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 December 31, 2007

                                       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                              87-0440410
            (State or other jurisdiction of              (I.R.S. Employer
            incorporation or organization)              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 February 12, 2008, there were 487,626,791 shares outstanding of the
issuer's common stock.

<PAGE>

                                     PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The following comprise our (unaudited) consolidated financial statements for the
six months ended December 31, 2007.




































                                       2
<PAGE>

                       KRONOS ADVANCED TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS

                                                December 31,
                                                  2007             June 30,
Assets                                         (Unaudited)           2007
                                               -------------   ----------------
Current Assets
 Cash                                          $    211,950    $       363,955
 Accounts Receivable                                 46,403              5,027
 Other Current Assets                                12,138             12,138
                                               -------------   ----------------
  Total Current Assets                              270,491            381,120
                                               -------------   ----------------
Net Property and Equipment                            9,552              6,548

Other Assets
 Intangibles                                      1,719,430          1,723,150
                                               -------------   ----------------
  Total Other Assets                              1,719,430          1,723,150
                                               -------------   ----------------
Total Assets                                   $  1,999,473    $     2,110,818
                                               =============   ================


              Liabilities and Stockholders' Equity (Deficit)

Current Liabilities
 Accounts payable                              $    508,668    $       359,019
 Accrued interest expenses                          298,967             21,303
 Accrued expenses                                    75,390            125,000
 Notes payable, current portion                     859,000            859,000
 Notes payable to directors and
  officers                                          183,941            225,006
                                               -------------   ----------------
  Total Current Liabilities                       1,925,966          1,589,328
                                               -------------   ----------------
Long Term Liabilities
 Notes payable                                    4,298,559          3,600,000
 Discount for Beneficial Conversion
  Feature                                        (2,193,339)        (3,365,845)
                                                ------------   ----------------
  Total Long Term Liabilities                     2,105,220            234,155
                                               -------------   ----------------

     Total Liabilities                            4,031,186          1,823,483
                                               -------------   ----------------
Stockholders' Equity (Deficit) 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            242,343
Capital in excess of par value                   34,420,313         33,513,598
Accumulated deficit                             (36,939,653)       (33,468,606)
                                               -------------   ----------------
  Total Stockholders' Equity (Deficit)           (2,031,713)           287,335
                                               -------------   ----------------
  Total Liabilities and
   Stockholders' Equity (Deficit)              $  1,999,473    $     2,110,818
                                               =============   ================


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


                                       3
<PAGE>

<TABLE>
<CAPTION>

                                                    KRONOS ADVANCED TECHNOLOGIES, INC.
                                                  CONSOLIDATED STATEMENTS OF OPERATIONS

                                         Three months ended December 31,     Six months ended December 31,
                                        -------------------------------     ------------------------------
                                            2007               2006             2007              2006
                                        ------------       ------------     ------------      ------------
                                         (Unaudited)        (Unaudited)      (Unaudited)       (Unaudited)

<S>                                     <C>                <C>              <C>               <C>
Sales                                   $   294,055        $   102,282      $   319,055       $   121,482

Cost of sales                               143,672             82,036          143,672            91,619
                                        ------------       ------------     ------------      ------------
Gross Profit                                150,383             20,246          175,383            29,863
                                        ------------       ------------     ------------      ------------
Selling, General and Administrative
expenses
  Compensation and benefits (includes
   equity compensation of $397,032 and
   $114,848 for the six months ended
   December 31, 2007 and 2006,
   respectively)                            569,191            375,271        1,117,851           712,992
  Research and development                   13,000              5,389          121,794            34,997
  Professional services                     190,211             82,392          360,162           185,103
  Depreciation and amortization             109,940            118,840          219,335           227,690
  Insurance                                  29,144             29,700           59,534            83,844
  Facilities                                 30,160             25,221           60,321            52,266
  Other selling general and
   administrative expenses                  159,565            180,568          216,020           273,445
                                        ------------       ------------     ------------      ------------
 Selling, General and
  Administrative expenses                 1,101,211            817,381        2,155,017         1,570,337
                                        ------------       ------------     ------------      ------------

Net Operating Loss                         (950,828)          (797,135)      (1,979,634)       (1,540,474)

Accretion of note discount                 (886,847)                 -       (1,172,504)                -
Interest expense                           (169,896)           (74,722)        (318,908)         (173,955)
                                        ------------       ------------     ------------      ------------

Net Loss                                $(2,007,571)       $  (871,857)     $(3,471,046)      $(1,714,429)
                                        ============       ============     ============      ============

Basic and Diluted Loss Per Share        $     (0.01)       $     (0.00)     $     (0.01)      $     (0.01)
                                        ============       ============     ============      ============

Weighted average shares
outstanding                             243,813,291        183,008,781      243,349,768       166,082,956
                                        ============       ============     ============      ============
</TABLE>



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


                                       4
<PAGE>


                       KRONOS ADVANCED TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                For the six months ended December 31,
                                                -------------------------------------
                                                      2007                  2006
                                                ---------------       ---------------
                                                 (Unaudited)            (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                             <C>                   <C>
 Net loss from operations                       $   (3,471,046)       $   (1,714,429)
 Adjustments to reconcile net loss to
 net cash used in operations
  Depreciation and amortization                        219,329               227,690
  Accrued interest converted to notes payable                -               130,476
  Options issued for compensation/services             397,032               114,848
  Accretion of note discount                         1,172,504                     -
 Change In
  Accounts receivable                                  (41,376)              (45,936)
  Prepaid expenses and other assets                          -                (2,743)
  Deferred revenue                                           -               (20,000)
  Accounts payable                                     149,649               189,003
  Accrued expenses and other liabilities               209,032               (37,227)
                                                ---------------       ---------------
    Net cash Used in Operations                     (1,364,876)           (1,158,318)

CASH FLOWS FROM INVESTING ACTIVITIES
 Purchases of property and equipment                    (5,396)               (2,194)
 Investment in patent protection                      (213,212)              (79,725)
                                                ---------------       ---------------
Net cash Used in Investing Activities                 (218,608)              (81,919)
                                                ---------------       ---------------

CASH FLOWS FROM FINANCING ACTIVITIES
 Issuance of common stock                              754,967             1,050,000
 Repayment of short-term borrowings                    (22,048)             (354,237)
 Proceeds from long-term borrowings                  1,430,000                     -
 Retirement and repayment of long term debt           (731,440)                    -
                                                ---------------       ---------------
Net cash Provided by Financing
 Activities                                          1,431,479               695,763
                                                ---------------       ---------------
NET DECREASE IN CASH                                  (152,005)             (544,474)

CASH
 Beginning of period                                   363,955               598,323
                                                ---------------       ---------------
 End of period                                  $      211,950        $       53,849
                                                ===============       ===============
Supplemental disclosure of cash flow
information:

Interest paid in cash                           $       59,573        $      194,000
                                                ===============       ===============
Debt satisfied with stock                       $      731,440        $            -
                                                ===============       ===============
</TABLE>



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


                                       5
<PAGE>

                       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
December 31, 2007, 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 six months ended December 31, 2007 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. In addition, the Company
has 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:

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. During the six months ended December 31, 2007, Kronos
received $250,000 in product development fees.

                                       6
<PAGE>

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 six months ended
December 31, 2007, Kronos earned $35,000 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 six months ended December 31, 2007, Kronos
earned $34,000 in product development fees.

DESA. 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 six months ended December 31, 2007,
Kronos and DESA developed a plan for product commercialization, which the
Company has not begun implementing pending the prioritization of resources.

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.

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 December 31, 2007, we 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.

                                       7
<PAGE>

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 of three months or less when purchased,
to be cash equivalents. The Company maintains cash and cash equivalents with
high-credit, quality financial institutions. At December 31, 2007 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 December 31, 2007 and June 30, 2007. The Company charges off accounts
receivable against the allowance for losses when an account is deemed to be
uncollectable.

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.

                                       8
<PAGE>

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. Revenue from government grants for research and development purposes is
recognized as revenue as long as the Company determines that the government will
not be the sole or principal expected ultimate customer for the research and
development activity or the products resulting from the research and development
activity. Otherwise, such revenue is recorded as an offset to research and
development expenses in accordance with the Audit and Accounting Guide, Audits
of Federal Government Contractors. In either case, the revenue or expense offset
is not recognized until the grant funding is invoiced and any customer
acceptance provisions are met or lapse.

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 Statement of Financial Accounting Standards 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.

Recent Accounting Pronouncements

In September 2006, the FASB issued FASB Statement No. 157 "Fair Value
Measurements". This Statement defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles
("GAAP"), and expands disclosures about fair value measurements. This statement
applies under other accounting pronouncements that require or permit fair value
measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is a relevant measurement attribute. Accordingly,
this statement does not require any new fair value measurements. However, for
some entities, the application of this statement will change current practices.
This statement is effective for financial statements for fiscal years beginning
after November 15, 2007. Earlier application is permitted provided that the
reporting entity has not yet issued financial statements for that fiscal year.
Management believes this statement will have no impact on the financial
statements of the Company once adopted.

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 is currently evaluating the impact, if any, this
statement will have impact on the financial statements of the Company once
adopted.

                                       9
<PAGE>

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" - 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. Not-for-profit organizations
should continue to apply the guidance in Accounting Research Bulletin No. 51,
Consolidated Financial statements, before the amendments made by this statement,
and any other applicable standards, until the Board issues interpretative
guidance. 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


                                       10
<PAGE>

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.

NOTE 5 -- INCOME TAXES

The composition of deferred tax assets and the related tax effects at December
31, 2007 and June 30, 2007 are as follows:

                                         December 31, 2007
                                            (unaudited)         June 30, 2007
                                         ---------------       ---------------
Benefit from carryforward of capital
and net operating losses                 $ (9,284,000)        $   (7,698,000)

Other temporary differences                  (157,000)              (157,000)

Options issued for services                  (143,000)              (551,000)
Less:
  Valuation allowance                       9,584,000               8,406,000
                                         ---------------       ---------------
  Net 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:

<TABLE>
<CAPTION>

                                         December 31, 2007
                                             (Unaudited)                           June 30,2007
                                 ------------------------------------  ----------------------------------------
                                                             % of                                  % of
                                       Amount            Pre-Tax Loss         Amount            Pre-Tax Loss
                                 ---------------         ------------     --------------        ------------
Benefit for income tax at:
<S>                              <C>                       <C>          <C>                        <C>
Federal statutory rate           $     (683,000)           (34.0)%      $      (799,000)           (34.0)%
State statutory rate                    (40,000)            (2.0)%              (47,000)            (2.0)%
Non-deductible expenses                  48,000              2.4 %               24,000              1.0 %
Increase in valuation allowance         675,000             33.6 %              822,000             35.0 %
                                 ------------------------------------  -----------------------------------------
                                 $           -               0.0 %      $            -               0.0 %
                                 ====================================  =========================================
</TABLE>


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.

At December 31, 2007, the Company has approximately $21.4 million of unused
Federal net operating losses, $2.3 million of capital losses and $17.2 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.

                                       11
<PAGE>
NOTE 6 - 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 six months ended December 31, 2007 and
the fiscal year ended June 30, 2007 the Company operated only in the U.S.

NOTE 7 - EARNINGS PER SHARE

Weighted average shares outstanding used in the earnings per share calculation
were 243,813,291 and 166,082,956 for the six months ended December 31, 2007 and
2006, respectively.

As of December 31, 2007, 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 December 31, 2006, there were outstanding options to
purchase 24,144,928 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 8 - CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE

The Company had the following obligations as of as of December 31, 2007 and June
30, 2007:

                                             December 31, 2007
                                                 (Unaudited)     June 30, 2007
                                              ----------------  ---------------
Obligations to AirWorks Funding LLLP (1)      $     3,051,135   $     2,480,000
Obligations to Hilltop Holding Company, LP (1)      1,047,424           920,000
Discount for beneficial conversion feature (2)     (2,193,339)       (3,365,845)
Obligations to Sands Brothers (3)                     859,000           859,000
Obligations to Gumbinner and Sun (4)                  200,000           200,000
Obligation to current employees (5)                   183,941           202,307
                                                --------------  ---------------
                                                    3,148,161         1,295,462
Less: Current portion                               1,042,941         1,061,307
                                              ----------------  ---------------
Total long term obligations, net of
     current portion                          $     2,105,220   $      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.
(2)  Under GAAP, the Company recorded a discount for the beneficial conversion
     feature ("BCF") on the initial amount of the convertible debt issued to
     AirWorks and Hilltop. Kronos did not recognize a BCF discount for any
     additional amounts of the notes to AirWorks and Hilltop because the
     AirWorks and Hilltop conversion feature was capped. 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 initial debt of
     $3,400,000. The Company is amortizing the BCF discount over the three year
     life of the debt. For the six months ended December 31, 2007, the Company
     recorded a BCF discount amortization of $1,172,504.
(3)  These notes bear interest at the rate of 12%, are secured by the assets of
     the Company and are payable in full on February 28, 2008.
(4)  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. Kronos has not recognized a
     BCF discount on these notes because they are not convertible into Kronos
     common stock until the occurrence of future events outside the control of
     the note holders.
(5)  These notes bear interest at the rate of 12%. They represent obligations to
     current employees of the Company, which are currently due in full.

NOTE 9 - 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 six months ended December
31, 2007, the Company received an additional $1,430,000 in funding under the
terms of the Funding Agreement and related notes.

                                       12
<PAGE>

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. Future installments under the
Funding Agreement, up to $12,470,000, 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
December 31, 2007. In December 2007, Critical Capital and Sands Brothers agreed
to extend the maturity date of their note until February 28, 2008. The
outstanding amounts under this note may be converted into Kronos common stock at
the option of the holder at the $0.003 conversion price only if not paid in full
by February 28, 2008. 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. Assuming
the payment when due of the $859,000, 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. 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 of control of Kronos.

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. In addition, Kronos granted Mr. Dwight 1,000,000 immediately vested
and exercisable, ten-year stock options at various exercise prices. 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.

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 10 - SUBSEQUENT EVENTS

In January 2008, we received an additional advance of $475,000 from AirWorks and
Hilltop under the terms of the Funding Agreement and related notes.

In January 2008, we received an additional advance of $300,000 from AirWorks
under the terms of the Funding Agreement, related notes and a supplemental
bridge financing letter, pursuant to which Kronos is obligated to repay the
applicable amounts to AirWorks, at their sole discretion, from the proceeds of a
customer transaction.

                                       13
<PAGE>

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 and production 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 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:

     o    air movement, including dielectric fluid movement and propulsion;

     o    air purification, including particulate removal, bacteria and viral
          removal, biohazard destruction, and odor removal;

     o    temperature and environmental management, including space heating and
          cooling;

     o    microchip, MEMS and other electronics devices and components cooling;

     o    air management, including sorting and separation of air streams by
          particle content;

     o    sound generation, including high fidelity sound recreation and active
          noise cancellation;

     o    high voltage management, including development of high voltage power
          supplies and control of energy surges and electrical discharges;

     o    control of water and moisture content in air streams, including
          dehumidification and humidification; and

     o    water treatment, including water purification, ionization and water
          desalination.

                                       14
<PAGE>

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.

                           Filtration Testing Results:

     o    Aerosol and Air Quality Research Laboratory - up to 99.8% filtration
          of 0.02 to 0.20 micron (20 to 200 nanometers) size particles;

     o    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;

     o    MicroTest Laboratories - HEPA Clean Room Class 1000 quality
          particulate reduction; and

     o    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:

     o    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.

     o    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.

     o    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.

     o    Institute for Veterinary Medicine in the Ukraine - destroy and
          sterilize air which had been inseminated with Anthrax and E.coli
          spores;

     o    New Hampshire Materials Laboratory - up to 95% reduction of hazardous
          gases, including numerous carcinogens found in cigarette smoke;

     o    Battelle PNNL - 95% destruction of Bg (anthrax simulant); and

     o    Dr. Sergey Stoylar, a bacteriologist from the American Bacteriological
          Society - 100% destruction of Bacillus subtilis 168 (bacteria
          simulant).

                                       15
<PAGE>

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) air purification for unique spaces (clean rooms,
airplanes, automotive, and cruise ships); (3) embedded cooling and cleaning
(electronic devices and medical equipment); (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:

     o    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.

     o    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.

     o    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.

Kronos is currently developing products for the air movement and purification
and air purification for unique spaces markets through specific customer
contracts. Kronos is currently undertaking research and development in the
embedded micro cooling market using Company funds and third party grants. These
contracts and grants 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.

                                       16
<PAGE>
                               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. During the six months ended December 31, 2007, Kronos earned
$250,000 in product development fees.

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 six months ended December 31, 2007, 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

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 six months ended December 31, 2007, Kronos earned $34,000
in product development fees.
                                       17
<PAGE>

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 six months ended December 31, 2007,
Kronos and DESA developed a plan for product commercialization. During the six
months ended December 31, 2007, 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.

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. Patents and Intellectual
Property

Kronos currently has thirteen registered patents with 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.

                                       18
<PAGE>

                                             U.S. Patents


<TABLE>
<CAPTION>

   Date         U.S. Patent #        Patent Title              Description               Protection
   ----         -------------        ------------              -----------               ----------
<S>              <C>                                                                          <C>
  August         7,262,564         Alternative           geometry, voltage ratios             2024
  2007                             Geometries and        and power requirements
                                   Voltage Supply        for improved operational
                                   Management            performance

  July           7,248,003         Electric Field        effective electric field             2025
  2007                             Management            management for reduced
                                                         sparking

  October        7,122,070         Method of and         inertialess power supply for         2025
  2006                             Apparatus for         safe operation and spark
                                   Electrostatic Fluid   prevention
                                   Acceleration

  August         7,157,704         Corona Discharge      method of generating air             2023
  2006                             Electrode and Method  flow and air cleaning with
                                   of Operating          reduced amount of ozone by-
                                                         product and with extended
                                                         life-span of the electrodes

  July           7,150,780         Electrostatic Air     method for improving the             2024
  2006                             Cleaning Device       efficiency of electrodes for
                                                         filtering micron and sub-
                                                         micron size particles

  May            7,053,565         Electrostatic Fluid   effective powering of the            2024
  2006                             Accelerator - Power   electrodes for high level of
                                   Management            air velocity

  November       6,963,479         Electrostatic Fluid   advanced voltage management          2023
  2005                             Accelerator -         impacts air filtration and
                                   Advanced Geometries   sterilization, air flow and
                                                         ozone as well as safe operation
                                                         and spark prevention

  August         6,937,455         Spark Management      analysis, detection and              2022
  2005                             Method and Device     prevention of sparks in a
                                                         high voltage field -
                                                         creating safe, effective
                                                         electrostatic technology
                                                         products

  July           6,919,698         Voltage Management    materials and geometry               2023
  2005                             for Electrostatic     allowing for spark free
                                   Fluid Accelerator     operation and use of light
                                                         weight, inexpensive

                                                         materials as the electrodes
  May            6,888,314         Electrostatic Fluid   electrode design geometries          2022
  2005                             Accelerator -         and attributes including
                                   Electrode Design      micro channeling to achieve
                                   Geometries            unique air movement and
                                                         purification performance

  April          6,727,657         Electrostatic Fluid   synchronization of multiple          2022
  2004                             Accelerator for and   stages of arrays -
                                   a Method of           increasing air flow and air
                                   Controlling Fluid     flow efficiency



December       6,664,741          Method of and         ratio of voltage for                 2022
2003                              Apparatus for         producing ion discharge to
                                  Electrostatic Fluid   create air movement and
                                  Acceleration Control  base level filtration
                                  of a Fluid Flow

January        6,504,308          Electrostatic Fluid   electrode density core for           2019
2003                              Accelerator           producing ion discharge to
                                                        create air movement and
                                                        base level filtration
</TABLE>

                                       19
<PAGE>

                              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 one or more 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.

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.

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.

                                       20
<PAGE>

RESULTS OF OPERATIONS

Consolidated Statement of Operations For the Quarter Ended December 31, 2007
Compared with the Quarter Ended December 31, 2006.

Our net losses for each of the six months ended December 31, 2007 and 2006 were
$3,471,000 and $1,714,000, respectively. The $1,757,000, or 103%, increase in
the net loss for the six months ended December 31, 2007, as compared to the
prior year was principally the result of a $1,173,000 in accretion of note
discount, a $585,000, or 37%, increase in operating costs to $2,155,000, and
$145,000, or 83%, increase in interest expense, partially offset by a $146,000,
or 487%, increase in gross profit to $175,000.

Revenue. Revenues are generated through sales of services for design and
development of Kronos devices at Kronos Air Technologies, Inc. Revenues for the
six months ended December 31, 2007 were $319,000 compared with $121,000 for the
comparable period in the prior year, an increase of $198,000, or 164%. Revenues
for the six months ended December 31, 2007 were from our agreements with a
national retailer, global consumer products company and EOL. In comparison,
revenues for the six months ended December 31, 2006 were from our agreements
with EOL, GE and DESA.

Cost of Sales. Cost of sales for the six months ended December 31, 2007 was
$144,000 compared with $92,000 for the prior year, and increase of $52,000, or
57%. Cost of sales for the six months ended December 31, 2007 were primarily
product development costs associated with our national retailer and global
consumer products company agreements. In comparison, cost of goods sold for the
six months ended December 31, 2006 were primarily product development costs
associated with our EOL, GE and DESA agreements.

Selling, General and Administrative Expenses. Selling, General and
Administrative expenses for the six months December 31, 2007 increased $585,000,
or 37%, from the corresponding period of the prior year to $2,155,000. The
increase was principally the result of a $405,000 increase in compensation and
benefits primarily as a result of an increase in the expense of amortizing stock
options that vested during the 2007 period and a $175,000, or 95%, increase in
professional services as a result of an increase in advisory services from our
majority shareholder and legal expenses.

Accretion of note discount. Accretion of note discount for the six months ended
December 31, 2007 of $1,173,000 represented the amortization of the beneficial
conversion feature of the AirWorks and Hilltop promissory notes.

Interest expense. Interest expenses for the six months ended December 31, 2007
was $319,000 compared to $174,000 for the corresponding period of the prior
year. The $145,000, or 83%, increase in interest expense for the six months
December 31, 2007, as compared to the prior year, was principally the result of
the interest on promissory notes payable to AirWorks, Hilltop, Sands and
Critical Capital.

Consolidated Balance Sheet as of December 31, 2007 Compared with June 30, 2007

Our total assets at December 31, 2007 were $1,999,000 compared with $2,111,000
at June 30, 2007. Total assets at December 31, 2007 and June 30, 2007 were
comprised primarily of $1,719,000 and $1,723,000, respectively, of
patents/intellectual property and $212,000 and $364,000, respectively, of cash.
Total current assets at December 31, 2007 and June 30, 2007 were $270,000 and
$381,000, respectively, while total current liabilities for such periods were
$1,926,000 and $1,589,000, respectively. This created a working capital deficit
of $1,656,000 and $1,208,000 at December 31, 2007 and June 30, 2007,
respectively. This working capital deficit is primarily due to short term
borrowings from Sands Brothers.

Stockholders' deficit as of December 31, 2007 was $2,032,000. The $3,471,000 net
loss for the six months ended December 31, 2007 was partially offset by the
issuance of equity from the conversion of promissory notes into stock
($731,000), the issuance of stock options for services ($397,000), and the
issuance of stock for services ($24,000).

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have relied principally on the sale of common stock and secured
debt and customer contracts for research and product development to finance our
operations.

Net cash flow used in operating activities was $1,365,000 for the six months
ended December 31, 2007. We were able to satisfy our cash requirements for this
period from the proceeds of the convertible secured promissory notes with
AirWorks and Hilltop and customer revenue from product development and licensing
fees.

We estimate that achievement of our business plan will require substantial
additional funding. We anticipate that the source of funding will be obtained
pursuant to equity funding from the Funding Agreement 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.

                                       21
<PAGE>

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 an
outstanding convertible debenture issued to Cornell Capital Partners and the
settlement agreement obligation to HoMedics and the expenses of the transaction,
the remainder of $1,069,000 was used for working capital purposes. The initial
new lenders under the Funding Agreement 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. Subsequently, RS Properties assigned to Hilltop its promissory note in
the amount of $6,480,000, together with certain other rights and agreements
relating thereto, including, without limitation, its rights and obligations
under the Funding Agreement. During the six months ended December 31, 2007, the
Company received an additional $1,430,000 in funding under the terms of the
Funding Agreement and related notes. In January 2008, we received an additional
advance of $475,000 from AirWorks and Hilltop under the terms of the Funding
Agreement and related notes and an additional advance of $300,000 from AirWorks
under the terms of the Funding Agreement, related notes and a supplemental
bridge financing letter, pursuant to which Kronos is obligated to repay the
applicable amounts to AirWorks, at their sole discretion, from the proceeds of a
customer transaction.

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. Future installments under the
Funding Agreement, up to $12,470,000, 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 principal of $859,000, which was initially due and
payable on December 31, 2007. In December 2007, Critical Capital and Sands
Brothers agreed to extend the maturity date until February 28, 2008. The
outstanding amounts may be converted into Kronos common stock at the option of
the holder at the $0.003 conversion price only if not paid in full by February
28, 2008. 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. Assuming payment
when due of the $859,000, that the maximum loan amount is advanced under the
Funding Agreement and related notes and that 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. 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.

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 require significant
additional financing to sustain our operations.

At December 31, 2007 and June 30, 2007, we had a working capital deficit of
$1,656,000 and $1,208,000, respectively. 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. For the six months ended December 31, 2007 and the
fiscal year ended June 30, 2007, we had an operating cash flow deficit of
$1,365,000 and $3,029,000 and a cash balance of $212,000 and $364,000,
respectively. Funding may be available to Kronos through AirWorks and Hilltop.
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.

                                       22
<PAGE>
We have a limited operating history with significant losses and expect losses to
continue for the foreseeable future.

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 any history of profitable
operations. We incurred a net loss of $3,471,000 for the six months ended
December 31, 2007 and a net loss of $2,351,000 for the fiscal year ended June
30, 2007. As a result, at December 31, 2007 and June 30, 2007, we had an
accumulated deficit of $36,940,000 and $33,469,000, respectively. Our revenues
and cash flows from operations have not been sufficient to sustain our
operations. We have sustained our operations through the issuance of our common
stock and the incurrence of debt. We expect that our revenues and cash flows
from operations will not be sufficient to sustain our operations for the
foreseeable future. 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 and Hilltop
Secured Convertible Promissory Note, 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 in part 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 $1,719,000 as of December 31, 2007
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 86% of
our total assets as of December 31, 2007. 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.

                                       23
<PAGE>

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.

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 June 30, 2007, 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 June 30, 2007.

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 fiscal year ended June 30, 2007, 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 fourth
quarter that have materially affected or is reasonably likely to affect the
Company's internal control over financial reporting.


                                       24
<PAGE>

                                     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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In September 2007, we issued 1,470,588 shares of Kronos common stock to Cornell
Capital Partners under our Standby Equity Distribution Agreement in payment of a
past due commitment fee. We believe the issuance of such securities was exempt
from the registration requirements of the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof.

In December 2007, we issued 243,813,400 shares of Kronos common stock to
AirWorks and Hilltop who converted $731,440 under their Secured Convertible
Promissory Notes. We believe the issuance of such securities was exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On December 14, 2007, the Company's Board of Directors approved a
reincorporation and recapitalization of the Company which will include (1) the
Company being reincorporated in the State of Delaware via a reincorporation
merger with a newly created subsidiary of the Company, (2) increasing the
authorized share capital of the Company to 500,000,000,000 shares of common
stock and 100,000,000 shares of preferred stock and (3) making certain other
changes to the organizational documents of the Company. Effective December 31,
2007, and following the conversion of a portion of the AirWorks and Hilltop
notes, a majority of the stockholders of the Company approved the
reincorporation/ recapitalization by written consent. Prior to the effectiveness
of the reincorporation/recapitalization, the Company will be distributing an
information statement to its stockholders in accordance with Schedule 14C of the
Securities and Exchange Act of 1934, as amended. Such information statement will
include additional details regarding the reincorporation and recapitalization.

                                       25
<PAGE>

ITEM 6. EXHIBITS
<TABLE>
<CAPTION>

EXHIBIT NO.         DESCRIPTION                                  LOCATION
-------------------------------------------------------------------------------------------------
<S>  <C>
     2.1             Articles of Merger for Technology           Incorporated by reference to
                     Selection, Inc. with the Nevada             Exhibit 2.1 to the Registrant's
                     Secretary of State                          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
                                                                 Statement

     3.2             Bylaws                                      Incorporated by reference to
                                                                 Exhibit 3.2 to the Registration
                                                                 Statement

     10.1            Amendment No.1 to Kronos Advanced           Incorporated by reference to
                     Technologies, Inc. Secured Convertible      Exhibit 10.1 to the Registrant's Form
                     Promissory Note with Sands, et. al.         8-K filed on January 7, 2008
                     dated December 31, 2007


     31              Certification of Chief Executive            Provided herewith
                     Officer pursuant to U.S.C. Section
                     7241, as adopted pursuant to Section
                     302 of the Sarbanes-Oxley Act of 2002


     32              Certification by Chief Executive Officer    Provided herewith
                     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
</TABLE>


                                       26
<PAGE>

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.

DATED:   February 14, 2008             KRONOS ADVANCED TECHNOLOGIES, INC.

                              By: /s/ DANIEL R. DWIGHT
                                      --------------------------------------
                                      Daniel R. Dwight
                                      President, Chief Executive Officer and
                                      Chief Financial Officer