
AFFECTING KRONOS' BUSINESS AND PROSPECTS
  We are
subject to various risks which may have a material adverse effect on our
business, financial condition and results of operations, and may result in a
decline in our stock price. Certain risks are discussed below:
  We
do not have sufficient cash to continue operations and to support our debt
obligations and will require additional financing to sustain our
operations.
  At March
31, 2008, we had a working capital surplus of $927,000.  However,
Kronos historically has had working capital deficits, including a working
capital deficit of $1,208,000, at June 30, 2007. The Report of Independent
Registered Public Accounting Firm for the year ended June 30, 2007, includes an
explanatory paragraph to their audit opinion stating that our recurring losses
from operations and working capital deficiency raise doubt about our ability to
continue as a going concern. Funding may be available to Kronos through AirWorks
and Hilltop and through the acquisition of IP by Tessera. However, Kronos has
not determined if this funding will be sufficient, because the lenders, at their
sole discretion, control the timing of and whether such funding will occur and
Tessera has, at their sole discretion, the option to acquire additional Kronos
IP.
  22
 
 We
have a limited operating history with significant losses.
  We have
only recently begun implementing our plan to prioritize and concentrate our
management and financial resources to fully capitalize on our investment in
Kronos Air Technologies and have yet to establish a history of profitable
operations. We incurred a net loss of $2,339,000 for the nine months ended March
31, 2008 and a net loss of $2,351,000 for the fiscal year ended June 30, 2007.
As a result, at March 31, 2008 and June 30, 2007, we had an accumulated deficit
of $35,508,000 and $33,469,000, respectively. We have sustained our operations
through the issuance of our common stock, the incurrence of debt and the
licensing of our technology. Our profitability will require the successful
commercialization of our Kronos technologies. No assurances can be given that we
will be able to successfully commercialize our Kronos technologies or that we
will ever be profitable. If we do not achieve profitability we could be forced
to curtail or cease our business operations.
  Existing
stockholders will experience significant dilution from our sale of shares under
any equity financing.
  The sale
of shares pursuant to the conversion of the AirWorks, Hilltop Sun and Gumbinner
Secured Convertible Promissory Notes, the exercise of stock options and warrants
or any other future equity financing transaction will have a dilutive impact on
our stockholders. As a result, our net income per share could decrease in future
periods, and the market price of our common stock could decline. In December
2007, AirWorks and Hilltop converted $731,440 of their Secured Convertible
Promissory Notes into 243,813,400 shares of Kronos common stock resulting in a
change in control of Kronos and dilution to the Company's existing
stockholders.
  Competition
in the market for air movement and purification devices may result in the
failure of the Kronos products to achieve market acceptance.
  Kronos
presently faces competition from other companies that are developing or that
currently sell air movement and purification devices. Many of these competitors
have greater financial, research and development, manufacturing, and sales and
marketing resources than we do. Many of the products sold by Kronos' competitors
already have brand recognition and established positions in the markets that we
have targeted for penetration. In the event that the Kronos products do not
favorably compete with the products sold by our competitors, we would be forced
to curtail or cease our business operations.
 Our
failure to enforce protection of our intellectual property would have a material
adverse effect on our business.
  A
significant part of our success depends on our ability to obtain and defend our
intellectual property, including patent protection for our products and
processes, preserve our trade secrets, defend and enforce our rights against
infringement and operate without infringing the proprietary rights of third
parties, both in the United States and in other countries. Our limited amount of
capital impedes our current ability to protect and defend our intellectual
property. The validity and breadth of our intellectual property claims in ion
wind generation and electrostatic fluid acceleration and control technology
involve complex legal and factual questions and, therefore, may be highly
uncertain. Despite our efforts to protect our intellectual proprietary rights,
existing copyright, trademark and trade secret laws afford only limited
protection. Our industry is characterized by frequent intellectual property
litigation based on allegations of infringement of intellectual property rights.
Although we are not aware of any intellectual property claims against us, we may
be a party to litigation in the future. If we are unable to enforce protection
of our intellectual property, we could be forced to curtail or cease our
business operations.
  Possible
future impairment of intangible assets would have a material adverse effect on
our financial condition.
  Our net
intangible assets of approximately $1,450,000 as of March 31, 2008 consist
principally of purchased patent technology and marketing intangibles, which
relate to the acquisition of Kronos Air Technologies, Inc. in March 2000 and to
the acquisition of license rights to fuel cell, computer and microprocessor
applications of the Kronos technology not included in the original acquisition
of Kronos Air Technologies, Inc. in May 2003 and capitalized legal costs for
securing patents. Intangible assets comprise 29% of our total assets as of March
31, 2008. Intangible assets are subject to periodic review and consideration for
potential impairment of value. Among the factors that could give rise to
impairment include a significant adverse change in legal factors or in the
business climate, an adverse action or assessment by a regulator, unanticipated
competition, a loss of key personnel, and projections or forecasts that
demonstrate continuing losses associated with these assets. In the case of our
intangible assets, specific factors that could give rise to impairment would be,
but are not limited to, an inability to obtain patents, the untimely death or
other loss of Dr. Igor Krichtafovitch, the lead inventor of the Kronos
technology and Kronos Air Technologies Chief Technology Officer, or the ability
to create a customer base for the sale Kronos-based products. Should an
impairment occur, we would be required to recognize it in our financial
statements. A write-down of these intangible assets could have a material
adverse impact on our total assets, net worth and results of operations.
  Our
common stock is deemed to be "penny stock," subject to special requirements and
conditions and may not be a suitable investment.
  Our
common stock is deemed to be "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are
stocks: (i) With a price of less than $5.00 per share; (ii) That are not traded
on a "recognized" national exchange; or (iii) In issuers with net tangible
assets less than $2,000,000 (if the issuer has been in continuous operation for
at least three years) or $5,000,000 (if in continuous operation for less than
three years), or with average revenues of less than $6,000,000 for the last
three years.
   23
 
 Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker/dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor. These requirements may reduce the
potential market for our common stock by reducing the number of potential
investors. This may make it more difficult for investors in our common stock to
resell shares to third parties or to otherwise dispose of them. This could cause
our stock price to decline.
  We
rely on management and research personnel, the loss of whose services could have
a material adverse effect upon our business.
  We rely
principally upon the services of our senior executive management, and certain
key employees, including the Kronos research and product development team, the
loss of whose services could have a material adverse effect upon our business
and prospects. Competition for appropriately qualified personnel is intense. Our
ability to attract and retain highly qualified senior management and technical
research and product development personnel are believed to be an important
element of our future success. Our failure to attract and retain such personnel
may, among other things, limit the rate at which we can expand operations and
achieve profitability. There can be no assurance that we will be able to attract
and retain senior management and key employees having competency in those
substantive areas deemed important to the successful implementation of our plans
to fully capitalize on our investment in the Kronos technology, and the
inability to do so or any difficulties encountered by management in establishing
effective working relationships among them may adversely affect our business and
prospects. Currently, we do not carry key person life insurance for any of our
executive management, or key employees.
  ITEM
3. CONTROLS AND PROCEDURES
  Evaluation of Disclosure Controls
and Procedures.As of March 31, 2008, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
Principal Officer/Principal Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934 (the "Exchange Act")) pursuant to Rule
13a-15 of the Exchange Act. It should be noted that any system of controls,
however well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system are met. Based on that
evaluation, the Company's management, including the Company's Principal
Executive Officer/Principal Financial Officer, concluded that the Company's
disclosure controls and procedures were ineffective at this reasonable assurance
level as of March 31, 2008.
 Changes in Internal Controls over
Financial Reporting.In connection with the evaluation of the Company's
internal controls over financial reporting during the Company's three months
ended March 31, 2008, the Company's Principal Executive Officer/Principal
Financial Officer has determined that there were no changes to the Company's
internal controls over financial reporting during the quarter that have
materially affected or is reasonably likely to affect the Company's internal
control over financial reporting.
  PART
II
  ITEM
1. LEGAL PROCEEDINGS
  From time
to time the Company may be subject to law suits in the normal course of
business.
  In
October 2006, Thompson E. Fehr filed a complaint in the Second Judical District
Court of Weber County in the state of Utah against Kronos with respect to prior
services rendered to High Voltage Integrated, Inc. totaling $47,130 excluding
claims for damages and legal costs. The Company is rigorously defending itself.
As the Company believes this complaint is without merit, the Company believes a
financial loss is remote and therefore has not recorded a contingent liability
for this matter in its financial statements.
  In March
2007, Allstate Insurance Company, as subrogee of David Buell, filed a complaint
in the Circuit Court for the County of Oakland in the state of Michigan against
HoMedics, Inc. and Kronos with respect to damages related to a fire in the home
of Mr. Buell which resulted in $244,155 in damages. In May, 2007 the case was
transferred to United States District Court, in the Eastern District of
Michigan. In December 2007, all the parties agreed to full resolution of this
matter without any admission of liability by Kronos and without any payments by
Kronos. Kronos obtained a full release from Allstate. In January 2008, the
District Court dismissed the case as to Kronos with prejudice.
   24
 ITEM
6. EXHIBITS
  EXHIBIT
      NO.
                DESCRIPTION
                
                LOCATION2.1
                Articles
      of Merger for Technology Selection, Inc. with the Nevada Secretary of
      State
                
                Incorporated
      by reference to Exhibit 2.1 to the Registrant's Registration Statement on
      Form S-1 filed on August 7, 2001 (the "Registration
      Statement")3.1
                Articles
      of Incorporation
                
                Incorporated
      by reference to Exhibit 3.1 to the Registration
  Statement3.2
                Bylaws
                
                Incorporated
      by reference to Exhibit 3.2 to the Registration
  Statement10.1
                Amendment
      No.1 to Kronos Advanced Technologies, Inc. Secured Convertible Promissory
      Note with Sands, et. al. dated December 31, 2007
                
                Incorporated
      by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on January
      7, 200810.2
                Amendment
      No.2 to Kronos Advanced Technologies, Inc. Secured Convertible Promissory
      Note with Sands, et. al. dated March 13, 2008
                
                Incorporated
      by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on March
      14, 200810.3
                Intellectual
      Property Transfer and License Agreement between Kronos Advanced
      Technologies, Inc. and Tessera Technologies, Inc. dated March 31,
      2008
                
                Provided
      herewith10.4
                Letter
      Agreement amending the Funding Agreement between Kronos Advanced
      Technologies, Inc. AirWorks Funding LLLP and Hilltop Holding Company, LP
      dated April 22, 2008
                
                Provided
      herewith31
                Certification
      of Chief Executive Officer pursuant to U.S.C. Section 7241, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                
                Provided
      herewith32
                Certification
      by Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
                
                Provided
      herewith
  25
  Signatures
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
  KRONOS
      ADVANCED TECHNOLOGIES, INC.DATED:   May
      14, 2008
                By:
                /s/ DANIEL
      R. DWIGHTDaniel
      R. Dwight
                  President,
      Chief Executive Officer and
                  Chief
      Financial Officer






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