UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                   FORM 10-QSB

                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                For the quarterly period ended December 31, 2004

                   Transition Report under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

             For the transition period from __________ to __________

                          COMMISSION FILE NO. 000-30191

                       KRONOS ADVANCED TECHNOLOGIES, INC.

             (Exact name of registrant as specified in its charter)



           NEVADA                                     87-0440410
--------------------------------       ---------------------------------------
(State of other jurisdiction of         (I.R.S. Employer Identification Number)
incorporation or organization)


     464 Common Street, Suite 301, Belmont, MA                       02478
  ----------------------------------------------                   --------
      (Address of principal executive offices)                    (Zip Code)


Registrant's telephone number, including area code:        (617) 993-9965
--------------------------------------------------      -------------------


(1) Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and

(2) has been subject to such filing requirements for the past 90 days. /X/ Yes
// No

As of February 12, 2005, there were 71,186,345 shares outstanding of the
issuer's common stock.



<PAGE>



                                                                PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The following comprise our condensed (unaudited) consolidated financial
statements for the six months ended December 31, 2004.


                                       2
<PAGE>



                       KRONOS ADVANCED TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS

                                             December 31,     June 30,
                                                2004            2004
                                            ------------     -----------
                                             (Unaudited)
Assets

Current Assets
 Cash                                        $ 1,445,090    $    69,063
 Accounts receivable, net                        141,244         97,544
 Prepaids & other                                524,445         71,050
                                              -----------     ----------
    Total Current Assets                       2,110,779        237,657
                                              -----------     ----------

Net Property and Equipment                         4,747          6,292
                                              -----------     ----------

Other Assets
 Intangibles                                   2,110,433      2,253,029
                                              -----------     ----------
    Total Other Assets                         2,110,433      2,253,029
                                              -----------     ----------

Total Assets                                 $ 4,225,959     $ 2,496,978
                                              ===========     ==========

                      Liabilities and Shareholders' Deficit

Current Liabilities
 Accrued expenses and payables
  to directors and officers                  $   101,652     $    36,258
 Accounts payable                                 37,750         272,544
 Accrued expenses                                319,523         312,346
 Deferred revenue                                   -              3,218
 Notes payable to directors and
  officers, current portion                      976,634          76,637
 Other notes payable, current portion          2,131,418         722,289
                                              -----------     ----------
    Total Current Liabilities                  3,566,977       1,423,292
                                              -----------     ----------

Long Term Liabilities
 Notes payable:
  Notes payable to directors and officers         86,632       1,063,266
  Other notes payable                          2,407,940       1,983,039
  Discount on notes payable                         -           (589,261)
                                              -----------     ----------
    Total Long Term Liabilities                2,494,572       2,457,044
                                              -----------     ----------

    Total Liabilities                          6,061,549       3,880,336
                                              -----------     ----------

Shareholders' Deficit
 Common stock, authorized 500,000,000
  shares of $.001 par value -
  74,127,522 and 61,323,845 shares
  outstanding on December 31, 2004 and
  June 30, 2004, respectively                     74,127          61,323
 Capital in excess of par value               23,250,503      18,578,019
 Accumulated deficit                         (25,160,220)    (20,022,700)
                                              -----------     ----------
    Total Shareholders' Deficit               (1,835,590)     (1,383,358)
                                              -----------     ----------
Total Liabilities and Shareholders' Deficit  $ 4,225,959     $ 2,496,978
                                              ===========     ==========


   The accompanying notes are an integral part of these financial statements.
                                       3

<PAGE>

                       KRONOS ADVANCED TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                 Three months ended December 31,     Six months ended December 31,
                                 -------------------------------     ------------------------------
                                    2004               2003              2004             2003
                                 ----------          --------          --------        -----------
                                 (Unaudited)        (Unaudited)      (Unaudited)       (Unaudited)

<S>                              <C>                <C>              <C>               <C>
Sales                            $   139,918        $   111,528      $   381,451       $   241,545

Cost of sales                        115,928             73,052          333,848           155,805
                                  -----------        -----------      -----------        ----------
Gross Profit                          23,990             38,476           47,603            85,740
                                  -----------        -----------      -----------        ----------

Selling, General and
 Administrative expenses
  Compensation and benefits          295,133            209,724          518,003           412,547
  Research and development            36,577             19,023           54,565            38,851
  Professional services              (65,396)            73,646          (13,057)          117,284
  Depreciation and amortization       98,441             70,465          198,275           141,044
  Insurance                           30,283             36,938           92,241            73,875
  Facilities                          25,046             25,837           43,933            44,710
  Other selling general and
   administrative expenses           110,025             66,684          139,943           103,499
                                  -----------        -----------      -----------        ----------
 Selling, General and
  Administrative expenses            530,109            502,317        1,033,903           931,810
                                  -----------        -----------      -----------        ----------

Net Operating Loss                  (506,119)          (463,841)        (986,300)         (846,070)

Loss on Debt Restructuring        (3,857,467)              -          (3,857,467)             -
Other Income                             403             22,000              403            22,000
Interest Expense                    (152,547)          (128,152)        (294,156)         (296,422)
                                  -----------        -----------      -----------        ----------

Net Loss                         $(4,515,730)       $  (569,993)     $(5,137,520)      $(1,120,492)
                                  ===========        ===========      ===========       ===========

Basic and Diluted Loss Per Share $     (0.06)       $     (0.01)     $     (0.08)      $     (0.02)
                                  ===========        ===========      ===========       ===========

Weighted average shares
 outstanding                      70,022,575         56,945,587       65,673,210        55,459,617
</TABLE>


   The accompanying notes are an integral part of these financial statements.
                                       4


<PAGE>



                       KRONOS ADVANCED TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                      For the six months ended December 31,
                                      -------------------------------------
                                           2004               2003
                                         --------           ---------
                                       (Unaudited)         (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss from operations              $ (5,137,520)       $ (1,120,492)
 Adjustments to reconcile net loss to
 net cash used in operations
  Depreciation and amortization             198,275             141,044
  Common stock issued for
   compensation/services                       -                 79,200
  Accretion of note discount                 92,965             132,304
  Loss on debt restructuring              3,857,467                -
 Change In
  Accounts receivable                       (43,700)             26,261
  Prepaid expenses and other assets          53,222             (79,264)
  Deferred revenue                           (3,218)            (69,682)
  Accounts payable                         (271,052)            (93,620)
  Accrued expenses and other liabilities    108,829              (4,410)
                                        ------------        ------------
    Net cash Used in Operations          (1,144,732)           (988,659)

CASH FLOWS FROM INVESTING ACTIVITIES
 Investment in patent protection            (54,134)            (63,539)
                                        ------------        ------------
Net cash Used in Investing Activities       (54,134)            (63,539)
                                        ------------        ------------

CASH FLOWS FROM FINANCING ACTIVITIES
 Issuance of common stock                 1,324,118             805,851
 Proceeds from short-term borrowings        100,000                -
 Repayments of short-term borrowings       (342,607)           (216,999)
 Proceeds from long-term borrowings       4,400,000                -
 Retirement and repayments of
  long-term debt                         (2,400,000)               -
 Debt acquisition costs                    (506,618)               -
                                        ------------        ------------
Net cash Provided by Financing
 Activities                               2,574,893             588,852
                                        ------------        ------------
NET (DECREASE) INCREASE IN CASH           1,376,027            (463,346)

CASH
 Beginning of period                         69,063             641,178
                                        ------------        ------------
 End of period                         $  1,445,090        $    177,832
                                        ============        =============

Supplemental schedule of non-cash investing and financing activities:

 Interest paid in cash                 $      9,516        $      6,006
                                        ============        =============

 Accounts payable/accrued expense
  converted to notes payable           $       -           $    805,300
                                        ============        =============

   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 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Kronos Advanced
Technologies, Inc. (the "Company") 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 month periods ended December 31, 2004 and are not necessarily
indicative of the results that may be experienced for the fiscal year ending
June 30, 2005.

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, 2004 filed on October 15, 2004.

NOTE 2 - 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 period ended December 31, 2004. In addition, the
Company has used, rather than provided, cash in its operations. The Company is
currently using its resources in its efforts to raise capital necessary to bring
the technology to market, 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, to maintain present financing 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:

HoMedics Licensing Agreement. In October 2002, Kronos Air Technologies, Inc.,
and HoMedics USA, Inc. executed a multiyear, multi-million-dollar Licensing
Agreement to bring Kronos(TM) proprietary technology to the consumer. The
agreement provides for exclusive North American, Australian and New Zealand
retail distribution rights for next generation consumer air movement and
purification products based on the patented Kronos(TM) technology. In August
2004, the Company and HoMedics, Inc. began preparing the Kronos-based consumer
standalone product line for mass production. The initial term of the agreement
is three and one half years from the initial sale of consumer air purification
products by HoMedics, which shall be no later than December 31, 2006, with the
option to extend the agreement for six additional years. Kronos will be
compensated through an initial royalty payment and ongoing quarterly royalty
payments based on a percentage of sales. HoMedics will pay minimum royalty
payments of at least $2.0 million during the initial term and on-going royalty
payments to extend the agreement. Kronos will retain full rights to all of its
intellectual property.

US Navy SBIR. In November 2002, Kronos was awarded by the U. S. Navy a Small
Business Innovation Research Phase II contract worth $580,000, plus an option of
$145,000. The Phase II contract (commercialization phase) is an extension of the
Phase I and the Phase I Option work that began in 2001. It is intended that the
Kronos(TM) devices being developed under this contract will be embedded in
existing HVAC systems in order to move air more efficiently than traditional,
fan-based technology. During Phase II, Kronos developed and produced a set of
fully controlled devices that represent a "cell" of an advanced distributive air
management system with medium capacity airflow in a U.S. Navy unique
environment. The "cell" has been designed to be easily adjustable to a variety
of parameters such as duct size, airflow requirements, and air quality. As of
January 31, 2004, the U. S. Navy had provided Kronos with $580,000 in funding
for this effort.

                                       6

<PAGE>
US Army SBIR Option. In October 2003, the U.S. Army awarded Kronos the Small
Business Innovation Research Phase II contract. The contract is worth $369,000.
The contract is to develop Kronos' proprietary Electrostatic Dehumidification
Technology ("EDT"). Kronos initiated work under the Phase II contract in
December 2003. In December 2004, the U.S. Army extended the first year of the
contract to February 2005. As of January 31, 2004, the U. S. Army had provided
Kronos with $275,000 in funding for this effort.

Cornell Equity and Equity Backed Financing. In October 2004, Kronos entered into
agreements for up to $20.5 million in equity and equity backed debt financing
from Cornell Capital Partners. In October 2004, Kronos sold five million
unregistered shares of Kronos common stock for gross proceeds of $500,000.
Cornell Capital Partners committed to provide $4 million pursuant to two Equity
Backed Promissory Notes: $2 million was funded upon the filing an SB-2
Registration Statement and $2 million will be funded upon the SEC declaring the
Registration Statement effective. Kronos executed a Standby Equity Distribution
Agreement for up to $20 million of funding which Kronos has the option to

drawdown against in increments as large as $1.5 million over the next
twenty-four months.

HoMedics provided debt financing. In October 2004, HoMedics agreed to extend
repayment of Kronos debt and to provide an additional $1.0 million in funding
(refer to Note 10 - Commitments and Contingencies below).

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Method. The Company's financial statements are prepared using the
accrual method of accounting. The Company has elected a June 30 fiscal year end.

Reclassifications. Certain reclassifications have been made to the 2004
financial statements in order to conform to the 2005 presentation. None of these
reclassifications affected previously reported financial position, results of
operations or cash flows of the Company.

Principles of Consolidation. The consolidated financial statements of the
Company include those of the Company and of each of its subsidiaries for the
periods in which the subsidiaries were owned/held by the Company. All
significant intercompany accounts and transactions have been eliminated in the
preparation of the consolidated financial statements. At December 31, 2004, we
had only one subsidiary, Kronos Air Technologies, Inc.

Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the periods. Actual results could differ from those
estimates.

Concentrations of Credit Risk. Financial instruments which can potentially
subject the Company to concentrations of credit risk consist principally of
trade 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 six months or less when purchased, to
be cash equivalents.

Accounts Receivable. The Company provides an allowance for losses on trade
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, 2004 and
June 30, 2004. The Company charges off accounts receivable against the allowance
for losses when an account is deemed to be uncollectable.

                                       7

<PAGE>
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 our 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 our 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 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.

Income Taxes. Income taxes are accounted for in accordance with the provisions
of 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.

Earnings (Loss) Per Share. Basic earnings (loss) per share is computed using the
weighted average number of shares outstanding. Diluted earnings (loss) per share
is computed using the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding options and warrants to
purchase common stock, when their effect is dilutive.

Revenue Recognition. The Company recognizes revenue in accordance with Staff
Accounting Bulletin (SAB) 104, which requires evidence of an agreement, delivery
of the product or services at a fixed or determinable price, and assurance of
collection within a reasonable period of time. Further, Kronos Air Technologies
recognizes revenue on the sale of the custom-designed contract sales under the
percentage-of-completion method of accounting in the ratio that costs incurred
to date bear to estimated total costs. For uncompleted contracts where costs and
estimated profits exceed billings, the net amount is included as an asset in the
balance sheet. For uncompleted contracts where billings exceed costs and
estimated profits, the net amount is included as a liability in the balance
sheet. Sales are reported net of applicable cash discounts and allowances for
returns. 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.

                                       8

<PAGE>
Stock Options. Statement of Financial Accounting Standards No. 148 "Accounting
for Stock-Based Compensation-Transition and Disclosure, an Amendment of FASB
Statement No. 123," amends the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), to require more prominent disclosures in both annual and interim
financial statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.

The Company accounts for stock-based compensation to employees and directors
using the intrinsic value method of accounting as prescribed under Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations. Under the intrinsic value method,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of the grant, no compensation
expense is recognized in the Company's Consolidated Statements of Operations.

RECENT ACCOUNTING PRONOUNCEMENTS - Management does not believe that recently
issued, but not yet effective accounting pronouncements, if currently adopted,
would have a material effect on the accompanying consolidated financial
statements.

NOTE 4 -- INCOME TAXES

The composition of deferred tax assets and the related tax effects at December
31, 2004 and June 30, 2004 are as follows:



                                             December 31, 2004
                                                (Unaudited)     June 30, 2004
                                                -------------   -------------
Benefit from carryforward of capital and
 net operating losses                           $  5,387,670    $  4,841,083
Other temporary differences                          156,740         156,740
Less:
  Valuation allowance                             (5,544,410)     (4,997,823)
                                                -------------   -------------
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, 2004
                                                           (Unaudited)                June 30,2004
                                                   ---------------------------  ----------------------------
                                                                      % of                         % of
                                                        Amount    Pre-Tax Loss      Amount      Pre-Tax Loss
                                                   -------------  ------------  --------------  ------------
<S>                                                <C>                   <C>    <C>                    <C>
Benefit for income tax at federal statutory rate   $  1,746,757          34.0%  $     848,265          34.0%
Benefit for income tax at state statutory rate          102,401          2.0 %         49,728           2.0%
Non-deductible expenses                              (1,302,571)       (25.4)%       (123,348)        (4.9)%
Increase in valuation allowance                        (546,587)       (10.6)%       (774,645)       (31.0)%
                                                   -------------  ------------  --------------  ------------
                                                   $       -              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, 2004, for federal income tax and alternative minimum tax
reporting purposes, the Company has approximately $12.6 million of unused
Federal net operating losses, $2.3 million of capital losses and $9.6 million of
unused State net operating losses available for carryforward to future years.
The benefit from carryforward of such losses will expire in various years
between 2006 and 2025 and could be subject to limitations if significant
ownership changes occur in the Company.

                                       9

<PAGE>
NOTE 5 - SEGMENTS OF BUSINESS

The Company operates principally in one segment of business: The Company
licenses, manufactures and distributes air movement and purification devices
utilizing the Kronos(TM) technology. For the six months ended December 31, 2004
and the fiscal year ended June 30, 2004, the Company operated only in the U.S.

NOTE 6 - EARNINGS PER SHARE

Weighted average shares outstanding used in the earnings per share calculation
were 65,673,210 and 55,459,617 for the six months ended December 31, 2004 and
2003, respectively.

As of December 31, 2004, there were outstanding options to purchase 12,813,812
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. As of December 31, 2003, there were outstanding options and
warrants to purchase 11,040,260 and 15,792,342 shares, respectively, of the
Company's common stock. These options have been excluded from the earnings per
share calculation as their effect is anti-dilutive.

NOTE 7 - NOTES PAYABLE

The Company had the following obligations as of December 31, 2004 and June 30,
2004,


                                       December 31, 2004       June 30, 2004
                                           (Unaudited)
                                        ---------------       ---------------
 Obligation to HoMedics (1)             $    2,400,000        $   2,400,000
 Discount on obligation to HoMedics               -                (589,261)
 Obligation to Cornell (2)                   2,000,000                 -
 Obligation to current employees (3)         1,063,266            1,139,903
 Obligation for finance leases (4)              39,358               50,327
 Obligation to Fusion Capital (5)                 -                 200,000
 Obligations to others (6)                     100,000               55,000
                                        ---------------       ---------------
                                             5,602,624            3,255,971
Less:
 Current portion                             3,108,052              798,926
                                        ---------------       ---------------
 Total long term obligations net of
     current portion                    $    2,494,572        $   2,457,044
                                        ===============       ===============


                                       10

<PAGE>

(1) This note has a 5 year term and bears interest at 6%. In October 2004,
    HoMedics agreed to extend repayment of this note. This note was issued along
    with warrants for the purchase of 13.6 million shares of the Company's
    common stock. As a result, the note was recorded with a discount of $893,000
    that was being amortized against earnings using the interest rate method of
    amortization. In October 2004, the note was amended to extend payment terms
    (refer to Note 10 - Commitments and Contingencies). As a result, the
    discount on the obligation was expensed in full during the quarter ended
    December 31, 2004.

(2) This note has less than a one year term and bears interest at 12%. Payments
    on the note begin upon a Registration Statement decelerated effective by the
    SEC.

(3) These notes bear interest at the rate of 12% and are due December 31, 2006.
    Under the terms of the notes, $721,474 was due and payable at December 31,
    2004.

(4) See Note 8 below.

(5) This is a non-interest bearing demand obligation and was only outstanding
    until Fusion Capital purchased enough stock from the Company to eliminate
    the advance position. In November 2004, Fusion Capital purchased two million
    shares of the Company's Common Stock to eliminate the advance position.

(6) There was one other obligation at December 31, 2004 for $100,000 at the rate
    of 12%. The note was currently due and payable at December 31, 2004.

NOTE 8 - CAPITAL LEASES

The Company entered into a capital lease for the purpose of purchasing equipment
used in the research and product development center. Certain officers of the
Company personally guaranteed the capital lease if the Company does not fulfill
its terms of the lease obligations. The leases are for 36 months and contain
bargain purchase provisions so that the Company can purchase the equipment at
the end of each lease. The following sets forth the minimum future lease
payments and present values of the net minimum lease payments under these
capital leases:

Minimum Future Lease Payments and Present Values of the Net Minimum Lease
Payments

Period ended December 31,
-----------------------------------
     2005                                         $ 31,418
     2006                                           14,853
                                                  ---------
 Total minimum lease payments                       46,271
Less:  Executory costs                                -
                                                  ---------
 Net minimum lease payments                         46,271
Less:  Imputed interest                             (6,913)
                                                  ---------
 Present value of net minimum lease payments      $ 39,358
                                                  =========

Of the equipment that was purchased using capital leases, $10,650 was
capitalized and the remaining $65,782 was expensed through research and
development and cost of sales. In the three and six months ended December 31,
2004, the Company paid $11,292 and $15,969 in principal and $3,642 and $4,999 in
interest on capital leases, respectively. In the three and six months ended
December 31, 2003, the Company paid $5,000 and $9,703 in principal and $4,085
and $8,466 in interest on capital leases, respectively.

NOTE 9 - CONSULTING AGREEMENTS

On October 31, 2003, the Company entered into a 10-month consulting agreement
with Joshua B. Scheinfeld and Steven G. Martin, principals of Fusion Capital,
for consulting services with respect to operations, executive employment issues,
employee staffing, strategy, capital structure and other matters as specified
from time to time. As consideration for their services, the Company issued
360,000 shares of its common stock. In accordance with EITF 96-18, the
measurement date was established as the contract date of October 31, 2003 as the
share grant was non-forfeitable and fully vested on that date. The stock was
valued on that date at $0.22 a share (the closing price for the Company's common
stock on the measurement date). The stock issuance has been recorded as a
prepaid consulting fee and was amortized to Professional Fee Expense ratably
over the ten month term of the contract. Under this contract, expenses of $0 and
$12,586 were recorded for the three and six months ended December 31, 2004,
respectively.

                                       11
<PAGE>

NOTE 10 - COMMITMENTS AND CONTINGENCIES

In October 2004, HoMedics agreed to extend repayment of Kronos debt and to
provide an additional $1 million in funding. HoMedics has agreed to provide
Kronos with an additional $1 million in financing - $925,000 in secured debt
financing and $75,000 for the purchase of additional 26,507,628 ten year
warrants exercisable at $0.10 per share. HoMedics increased their potential
equity position in Kronos to 30% of Kronos common stock on a fully diluted
basis. The $925,000 will be paid to Kronos upon Kronos achieving three
milestones: (i) $175,000 shall be funded upon delivery and successful testing of
electronic boards and power supplies from Kronos' contract manufacturing
partner, (ii) $250,000 shall be funded upon obtaining tooling of the current
prototype configuration and device testing and performing to HoMedics'
specifications, and (iii) $500,000 shall be funded upon the initial sale of
Kronos-based air purifiers by HoMedics. In addition, quarterly debt payments and
the maturity date for existing debt have been extended. Quarterly payments due
on the outstanding $2.4 million in secured debt financing, which had been
scheduled to begin in August 2004, will be due the earlier of Kronos receipt of
royalty payments from HoMedics sale of Kronos-based air purification products or
two years. The maturity date of the $2.4 million in debt has been extended from
May 2008 to October of 2009; the maturity date on the $925,000 will also be
October 2009. The interest rate will remain at 6% for the $2.4 million in debt;
the rate will also be 6% on the additional debt. As a result of this debt
restructuring, the Company recognized a loss of $3,857,467 which represents the
reacquisition price less the net carrying value of the debt restructuring. The
reacquisition price is made up of $2,400,000 which is the amount of the new debt
and $3,361,161 which represents the value of the warrants using the
Black-Scholes method. The net carrying value is the $2,400,000 which is the old
debt less the unamortized debt discount of $496,296.

In October 2004, Kronos entered into agreements for up to $20.5 million in
equity and equity backed debt financing from Cornell Capital Partners. In
October 2004, Kronos sold 5 million unregistered shares of Kronos common stock
for gross proceeds of $500,000 to Cornell Capital Partners. Cornell Capital
Partners committed to provide $4 million pursuant to two Equity Backed
Promissory Notes, which have or will be funded as follows: $2 million was funded
upon the filing of an SB-2 Registration Statement and $2 million will be funded
upon the SEC declaring the Registration Statement effective. Kronos executed a
Standby Equity Distribution Agreement for $20 million of funding which Kronos
has the option to drawdown against in increments as large as $1.5 million over
the next twenty four months. Kronos received $0.5 million in funding upon the
amendment of the HoMedics debt financing and $2 million upon filing of an SB-2
Registration Statement. Kronos expects to receive an additional $2 million over
the next 60 - 90 days under these agreements.

Employment Agreements

The Company entered into an Employment Agreement with its President and Chief
Executive Officer, Daniel Dwight, effective as of February 11, 2001. The initial
term of the Employment Agreement was for two years and the agreement will
automatically renew for successive one year terms unless written notice within
six months of the end of the renewal term is received by either party. The Board
of Directors renewed the Employment Agreement on August 13, 2003 and again on
August 15, 2004. The Employment Agreement provides for base cash compensation of
$180,000 per year and eligibility for annual incentive bonus compensation in an
amount equal to annual salary based on the achievement of certain bonus
objectives.

The Company entered into an Employment Agreement with its Chief Operating
Officer, Richard Tusing, effective as of January 1, 2003. The initial term of
the Employment Agreement is for two years and will automatically renew for
successive one year terms unless written notice within six months of the end of
the initial term or any subsequent renewal term is received by either party. The
Board of Directors renewed the Employment Agreement on October 1, 2004. The
Employment Agreement provides for base cash compensation of $160,000 per year.

NOTE 11 - SUBSEQUENT EVENTS

In January 2005, Cornell Capital Partners returned 2,941,177 shares to the
Company. These shares were acquired by Cornell in private placement transactions
entered into in October 2004. As a result, Cornell became the beneficial owner
of over 9.9% of Kronos' outstanding shares. Cornell and Kronos terminated one
private placement and Cornell returned to Kronos 2,941,177 shares bringing
Cornell's holdings to 5,000,000 shares under 9.9% of Kronos' outstanding shares.
Pursuant to a new Standby Equity Distribution Agreement dated January 28, 2005
Cornell has agreed to accept 1,470,587 shares in 6 months and 1,470,588 in 12
months.

                                       12
<PAGE>

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

INTRODUCTORY STATEMENTS

FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. THIS FILING 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 CERTAIN 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 FILING GENERALLY. IN LIGHT OF THESE
RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS FILING 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 Advanced Technologies, Inc. is a high technology industrial company
focused on developing, marketing and selling products using the Company's
proprietary air movement and purification technology. Kronos is pursuing
commercialization of its patented technology in a limited number of markets; and
if we are successful, we intend to enter additional markets in the future. To
date, our ability to execute our strategy has been restricted by our limited
amount of capital.

Technology Description and Benefits

The Kronos(TM) technology combines high voltage electronics and electrodes. By
combining these technologies, a Kronos(TM)-based device can both move and clean
air without any moving parts. Kronos(TM) devices are versatile, energy- and
cost-efficient and capable of multiple design forms. As a result, Kronos(TM)
devices have the immediate potential to be used as a standalone product or to
replace a range of heating, ventilation and air conditioning products for
residential usage to high efficiency particulate air filtration systems for
operating and manufacturing clean rooms.

The proprietary Kronos(TM) technology involves the application of high voltage
management across paired electrical grids to create an ion exchange that moves
and purifies air. Kronos(TM) technology has numerous valuable characteristics.
It moves air and gases at high velocities while removing odors, smoke and
particulates and killing pathogens, including bacteria, mold and spores. The
technology is cost-effective and is more energy efficient than current
alternative fan and filter (including HEPA filter and ultraviolet light based)
technologies. Although no commercial products using the Kronos(TM) technology
have been sold to date, in August 2004, the Company and its strategic consumer
products partner, HoMedics, initiated the transition to mass production of the
Kronos-based consumer standalone product line.

A number of the scientific claims of the Kronos(TM) technology have been tested
by the U. S. government and a few multi-national companies, including the U. S.
Department of Energy, the U. S. Department of Defense, General Dynamics,
Underwriters Laboratory, and Intel. Independent laboratory testing has verified
the purification capability of the Kronos(TM) technology. Tests conducted at
MicroTest Laboratories, LMS Industries and New Hampshire Materials Laboratory
demonstrated HEPA Clean Room Class 1000 quality particulate reduction, removal
of over 99.97% of 0.1 micron and above size particles, and up to 95% reduction
of hazardous gases, including numerous contaminants found in cigarette smoke.
Intertek, one of the global leaders for testing electrical and electronic
products, performed 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."
The test demonstrated a Clean Air Delivery Rate (CADR) for the Kronos air
purifier of over 300. These results place the Kronos(TM) device in one of the
highest categories of particulate cleaning for standalone devices.

                                       13

<PAGE>
Market Segmentation

Kronos' business development strategy is to sell and license the Kronos(TM)
technology to six distinct market segments: (1) air movement and purification
(residential, health care, hospitality, and commercial facilities); (2) air
purification for unique spaces (cleanrooms, airplanes, automotive, and cruise
ships); (3) specialized military (naval vessels, closed vehicles and mobile
facilities); (4) embedded cooling and cleaning (electronic devices and medical
equipment); (5) industrial scrubbing (produce storage and diesel and other
emissions); and (6) hazardous gas destruction (incineration and chemical
facilities).

Kronos' focus is on the first four of these market segments which are described
in more detail below. Kronos is currently developing products for the air
movement and purification, air purification for unique spaces, and specialized
military markets through specific customer contracts. Kronos is currently
undertaking research and development in the embedded micro cooling market using
Company funds and a third party grant. These contracts and grant are described
in more detail in the Technology Application and Product Development section of
this filing.

    o    Air Movement and Purification. Indoor air pollution, including "sick
         building syndrome" and "building related illness," 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 applications: (1) residential, (2) health care, (3)
         hospitality and (4) commercial.

    o    Air Purification for Unique Spaces. Electronics, semiconductor,
         pharmaceutical, aerospace, medical and many other producers depend on
         cleanroom 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(TM) technology include
         closed environments such as aircraft, cruise ships and other
         transportation modes that require people to breathe contaminated,
         re-circulated air for extended periods. Kronos is building on its
         product development effort with its strategic partner in the business
         jet market and the U.S. military to serve other closed environment
         applications.

    o    Specialized Military. Military personnel face the worst of all possible
         worlds: indoor air pollution, often in very confined spaces for
         extended periods, combined with the threat of biological warfare,
         nuclear fallout, and other foreign elements. We believe that the
         military market segment offers Kronos a unique opportunity to leverage
         the technical and funding resources of the U. S. military to expand
         Kronos' ability to develop and produce Kronos(TM)-based air movers and
         purifiers for applications that require these products to be embedded
         into ventilation systems to address the needs of military personnel.

    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 next generation microchips.

                                       14

<PAGE>

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(TM) 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(TM) device into a wall outlet to obtain air filtration for their
home, office or hotel room. Embedded applications of the Kronos(TM) 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.

                               Standalone Platform

    o    Consumer Products. In October 2002, Kronos Air Technologies, Inc., and
         HoMedics USA, Inc. executed a Licensing Agreement granting HoMedics
         certain rights with respect to the distribution of the Kronos(TM)
         proprietary technology to the consumer. The agreement provides for
         exclusive North American, Australian and New Zealand retail
         distribution rights for next generation consumer air movement and
         purification products based on the patented Kronos(TM) technology. In
         August 2004, the Company and HoMedics initiated the transition to mass
         production of the Kronos-based consumer standalone product line.
         Preparing to meet these goals entails the use of Kronos' technical
         resources and HoMedics' product development and international
         production expertise. Select third party vendors, including experts in
         electronics, software and gas sensors, are integral resources in this
         process. While HoMedics is managing production of the finished product,
         Kronos is managing the production of our proprietary power supply and
         related circuitry.

         We believe the Company has successfully completed the development of a
         Kronos-based consumer standalone air purifier that is an efficient,
         high quality product which is cost effective and easy to operate. In
         August 2004, the Company and HoMedics initiated the transition to mass
         production of the Kronos-based consumer standalone product line. In
         October 2004, Kronos received its first shipment of electronics from
         Flextronics International USA, Inc. In November, Kronos successfully
         tested the technical hardware and related power supplies manufactured
         by Flextronics, including the successful incorporation of gas sensors.
         The gas sensors were developed in conjunction with a leading gas
         sensing technology supplier for Kronos' unique operating requirements.
         Kronos is continuing to prepare for mass production of the electronics
         for each of the products in the air purification product line. Kronos
         expects begin to receive larger quantities of electronics and gas
         sensors during the coming months for installation and testing in
         prototype production devices.

         The initial term of the agreement is three and one half years from the
         initial sale of consumer air purification products by HoMedics, which
         shall be no later than December 31, 2006, with the option to extend the
         Licensing Agreement for six additional years. Kronos was compensated
         through an initial royalty payment and will receive ongoing quarterly
         royalty payments based on a percentage of sales. HoMedics will pay
         minimum royalty payments of at least $2 million during the initial
         three and a half year term and on-going royalty payments to extend the
         agreement. Kronos will retain the rights to all of its intellectual
         property.

         HoMedics commitment includes funding a marketing and advertising
         campaign to promote the Kronos(TM)-based product line. The products
         will be distributed by HoMedics. HoMedics currently distributes their
         products through major domestic retailers, including Wal-Mart, Home
         Depot, Sears, Bed Bath & Beyond, and Linens 'N Things.

    o    Commercial Products. Kronos is seeking to leverage its consumer product
         development work with HoMedics to market and sell our own commercial
         line of standalone air purifiers. This commercial line of
         Kronos(TM)-based air purifiers would attempt to address the specific
         air quality issues, including odors, bacteria and viruses, found in
         most nursing home and assisted living, healthcare and other commercial
         facilities. Kronos expects to secure production of its own commercial
         line of standalone air purifiers from HoMedics. By securing products
         from HoMedics, Kronos believes it will provide the Company with a
         higher quality and more cost effective commercial air purification
         product line.

                                       15

<PAGE>

    o    Other Standalone Products. In December 2004, Kronos completed the
         initial design, development and production of a series of small modular
         devices that can be used as space heaters, deodorizers and/or fans.
         Based on the proprietary Kronos technology, these devices are currently
         undergoing testing and evaluation. Kronos is assessing potential
         strategic partners for manufacturing, marketing, selling and
         distributing these Kronos-based products.

                                Embedded Platform

    o    Military Products. The U. S. Department of Defense and Department of
         Energy have provided Kronos with various grants and contracts to
         develop, test and evaluate the Kronos(TM) technology for embedded
         applications. Kronos has developed several commercial and industrial
         applications, including the retrofit of berthing fan systems and
         embedded air movement systems for U. S. Navy Aegis Class destroyers.

         U.S. Navy SBIR Contracts. In November 2002, the U. S. Navy awarded
         Kronos a Small Business Innovation Research Phase II contract worth
         $580,000, plus an option of $145,000. The Phase II contract
         (commercialization phase) is an extension of the Phase I and the Phase
         I Option work that began in 2001. It is intended that the Kronos(TM)
         devices developed under this contract will be embedded in existing HVAC
         systems in order to move air more efficiently than traditional,
         fan-based technology. Kronos has completed production of an advanced
         distributive air management system and is completing testing and
         evaluation prior to delivering the product to Northrop Grumman.

         During Phase II, Kronos developed and produced a fully controlled
         device that represents a "cell" of an advanced distributive air
         management system with medium capacity airflow in a U. S. Navy unique
         environment. The "cell" has been designed to be easily adjustable to a
         variety of parameters such as duct size, airflow requirements, and air
         quality. The goal of this development work is to significantly reduce
         or replace altogether the current HVAC air handling systems on naval
         ships. During the term of the contract, Kronos designed a new
         generation power supply, improved the efficiency of the core technology
         to allow for increased air movement and filtration, and initiated
         selection with the U. S. Navy of the specifications for the commercial
         products. As of January 31, 2004, the U. S. Navy had provided Kronos
         with $580,000 in funding for this effort.

         As part of its air management system, Kronos has developed and intends
         to test the air filtration mechanism capable of performing to HEPA
         quality standards. We believe that Kronos(TM) devices could replace
         current HEPA filters with a permanent, easily cleaned, low-cost
         solution. Among the technical advantages of the Kronos(TM) 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 HEPA level filtration.

         We believe that during the option portion of the contract, Kronos(TM)
         technology's ability to kill bacteria and other pathogens will be
         confirmed and expanded to a wide range of pathogens for space
         disinfection and bio-terrorist attacks. We believe the Kronos(TM)
         technology can kill all or most airborne pathogens regardless of their
         nature, genetic structure, robustness, or method of delivery.

                                       16

<PAGE>

         Kronos is pursuing Phase III (production phase) support for the
         Kronos(TM)-based advanced distributive air management system being
         developed under Phase II. Kronos is working with Northrop Grumman and
         others in this regard.

         U.S. Army SBIR Contracts. In August 2003, Kronos was awarded the option
         on its U. S. Army Small Business Innovation Research Phase I contract
         bringing the value of the Phase I contract award to $120,000. In
         October 2003, the U.S. Army awarded Kronos the Small Business
         Innovation Research Phase II contract. The contract is worth $369,000.
         The contract is to develop Kronos' proprietary Electrostatic
         Dehumidification Technology ("EDT"). Kronos initiated work under the
         Phase II contract in December 2003. In December 2004, the U. S. Army
         extended the first year of the contract until February 2005. In
         February 2005, the Army agreed not to pursue the Phase II option. As of
         January 31, 2004, the U. S. Army had provided Kronos with $275,000 in
         funding for this effort under the Phase II contract.

         Kronos is seeking to leverage its military application development work
         with the U. S. Navy to develop and produce air handlers and purifiers
         for commercial and industrial facilities. A future potential commercial
         line of Kronos(TM)-based air handlers and purifiers would attempt to
         address the specific air quality issues, including bacteria and other
         germs, found in large enclosed spaces such as office buildings and
         multi-dwelling residential complexes, while providing more efficient
         air movement.

    o    Transportation Products. In January 2003, Kronos extended its work into
         the transportation industry by signing a Development and Acquisition
         Agreement with a premier business jet manufacturer. The Agreement was
         the direct result of initial prototype development work performed by
         the Kronos Research Team with input from the customer in 2002. The
         Kronos(TM) devices being designed and manufactured under this contract
         will need to meet all FAA safety standards, including environmental,
         flammability and electromagnetic interference (EMI). The Company has
         completed product design and development based on the customer's
         specific product application requirements. We are currently testing and
         evaluating the prototype product.

         Kronos is seeking to leverage its business jet application development
         work to develop and produce air handlers and purifiers for the
         commercial aviation and automotive markets. A future potential
         commercial line of Kronos(TM)-based air handlers and purifiers would
         attempt to address the specific air quality issues, including exhaust
         and viruses, found in enclosed spaces occupied by multiple people for
         extended periods of time, while providing more efficient air movement
         within unique space constraints.

    o    Microelectronics Cooling Products.  In December 2004, Kronos and the
         University of Washington were awarded funding for a research and
         technology development project entitled "Heat Transfer Technology for
         Microelectronics and MEMS" by the Washington Technology Center ("WTC").
         The objective of the project is to develop a novel energy-efficient
         heat transfer technology for cooling microelectronics.   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.  Kronos stated that the WTC will
         contribute $40,000 to the project, with Kronos contributing $8,000,
         plus $32,000 in in-kind services, including use of the Kronos Research
         and Product Development Facility.

                                       17

<PAGE>

Patents and Intellectual Property

    o    Six U.S. Patents Allowed for Issuance. Kronos has received notification
         that six of its patents have been allowed for issuance by the United
         States Patent and Trademark Office. 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.

          -     In December 2004, Kronos received a Notice of Allowance from the
                United States Patent and Trademark Office indicating that its
                application entitled "Spark Management Method and Device" has
                been examined and allowed for issuance as a U. S. patent. Kronos
                expects that the U. S. Patent will issue in due course. The
                patent provides protection for key aspects of Kronos' technology
                until late in 2021.

         -      In November 2004, Kronos received a Notice of Allowance from the
                United States Patent and Trademark Office indicating that its
                application entitled "Electrostatic Fluid Accelerator" -
                Electrode Design Geometries has been examined and allowed for
                issuance as a U. S. patent. Kronos expects that the U. S. Patent
                will issue in due course. The patent provides protection for key
                aspects of Kronos' technology until late in 2021.

         -      In October 2004, Kronos received a Notice of Allowance from the
                United States Patent and Trademark Office indicating that its
                application entitled "Electrostatic Fluid Accelerator" - Power
                Supply Management and Control has been examined and allowed for
                issuance as a U. S. patent. Kronos expects that the U. S. Patent
                will issue in due course. The patent provides protection for key
                aspects of Kronos' technology until late in 2021.

         -      In April 2004, Kronos received formal notification from the
                United States Patent and Trademark Office indicating that its
                application entitled "Electrostatic Fluid Accelerator for and a
                Method of Controlling Fluid" has been examined and allowed for
                issuance as a U. S. patent (#6,727,657). The patent provides
                protection for key aspects of Kronos' technology until late in
                2021.

                                       18

<PAGE>

         -      In December 2003, Kronos received formal notification from the
                United States Patent and Trademark Office indicating that its
                application entitled "Method of and Apparatus for Electrostatic
                Fluid Acceleration Control of a Fluid Flow" has been examined
                and allowed for issuance as a U. S. patent (#6,664,741). The
                patent provides protection for key aspects of Kronos' technology
                until late in 2020.

         -      In January 2003, Kronos received formal notification from the
                United States Patent and Trademark Office indicating that its
                application entitled "Electrostatic Fluid Accelerator" has been
                examined and allowed for issuance as a U. S. patent
                (#6,504,308). The patent provides protection for key aspects of
                Kronos' technology until late in 2019.

    o    First International Patent Allowed for Issuance. In November 2004,
         Kronos received formal notification from the Commonwealth of Australian
         Patent Office indicating that its application entitled "Electrostatic
         Fluid Accelerator" has been examined and allowed for issuance as an
         Australian patent (#773626). There are a number of other patent

         applications corresponding to Kronos' six U.S. Patents that have been
         filed and are pending outside of the United States.

    o    Additional Patent Applications. 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.

                                       19
<PAGE>

Valuation of Deferred Income Taxes. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The likelihood of a material change in our expected realization of these assets
is dependent on our ability to generate future taxable income, our ability to
deduct tax loss carryforwards against future taxable income, the effectiveness
of our tax planning and strategies among the various tax jurisdictions that we
operate in, and any significant changes in the tax treatment received on our
business combinations.

Revenue Recognition. We recognize revenue in accordance with Securities and
Exchange Commission Staff Bulletin 104 ("SAB 104"). Further, Kronos Air
Technologies recognizes revenue on the sale of custom-designed contract sales
under the percentage-of-completion method of accounting in the ratio that costs
incurred to date bear to estimated total costs. For uncompleted contracts where
costs and estimated profits exceed billings, the net amount is included as an
asset in the consolidated balance sheet. For uncompleted contracts where
billings exceed costs and estimated profits, the net amount is included as a
liability in the consolidated balance sheet. Sales are reported net of
applicable cash discounts and allowances for returns.

RESULTS OF OPERATIONS

The Company's net loss for the six months ended December 31, 2004 was
$5,138,000, compared with a net loss of $1,120,000 for the corresponding period
of the prior year. The increase in the net loss was primarily the result of the
restructuring of the HoMedics debt (refer to Note 10 - Commitments and
Contingencies) which resulted in a non-cash charge to operations of $3,857,000.

The Company's net operating loss for the six months ended December 31, 2004
increased by 17% to $986,000, compared with a net operating loss of $846,000 for
the corresponding period of the prior year. The $140,000 increase in the net
operating loss was primarily the result of an increase in selling, general and
administrative expenses ($102,000) and a decrease in gross profit ($38,000).

Revenue. Revenues are generated through sales of Kronos(TM) devices, and fees
earned from licensing the Kronos(TM) technology and providing technical services
to our customers at Kronos Air Technologies, Inc. Revenue for the six months
ended December 31, 2004 was $381,000. These revenues were primarily from our

U.S. Navy SBIR Phase II and U. S. Army SBIR Phase II contracts. Revenue of
$242,000 recorded during the corresponding period of the prior year was
primarily from our HoMedics, U. S. Navy SBIR Phase II and U. S. Army SBIR Phase
I and Phase I Option contracts.

Cost of sales. Cost of sales for the six months ended December 31, 2004 was
$334,000 compared to $156,000 for the corresponding period of the prior year,
respectively. Cost of sales in the current year was primarily development costs
associated with our U. S. Navy SBIR and U. S. Army SBIR contracts. Prior year
cost of sales related to revenue from our HoMedics, U. S. Navy SBIR and U. S.
Army SBIR contracts.

Gross profit. Gross profit for the six months ended December 31, 2004 was
$48,000 compared to $86,000 for the corresponding period of the prior year
because of the increased cost to build products under contract for the U.S. Navy
and U.S. Army, partially offset by the increase in revenue from these contracts.

                                       20

<PAGE>

Selling and other general administrative expenses. Selling, general and
administrative expenses for the six months ended December 31, 2004 increased 11%
to $1,034,000 compared to $932,000 for the corresponding period of the prior
year. This $102,000 increase was primarily the result of an increase in
compensation and benefits ($105,000) because of the expansion of the Company's
research and product development team and an increase in the cost of health
benefits, an increase in depreciation and amortization ($57,000) because of the
increase in amortization of expenditures for intellectual property development
and for research and product development, an increase in insurance ($18,000)
because of the increase in directors and officers and product liability
insurance, an increase in research and development ($16,000) because the company
expanded its development of new products, partially offset by a decrease in
professional services ($130,000) because of a decrease in legal and accounting
expenses and the capitalization of patent counsel expenditures for the
development of the Company's intellectual property.

Loss on Debt Restructuring. Loss on debt restructuring for the six months ended
December 31, 2004 was $3,857,000 and represented the non-cash charge to
operations for the cost to restructure the HoMedics debt, including the cost to
issue 26 million warrants (refer to Note 10 - Commitments and Contingencies).

Other income. Other income for the six months ended December 31, 2003 was
$22,000 and was consideration earned from the assignment of the Company's stock
repurchase rights to Fusion Capital who made a partial repurchase of the
Company's stock used in May 2003 to acquire the remaining license rights to the
Kronos(TM) technology not included in the original acquisition of Kronos Air
Technologies, Inc.

Interest expense. Interest expenses for the six months ended December 31, 2004
was $294,000 compared to $296,000 for the corresponding period of the prior
year.

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2004

Our total assets at December 31, 2004 and June 30, 2004 were $4.2 and $2.5
million, respectively. Total assets at December 31, 2004 were comprised
primarily of $2.1 million of patents/intellectual property and $1.4 million of
cash. Total assets at June 30, 2004 were comprised primarily of $2.3 million of
patents/intellectual property. Total current assets at December 31, 2004 and
June 30, 2004 were $2.1 million and $0.2 million, respectively, while total
current liabilities for those same periods were $3.6 million and $1.4 million,
respectively, creating a working capital deficit of $1.5 million and $1.2
million at each respective period end. This 23% increase in the working capital
deficit was primarily the result of increases in the current portion of notes
payable ($2.3 million) offset by an increase in cash ($1.4 million). In the
increase in the current portion of notes payable was the result of the Company
incurring $2.0 million in short term debt financing from Cornell Capital
Partners and $1.0 million in notes payable to directors and officers coming due
in the next twelve months offset by the $0.7 million of HoMedics debt being
restructured from short term to long term debt.

Shareholders' deficit as of December 31, 2004 and June 30, 2004 was $1.8 million
and $1.4 million, respectively. The increase in accumulated deficit ($5.1
million) was partially offset by an increase in paid in capital ($4.7 million)
during the six months ended December 31, 2004.

                                       21

<PAGE>

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.

In October 2004, Kronos entered into agreements for up to $20.5 million in
equity and equity backed debt financing from Cornell Capital Partners. In
October 2004, Kronos sold 5 million unregistered shares of Kronos common stock
for gross proceeds of $500,000 to Cornell Capital Partners. Cornell Capital
Partners committed to provide $4 million pursuant to two Equity Backed
Promissory Notes, which have or will be funded as follows: $2 million was funded
upon the filing an SB-2 Registration Statement and $2 million will be upon the
SEC declaring the Registration Statement effective. Kronos executed a Standby
Equity Distribution Agreement for $20 million of funding which Kronos has the
option to drawdown against in increments as large as $1.5 million over the next
twenty four months. Kronos received $0.5 million in funding upon the amendment
of the HoMedics debt financing and $2 million upon filing of the Registration
Statement. Kronos expects to receive an additional $2 million over the next 60 -
90 days under these agreements.

In November 2004, Kronos sold 2.8 million unregistered shares for gross proceeds
of $280,000 to a group of accredited investors.

In October 2004, HoMedics agreed to extend repayment of Kronos debt and to
provide an additional $1 million in funding. HoMedics has agreed to provide
Kronos with an additional $1 million in financing - $925,000 in secured debt

financing and $75,000 for the purchase of additional warrants. The $925,000 will
be paid to Kronos upon Kronos achieving three milestones: (i) $175,000 shall be
funded upon delivery and successful testing of electronic boards and power
supplies from Kronos' contract manufacturing partner, (ii) $250,000 shall be
funded upon obtaining tooling of the current prototype configuration and device
testing and performing to HoMedics' specifications, and (iii) $500,000 shall be
funded upon the initial sale of Kronos-based air purifiers by HoMedics. In
addition, quarterly debt payments and the maturity date for existing debt have
been extended. Quarterly payments due on the outstanding $2.4 million in secured
debt financing, which had been scheduled to begin in August 2004, will be due
the earlier of Kronos receipt of royalty payments from HoMedics sale of
Kronos-based air purification products or two years. The maturity date of the
$2.4 million in debt has been extended from May 2008 to October of 2009; the
maturity date on the $925,000 will also be October 2009. The interest rate will
remain at 6% for the $2.4 million in debt; the rate will also be 6% on the
additional debt. HoMedics increased their potential equity position in Kronos to
30% of Kronos common stock on a fully diluted basis. In connection with the
October 2004 agreements, Kronos issued HoMedics a warrant to buy 26.5 million
shares of Kronos common stock.

Kronos SBIR contracts with the U. S. Military, including the U. S. Army Phase I
Option and Phase II and the U. S. Navy Phase II contracts, are potentially worth
up to $1.5 million in product development and testing support for Kronos Air
Technologies. In November 2002, Kronos Air Technologies was awarded by the U. S.
Navy for a Small Business Innovation Research Phase II contract worth $580,000,
plus an option of $150,000. As of January 31, 2004, the U. S. Navy had provided
Kronos with $580,000 in funding for this effort under the Phase II contract. In
October 2003, Kronos Air Technologies obtained award notice from the U. S. Army
for a SBIR II contract. The contract is worth $369,000. The contract is to
develop Kronos' proprietary Electrostatic Dehumidification Technology ("EDT").
As of January 31, 2004, the U. S. Army had provided Kronos with $275,000 in
funding for this effort under the Phase II contract.

Net cash flow used in operating activities was $1.1 million for the six months
ended December 31, 2004. We were able to satisfy most of our cash requirements
for this period from the proceeds of the sale of equity to Cornell Capital
Partners and a group of accredited investors, the first $2 million Equity Backed
Promissory Note with Cornell Capital Partners and our U.S. Navy and U.S. Army
Phase II contracts.
                                       22
<PAGE>

In June 2001, we entered into a common stock purchase agreement with Fusion
Capital. Pursuant to this agreement, we have sold approximately 6 million shares
of our common stock and have received $1.3 million. In August 2002, we
terminated our common stock purchase agreement dated June 19, 2001 and entered
into a new common stock purchase agreement with Fusion Capital. Pursuant to this
second common stock purchase agreement, we sold approximately 12.1 million
shares of our common stock and have received $1.9 million. In November 2004,
Kronos and Fusion Capital mutually agreed to terminate their existing common
stock purchase agreement dated August 12, 2002.

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 senior debt funding from the HoMedics Secured Promissory Notes;
equity funding from the Cornell Capital Equity Investment Agreement, Equity
Backed Promissory Notes and the Standby Equity Distribution Agreement; and/or
the sale of additional equity in our Company; cash flow generated from
government grants and contracts, which includes funding from the Small Business
Innovation Research contracts sponsored by the United States Navy and Army
awarded to Kronos Air Technologies; and cash flow generated from customer
revenue. There are no assurances that these sources of funding will be adequate
to meet our cash flow needs.

GOING CONCERN OPINION

Our Report of Independent Registered Public Accounting Firm includes an
explanatory paragraph to their audit opinions issued in connection with our 2004
and 2003 consolidated financial statements that states 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 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.

                                       23

<PAGE>

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 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 $5,137,000 for the six months ended
December 31, 2004. We incurred a net loss of $2.5 million for the fiscal year
ended June 30, 2004. As a result, at December 31, 2004 and June 30, 2004, we had
an accumulated deficit of $25.2 million and $20.0 million, 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 may not be sufficient to sustain our operations for the
foreseeable future. Our profitability will require the successful
commercialization of our Kronos(TM) technologies. No assurances can be given
that we will be able to successfully commercialize our Kronos(TM) technologies
or that we will ever be profitable.

We will require significant additional financing to sustain our operations and
without it we will not be able to continue operations.

At December 31, 2004 and June 30, 2004, we had a working capital deficit of $1.5
million and $1.2 million, respectively. The Report of Independent Registered
Public Accounting Firm for the year ended June 30, 2004, includes an explanatory
paragraph to their audit opinion stating that our recurring losses from
operations and working capital deficiency raise substantial doubt about our
ability to continue as a going concern. For the six months ended December 31,
2004 and December 31, 2003, we had an operating cash flow deficit of $1.1
million and $1.0 million, respectively. We currently do not have sufficient
financial resources to fund our operations or pay certain existing obligations
or those of our subsidiary. Therefore, we need substantial additional funds to
continue these operations and pay certain existing obligations.

If obtaining sufficient financing from the U. S. Navy, U. S. Army, HoMedics and
/or Cornell Capital Partners were to be unavailable and if we are unable to
commercialize and sell our products or technologies, we will need to secure
another source of funding in order to satisfy our working capital needs. Even if
we are able to access the funds available under the, U. S. Navy and U.S. Army
SBIR contracts, HoMedics senior debt agreement and / or the Cornell Capital
Equity Investment Agreement, Equity Backed Promissory Notes and Standby Equity
Distribution Agreement, we may still need additional capital to fully implement
our business, operating and development plans. At December 31, 2004 and June 30,
2004, we had a cash balance of $1,445,000 and $69,000, respectively. Should the
financing we require to sustain our working capital needs be unavailable, or
prohibitively expensive when we require it, we would be forced to curtail our
business operations.

Existing shareholders will experience significant dilution from our sale of
shares under the Cornell Capital Equity Investment Agreement and Standby Equity
Distribution Agreement and any other equity financing.

The sale of shares pursuant to our agreement with Cornell Capital Partners, the
exercise of HoMedics stock 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 addition, the lower our stock price is, the
more shares of common stock we will have to issue under the Equity Investment
Agreement and Standby Equity Distribution Agreement with Cornell Capital. If our
stock price is lower, then our existing stockholders would experience greater
dilution. We cannot predict the actual number of shares of common stock that
will be issued pursuant to the Standby Equity Distribution Agreement with
Cornell Capital or any other future equity financing transaction, in part,
because the purchase price of the shares will fluctuate based on prevailing
market conditions and we do not know the exact amount of funds we will need.

                                       24
<PAGE>

Competition in the market for air movement and purification devices may result
in the failure of the Kronos(TM) 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 substantially 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(TM) products do not favorably compete with the
products sold by our competitors, we would be forced to curtail 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.

Possible future impairment of intangible assets would have a material adverse
effect on our financial condition.

Our net intangible assets of approximately $2.1 million as of December 31, 2004
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(TM) technology not included in the
original acquisition of Kronos Air Technologies, Inc. in May 2003. Intangible
assets comprise 50% of our total assets as of December 31, 2004. 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(TM) technology and
Kronos Air Technologies Chief Technology Officer, or the ability to create a
customer base for the sale or licensing of the Kronos(TM) technology. Should an
impairment occur, we would be required to recognize it in our financial
statements. A write-down of these intangible assets could have a material
adverse impact on our total assets, net worth and results of operations.

Our common stock is deemed to be "Penny Stock," subject to special requirement
and conditions and may not be a suitable investment.

                                       25
<PAGE>

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:

    -    With a price of less than $5.00 per share;
    -    That are not traded on a "recognized" national exchange;
    -    Whose prices are not quoted on the Nasdaq automated quotation system
         (Nasdaq listed stock must still have a price of not less than $5.00 per
         share); or
    -    In issuers with net tangible assets less than $2.0 million (if the
         issuer has been in continuous operation for at least three years) or
         $5.0 million (if in continuous operation for less than three years), or
         with average revenues of less than $6.0 million 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 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
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(TM) 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. Within 90 days prior to the
filing date of this report, our Company carried out an evaluation of the
effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under
the supervision and with the participation of our Company's President and Chief
Financial Officer. Based upon that evaluation, they concluded that our Company's
disclosure controls and procedures are effective in gathering, analyzing and
disclosing information needed to satisfy our Company's disclosure obligations
under the Exchange Act.

Changes in Internal Controls. There were no significant changes in our Company's
internal controls or in other factors that could significantly affect those
controls since the most recent evaluation of such controls.


                                       26
<PAGE>



                                     PART II

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

In October 2004, we issued 5 million shares of our common stock, valued at $0.10
per share at an aggregate value of $500,000 to Cornell Capital Partners, LLC and
2.8 million shares of our common stock valued at $0.10 per share at an aggregate
value of $280,000 to a group of accredited investors. The proceeds will be used
for general working capital. In October 2004, we issued 2,941,177 shares to
Cornell Capital Partners, LLC as a commitment fee upon Kronos executing the $20
million Standby Equity Distribution Agreement. In the event this Agreement is
terminated in accordance with the terms of this Agreement, or the Company does
not forward any Advance Notices during the term of this Agreement, the Cornell
shall return 2,500,000 shares of the commitment fee shares to the Company. In
January 2005, Cornell Capital Partners returned 2,941,177 shares to Kronos to
bring Cornell Capital Partners ownership below 9.9%. In November 2004, we issued
2 million shares of our common stock valued at $0.10 per share at an aggregate
value of $200,000 to Fusion Capital Partners, LLC. The proceeds were used to
eliminate Kronos' non-interest bearing demand obligation to Fusion Capital.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

                                       27

<PAGE>

ITEM 5. EXHIBITS


<TABLE>
<CAPTION>


EXHIBIT NO.     DESCRIPTION                                  LOCATION
-------------------------------------------------------------------------------------------------
<S><C><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 on Form S-1 filed on
                                                             August 7, 2001

 3.2            Bylaws                                       Incorporated by reference to
                                                             Exhibit 3.2 to the Registration
                                                             Statement on Form S-1 filed on
                                                             August 7, 2001

 4.1            2001 Stock Option Plan                       Incorporated by reference to
                                                             Exhibit 4.1 to
                                                             Registrant's Form
                                                             10-Q for the
                                                             quarterly period
                                                             ended March 31,
                                                             2002 filed on May
                                                             15, 2002


10.21           Consulting Agreement, dated January 1,       Incorporated by reference to
                2001, by and between TSET, Inc. and          Exhibit 10.21 to the
                Dwight, Tusing & Associates                  Registration Statement on Form
                                                             S-1 filed on August 7, 2001

10.22           Letter Agreement, dated April 12, 2001,      Incorporated by reference to
                by and between TSET, Inc. and Daniel R.      Exhibit 10.35 to the
                Dwight and Richard F. Tusing                 Registration Statement on Form
                                                             S-1 filed on August 7, 2001

                                       28

<PAGE>

10.23           Indemnification Agreement, dated May 1,      Incorporated by reference to
                2001, by and between TSET, Inc. and          Exhibit 10.37 to the
                Jeffrey D. Wilson                            Registration Statement on Form
                                                             S-1 filed on August 7, 2001

10.24           Indemnification Agreement, dated May 1,      Incorporated by reference to
                2001, by and between TSET, Inc. and          Exhibit 10.38 to the
                Daniel R. Dwight                             Registration Statement on Form
                                                             S-1 filed on August 7, 2001

10.25           Indemnification Agreement, dated May 1,      Incorporated by reference to
                2001, by and between TSET, Inc. and          Exhibit 10.39 to the
                Richard F. Tusing                            Registration Statement on Form
                                                             S-1 filed on August 7, 2001

10.26           Indemnification Agreement, dated May 1,      Incorporated by reference to
                2001, by and between TSET, Inc. and          Exhibit 10.40 to the
                Charles D. Strang                            Registration Statement on Form
                                                             S-1 filed on August 7, 2001

10.27           Indemnification Agreement, dated May 1,      Incorporated by reference to
                2001, by and between TSET, Inc. and          Exhibit 10.41 to the
                Richard A. Papworth                          Registration Statement on Form
                                                             S-1 filed on August 7, 2001

10.28           Indemnification Agreement, dated             Incorporated by reference to
                May 1 2001, by and between TSET,             Exhibit 10.42 to the
                Inc. and Erik W. Black                       Registration Statement on Form
                                                             S-1 filed on August 7, 2001

10.29           Warrant Agreement, dated July 16, 2001,      Incorporated by reference to
                by and between TSET, Inc. and The Eagle      Exhibit 10.49 to the
                Rock Group, LLC                              Registration Statement on Form
                                                             S-1 filed on August 7, 2001

10.30           Agreement and Release, dated October         Incorporated by reference to
                10, 2001, by and between TSET, Inc. and      Exhibit 10.50 to the
                Jeffrey D. Wilson                            Registrant's Form 10-K for the
                                                             year ended June 30, 2001 filed
                                                             on October 15, 2001

10.31           Promissory Note dated October 10, 2001       Incorporated by reference to
                payable to Mr. Jeffrey D. Wilson             Exhibit 10.51 to the Registrant's
                                                             Form 10-K for the year ended
                                                             June 30, 2001 filed on October 15,
                                                             2001

10.32           Employment Agreement, effective              Incorporated by reference to
                February 11, 2001 by and between             Exhibit 10.55 to the Registrant's
                TSET, Inc. and Daniel R. Dwight              Form 10-Q for the quarterly period
                                                             ended March 31, 2002 filed on
                                                             May 15, 2002

10.33           Common Stock Purchase Agreement,             Incorporate by reference to Exhibit
                dated August 12, 2002 by and between         10.57 to the Registrant's Form S-1
                between TSET, Inc. and Fusion                filed on August 13, 2002
                Capital Fund II, LLC

10.34           Registration Rights Agreement, dated         Incorporated by reference to Exhibit
                August 12, 2002 by and between TSET,         10.58 to the Registrant's Form S-1
                Inc. and Fusion Capital Fund II, LLC         filed on August 13, 2002

10.35           Termination Agreement, dated                 Incorporated by reference to Exhibit
                August 12, 2002 by and between TSET,         10.59 to the Registrant's Amendment
                Inc. and Fusion Capital Fund II, LLC         No. 1 to Form S-1 filed on
                                                             September 16, 2002

                                       29

<PAGE>

10.36           Master Loan and Investment                   Incorporated by reference to
                Agreement, dated May 9, 2003,                the Registrant's 8-K filed on
                by and among Kronos Advanced                 May 15, 2003
                Technologies, Inc., Kronos Air
                Technologies, Inc. and FKA
                Distributing Co. d/b/a HoMedics,
                Inc., a Michigan corporation
                ("HoMedics")

10.37           Secured Promissory Note, dated               Incorporated by reference to
                May 9, 2003, in the principal                Exhibit 99.2 to the Registrant's
                amount of $2,400,000 payable to              8-K filed on May 15, 2003
                HoMedics

10.38           Secured Promissory Note, dated               Incorporated by reference to
                May 9, 2003, in the principal                Exhibit 99.4 to the Registrant's
                amount of $1,000,000 payable to              8-K filed on May 15, 2003
                HoMedics

10.39           Security Agreement dated May 9,              Incorporated by reference to
                2003, by and among Kronos Air                Exhibit 99.4 to the Registrant's
                Technologies, Inc. and HoMedics              8-K filed on May 15, 2003

10.40           Registration Rights Agreement,               Incorporated by reference to
                dated May 9, 2003, by and between            Exhibit 99.5 to the Registrant's
                Kronos and HoMedics                          8-K filed on May 15, 2003


10.41           Warrant No. 1 dated May 9, 2003,             Incorporated by reference to
                issued to HoMedics                           Exhibit 99.7 to the Registrant's
                8-K filed on May 15, 2003

10.42           Warrant No. 2 dated May 9, 2003,             Incorporated by reference to
                issued to HoMedics                           Exhibit 99.7 to the Registrant's
                                                             8-K filed on May 15, 2003
                                                             2002

10.43           Consulting Agreement effective               Incorporated by reference to
                October 31, 2003, by and among Kronos        Exhibit 10.67 to the Registrant's
                Advanced Technologies, Inc.,                 Form 10-Q for the quarterly period
                Steven G. Martin and Joshua B. on            ended December 31, 2003 filed on
                Scheinfeld                                   February 17, 2004

10.44           Promissory Note by and among Kronos          Incorporated by reference to
                Advanced Technologies, Inc., and             Exhibit 10.67 to the Registrant's
                Richard A. Papworth                          Form 10-Q for the quarterly period
                                                             ended December 31, 2004 filed on
                                                             May 17, 2004

10.45           Promissory Note by and among Kronos          Incorporated by reference to
                Advanced Technologies, Inc., and             Exhibit 10.67 to the Registrant's
                Daniel R. Dwight                             Form 10-Q for the quarterly period
                                                             ended December 31, 2004 filed on
                                                             May 17, 2004

10.46           Promissory Note by and among Kronos          Incorporated by reference to
                Advanced Technologies, Inc., and             Exhibit 10.67 to the Registrant's
                Richard F. Tusing                            Form 10-Q for the quarterly period
                                                             ended December 31, 2004 filed on
                                                             May 17, 2004

10.47           Promissory Note by and among Kronos          Incorporated by reference to
                Advanced Technologies, Inc., and             Exhibit 10.67 to the Registrant's
                Igor Krichtafovitch                          Form 10-Q for the quarterly period
                                                             ended December 31, 2004 filed on
                                                             May 17, 2004

10.48           Promissory Note by and among Kronos          Incorporated by reference to
                Advanced Technologies, Inc., and             Exhibit 10.67 to the Registrant's
                J. Alexander Chriss                          Form 10-Q for the quarterly period
                                                             ended December 31, 2004 filed on
                                                             May 17, 2004

                                       30

<PAGE>

10.49           Standby Equity Distribution Agreement,       Incorporated by reference to
                dated October 15, 2004, by and between       Exhibit 99.1 to the Registrant's
                Kronos Advanced Technologies, Inc. and       Form 8-K filed on February 12, 2004
                Cornell Capital Partners, LP

10.50           Registration Rights Agreement, dated         Incorporated by reference to
                October 15, 2004, by and between Kronos      Exhibit 99.2 to the Registrant's
                Advanced Technologies, Inc. and Cornell      Form 8-K filed on February 12, 2004
                Capital Partners, LP

10.51           Escrow Agreement, dated October 15, 2004,    Incorporated by reference to
                by and between Kronos Advanced               Exhibit 99.3 to the Registrant's
                Technologies, Inc. and Cornell Capital       Form 8-K filed on February 12, 2004
                Partners, LP

10.52           Placement Agent Agreement, dated October     Incorporated by reference to
                15, 2004, by and between Kronos Advanced     Exhibit 99.4 to the Registrant's
                Technologies, Inc. and Cornell Capital       Form 8-K filed on February 12, 2004
                Partners, LP

10.53           Securities Purchase Agreement, dated         Incorporated by reference to
                October 15, 2004, by and between Kronos      Exhibit 99.5 to the Registrant's
                Advanced Technologies, Inc. and Cornell      Form 8-K filed on February 12, 2004
                Capital Partners, LP


10.54           Investor Registration Rights Agreement,      Incorporated by reference to
                dated October 15, 2004, by and between       Exhibit 99.6 to the Registrant's
                Kronos Advanced Technologies, Inc. and       Form 8-K filed on February 12, 2004
                Cornell Capital Partners, LP

10.55           Escrow Agreement, dated October 15, 2004,    Incorporated by reference to
                by and between Kronos Advanced               Exhibit 99.7 to the Registrant's
                Technologies, Inc. and Cornell Capital       Form 8-K filed on February 12, 2004
                Partners, LP

10.56           Form of Equity-Back Promissory Note in       Incorporated by reference to
                the principal amount of $2,000,000           Exhibit 99.8 to the Registrant's
                                                             Form 8-K filed on February 12, 2004

10.57           First Amendment to Master Loan and           Incorporated by reference to
                Investment Agreement, dated October 25,      Exhibit 99.9 to the Registrant's
                2004, by and among Kronos Advanced           Form 8-K filedon February 12, 2004
                Technologies, Inc., f/k/a TSET, Inc.,
                a Nevada corporation, Kronos Air
                Technologies, Inc., a Nevada corporation
                and FKA Distributing Co. d/b/a HoMedics,
                Inc., a Michigan corporation

10.58           Secured Promissory Note, dated October       Incorporated by reference to
                25, 2004, payable to FKA Distributing        Exhibit 99.10 to the Registrant's
                Co., d/b/a HoMedics, Inc., a Michigan        Form 8-K filed on February 12, 2004
                corporation, in the principal amount of
                $925,000

10.59           Amended and Restated Warrant No. 1,          Incorporated by reference to
                dated October 25, 2004, issued to FKA        Exhibit 99.11 to the Registrant's
                Distributing Co. d/b/a HoMedics, Inc.        Form 8-K filed on February 12, 2004

10.60           Amended and Restated Warrant No. 2,          Incorporated by reference to
                dated October 25, 2004, issued to FKA        Exhibit 99.12 to the Registrant's
                Distributing Co. d/b/a HoMedics, Inc.        Form 8-K filed on February 12, 2004

                                       31

<PAGE>

10.61           Warrant No. 3, dated October 25, 2004,       Incorporated by reference to
                issued to FKA Distributing Co. d/b/a         Exhibit 99.13 to the Registrant's
                HoMedics, Inc.                               Form 8-K filed on February 12, 2004

10.62           Amended and Restated Registration Rights     Incorporated by reference to
                Agreement, dated October 25, 2004, by        Exhibit 99.14 to the Registrant's
                And between Kronos Advanced                  Form 8-K filed on February 12, 2004
                Technologies Inc., a Nevada corporation
                and FKA Distributing Co. d/b/a HoMedics,
                a Michigan corporation

</TABLE>




EXHIBIT NO.     DESCRIPTION                                  LOCATION
--------------------------------------------------------------------------------
31.1            Certification of Chief Executive              Provided herewith
                Officer pursuant to 15 U.S.C.
                Section 7241, as adopted pursuant
                to Section 302 of the Sarbanes-Oxley
                Act of 2002

31.2            Certification of Principal Financial          Provided herewith
                Officer pursuant to U.S.C. Section
                7241, as adopted pursuant to Section
                302 of the Sarbanes-Oxley Act of 2002

32.1            Certification by Chief Executive Officer      Provided herewith
                and Principal Accounting Officer pursuant
                to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002



                                   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, 2004                  KRONOS ADVANCED TECHNOLOGIES, INC.

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


                                   By: /s/ DANIEL R. DWIGHT
                                           ------------------------
                                           Daniel R. Dwight
                                           Acting Chief Financial Officer



                                       32