UNITED STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington, D.C.
20549
 FORM
10-Q
  [X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
  For the
quarterly period ended September 30, 2008
  Or
  [
 ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
 EXCHANGE
ACT OF 1934
  For the
transition period from _____________ __, ____ to _____________ __,
____
  Commission
File Number: 000-30191
  KRONOS
ADVANCED TECHNOLOGIES, INC.
 (Exact
name of registrant as specified in its charter)
  Nevada
                  87-0440410(State
      or other jurisdiction of
                  (I.R.S.
      Employerincorporation
      or organization)
                  Identification
      No.)
  464
Common Street, Suite 301, Belmont, MA 02478
 (Address
of principal executive offices) (Zip Code)
  (617)
364-5089
 (Registrant's
telephone number, including area code)
  (Former
name, former address and former fiscal year,
 if
changed since last report)
  Indicate
by check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
  [X] Yes
[_] No
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large
accelerated
filer  [  ]                                                                                                                     Accelerated
filer [  ]
  Non-accelerated
filer [  ]    (Do not check if a smaller reporting
company)                                   Smaller
reporting company [X]
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
  [_] Yes
[X] No
  As of
February 11, 2009, there were 487,626,691 shares outstanding of the issuer's
common stock.
  
 
 PART
I
  FINANCIAL
INFORMATION
  ITEM
1. FINANCIAL STATEMENTS
  The
following comprise our (unaudited) consolidated financial statements for the
three months ended September 30, 2008.
  
 2
 
 KRONOS
ADVANCED TECHNOLOGIES, INC.
 CONSOLIDATED
BALANCE SHEETS
 
 September
      30,
                                                    
                                                    
                                                    June
      30,2008
                                                    
                                                    
                                                    2008(Unaudited)
                                                    
                                                    
                                                    (Audited)AssetsCurrent
      AssetsCash
                                                    
                                                    $
                                                    415,971
                                                    
                                                    
                                                    $
                                                    871,970Other
      Current Assets
                                                    
                                                    
                                                    109,372
                                                    
                                                    
                                                    
                                                    151,044Total
      Current Assets
                                                    
                                                    
                                                    525,343
                                                    
                                                    
                                                    
                                                    1,023,014Net
      Property and Equipment
                                                    
                                                    
                                                    10,298
                                                    
                                                    
                                                    
                                                    11,244Intangibles
                                                    
                                                    
                                                    1,473,885
                                                    
                                                    
                                                    
                                                    1,546,493Total
      Assets
                                                    
                                                    $
                                                    2,009,526
                                                    
                                                    
                                                    $
                                                    2,580,750Liabilities
      and Stockholders' DeficitCurrent
      LiabilitiesAccounts
      payable
                                                    
                                                    $
                                                    404,575
                                                    
                                                    
                                                    $
                                                    577,028Accrued
      interest expenses
                                                    
                                                    
                                                    543,485
                                                    
                                                    
                                                    
                                                    431,300Accrued
      expenses
                                                    
                                                    
                                                    236,527
                                                    
                                                    
                                                    
                                                    323,751Accrued
      expenses and payables to officers
                                                    
                                                    
                                                    9,617
                                                    
                                                    
                                                    
                                                    6,303Deferred
      revenue
                                                    
                                                    
                                                    615,383
                                                    
                                                    
                                                    
                                                    173,074Notes
      payable, current portion
                                                    
                                                    
                                                    4,773,559
                                                    
                                                    
                                                    
                                                    4,773,559Discount
      for Beneficial Conversion Feature
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (3,314,620
                                                    )Notes
      payable to officers
                                                    
                                                    
                                                    110,484
                                                    
                                                    
                                                    
                                                    110,484Total
      Current Liabilities
                                                    
                                                    
                                                    6,693,630
                                                    
                                                    
                                                    
                                                    3,080,879Total
      Liabilities
                                                    
                                                    
                                                    6,693,630
                                                    
                                                    
                                                    
                                                    3,080,879Stockholders'
      Deficit (Common stock,authorized
      500,000,000 shares of$0.001
      par value; Issued and outstanding -487,626,691
      and 487,626,691, respectively)
                                                    
                                                    
                                                    487,627
                                                    
                                                    
                                                    
                                                    487,627Capital
      in excess of par value
                                                    
                                                    
                                                    36,837,962
                                                    
                                                    
                                                    
                                                    36,837,962Accumulated
      deficit
                                                    
                                                    
                                                    (42,009,693
                                                    )
                                                    
                                                    
                                                    (37,825,718
                                                    )Total
      Stockholders' Deficit
                                                    
                                                    
                                                    (4,684,104
                                                    )
                                                    
                                                    
                                                    (500,129
                                                    )Total
      Liabilities andStockholders'
      Deficit
                                                    
                                                    $
                                                    2,009,526
                                                    
                                                    
                                                    $
                                                    2,580,750
   The
accompanying notes are an integral part of these financial
statements.
  3
 KRONOS ADVANCED TECHNOLOGIES,
INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
  Three
      months ended September 30,2008
                                                  
                                                  
                                                  2007(Unaudited)
                                                  
                                                  
                                                  (Unaudited)Revenues
                                                  
                                                  $
                                                  57,691
                                                  
                                                  
                                                  $
                                                  25,000Cost
      of revenues
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Gross
      Profit
                                                  
                                                  
                                                  57,691
                                                  
                                                  
                                                  
                                                  25,000Selling,
      General andAdministrative
      expensesCompensation
      and benefits(includes
      equity compensationof
      $0 and $132,833 for thethree
      months ended September 30,2008
      and 2007, respectively)
                                                  
                                                  
                                                  339,445
                                                  
                                                  
                                                  
                                                  544,489Research
      and development
                                                  
                                                  
                                                  41,108
                                                  
                                                  
                                                  
                                                  108,794Professional
      services
                                                  
                                                  
                                                  160,633
                                                  
                                                  
                                                  
                                                  169,950Depreciation
      and amortization
                                                  
                                                  
                                                  111,721
                                                  
                                                  
                                                  
                                                  109,395Insurance
                                                  
                                                  
                                                  41,153
                                                  
                                                  
                                                  
                                                  30,000Facilities
                                                  
                                                  
                                                  40,209
                                                  
                                                  
                                                  
                                                  30,550Other
                                                  
                                                  
                                                  51,480
                                                  
                                                  
                                                  
                                                  60,626Selling,
      General andAdministrative
      expenses
                                                  
                                                  
                                                  785,749
                                                  
                                                  
                                                  
                                                  1,053,804Net
      Operating Loss
                                                  
                                                  
                                                  (728,058
                                                  )
                                                  
                                                  
                                                  (1,028,804
                                                  )Accretion
      of Note
                                                  
                                                  
                                                  (3,314,620
                                                  )
                                                  
                                                  
                                                  (285,660
                                                  )Interest
      Expense, Net
                                                  
                                                  
                                                  (141,297
                                                  )
                                                  
                                                  
                                                  (149,012
                                                  )Net
      Loss
                                                  
                                                  $
                                                  (4,183,975
                                                  )
                                                  
                                                  $
                                                  (1,463,476
                                                  )Net
      Loss Per Share-
      Basic and diluted
                                                  
                                                  $
                                                  (0.01
                                                  )
                                                  
                                                  $
                                                  (0.01
                                                  )Weighted
      averageshares
      outstanding-
      Basic and diluted
                                                  
                                                  
                                                  487,626,691
                                                  
                                                  
                                                  
                                                  242,886,244
  The
accompanying notes are an integral part of these financial
statements.
  
 4
  KRONOS ADVANCED TECHNOLOGIES,
INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
  For
      the three months ended September 30,2008
                                                    
                                                    
                                                    2007(Unaudited)
                                                    
                                                    
                                                    (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss from operations
                                                    
                                                    $
                                                    (4,183,975
                                                    )
                                                    
                                                    $
                                                    (1,463,476
                                                    )Adjustments
      to reconcile net loss tonet
      cash used in operations:Accretion
      of note discount
                                                    
                                                    
                                                    3,314,620
                                                    
                                                    
                                                    
                                                    285,660Stock
      options granted forcompensation/services
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    198,516Depreciation
      and amortization
                                                    
                                                    
                                                    111,722
                                                    
                                                    
                                                    
                                                    109,395Change
      provided (used) in:Accounts
      receivable
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (22,321
                                                    )Prepaid
      expenses and other assets
                                                    
                                                    
                                                    41,671
                                                    
                                                    
                                                    
                                                    -Transfer
      of patents
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Deferred
      revenue
                                                    
                                                    
                                                    442,309
                                                    
                                                    
                                                    
                                                    -Accounts
      payable
                                                    
                                                    
                                                    (172,453
                                                    )
                                                    
                                                    
                                                    (54,101
                                                    )Accrued
      expenses and other liabilities
                                                    
                                                    
                                                    28,275
                                                    
                                                    
                                                    
                                                    70,430Net
      cash Provided (Used) in Operations
                                                    
                                                    
                                                    (417,831
                                                    )
                                                    
                                                    
                                                    (875,897
                                                    )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      on property & equipment
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (5,396
                                                    )Investment
      in patent protection
                                                    
                                                    
                                                    (38,168
                                                    )
                                                    
                                                    
                                                    (62,769
                                                    )Net
      cash Used in Investing Activities
                                                    
                                                    
                                                    (38,168
                                                    )
                                                    
                                                    
                                                    (68,165
                                                    )CASH
      FLOWS FROM FINANCING ACTIVITIESIssuance
      of common stock
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    23,527Proceeds
      from short-term borrowings
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    650,466Repayments
      of short-term borrowings
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (12,059
                                                    )Proceeds
      from long-term borrowings
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Repayments
      of long term debt
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Net
      cash Provided by FinancingActivities
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    661,934NET
      DECREASE IN CASH
                                                    
                                                    
                                                    (455,999
                                                    )
                                                    
                                                    
                                                    (282,128
                                                    )CASHBeginning
      of period
                                                    
                                                    
                                                    871,970
                                                    
                                                    
                                                    
                                                    363,955End
      of period
                                                    
                                                    $
                                                    415,971
                                                    
                                                    
                                                    $
                                                    81,827Supplemental
      schedule of non-cashinvesting
      and financing activities:Interest
      paid in cash
                                                    
                                                    $
                                                    31,021
                                                    
                                                    
                                                    $
                                                    29,571Taxes
      Paid in Cash
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
  The
accompanying notes are an integral part of these financial
statements.
 
 5
 
 KRONOS
ADVANCED TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
 (UNAUDITED)
  NOTE
1 - ORGANIZATION AND NATURE OF OPERATIONS
  Kronos
Advanced Technologies, Inc. ("Kronos") is a Nevada corporation (the "Company").
 The Company's shares began trading on the over-the-counter bulletin board
exchange on August 28, 1996, under the symbol "TSET."  Effective January
12, 2002, the Company began doing business as Kronos Advanced Technologies, Inc.
and, as of January 18, 2002, it changed the Company ticker symbol to "KNOS“ and
is currently trading on the Pink Sheets.
  NOTE
2 - BASIS OF PRESENTATION
  The
accompanying unaudited consolidated financial statements of Kronos have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary to
present fairly the information set forth therein have been included. Operating
results for the three month period ended September 30, 2008 are not necessarily
indicative of the results that may be experienced for the fiscal year ending
June 30, 2009.
  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, 2008, which was filed with the Securities and Exchange Commission
(the “SEC”) on January 6, 2009.
  NOTE
3 - REALIZATION OF ASSETS AND GOING CONCERN
  The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern.  The
Company has sustained losses from operations in recent years, and such losses
have continued through the period ending September 30, 2008.  In addition,
the Company has used, rather than provided, cash in its operations.  The
Company has attempted during the period to use its resources to commercialize
its technology and develop viable commercial products and to provide for its
working capital needs.
  In view
of the matters described in the preceding paragraph, recoverability of a major
portion of the asset amounts shown in the accompanying balance sheet is
dependent upon continued operations of the Company, which in turn is dependent
upon the Company's ability to meet its financing requirements on a continuing
basis, 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.
  On
September 29, 2008, Kronos received a notice of event of default from AirWorks
with respect to the Secured Convertible Promissory Note due June 19, 2010 (the
“Promissory Note”), issued to by the Company to AirWorks.  The notice
states that (1) an Event of Default under Section 2.1(a) of the Promissory Note
has occurred due to the failure of the Company to make interest payments on the
Promissory Note and (2) the entire principal amount of, and the interest on, the
Promissory Note is declared immediately due and payable in the amount of
$3,551,735 plus interest. Airworks and Hilltop are proceeding with the
foreclosure of all of the collateralized assets of the Company, including all
intellectual property and patent rights, all cash assets, all physical goods and
equipment and all contractual rights including license Agreements.
  During
the period, Management has taken the following steps with respect to its
operating and financial requirements:
  Tessera. In March 2008,
Kronos executed an Intellectual Property Transfer and License Agreement with
Tessera Technologies, Inc. (“Tessera”) for the transfer and license of certain
intellectual property (IP) rights related to Kronos proprietary technologies to
Tessera.  Kronos initially received $3.5 million from Tessera in
exchange for the transfer of select Kronos patents covering micro-cooling
applications and for an exclusive license to the Kronos technology for the field
of ionic micro-cooling of integrated circuit devices or discrete electrical
components.  Kronos retained the rights to use these patents for
applications outside of the field of micro-cooling.  Tessera has
exercised its further right to acquire additional Kronos IP relating to
micro-cooling applications for four quarterly payments of $0.5 million each
beginning in July 1, 2008. Kronos received a payment of $0.5 million on July 1,
2008, a payment of $0.5 million on October 1, 2008, and an accelerated payment
of $1.0 million on November 21, 2008, for the remaining payments due on January
1, 2009 and April 1, 2009.  The receipt of this $2.0 million
constitutes payment in full for the remaining micro-cooling related patents
subject to the agreement with Tessera.  The Company and Tessera have
the option to continue to jointly develop new technologies in this
field.
  6
 EOL.  In December
2005, Kronos executed a non-exclusive License Agreement with EOL LLC, a Russian
Federation corporation ("EOL"). Based in Korolev, Moscow Region,
Russia.  EOL is leveraging the Kronos technology to produce, market,
and distribute Kronos commercial air purification products, bacteriological and
virus destruction devices in select Commonwealth of Independent
States.  The agreement comes after successful completion of multiple
tests in Eastern Europe, which found the Kronos technology capable of
decontaminating rooms infected with airborne viruses and
bacteria.  Under the terms of the five-year agreement, EOL is
providing Kronos a fixed percentage royalty on every product sold, as well as
upfront licensing and quarterly maintenance fees.  The initial medical
products are currently being marketed in Russia and marketing plans are being
implanted in Ukraine, Kazakhstan, Moldova and Byelorussia.  During the
fiscal year ended June 30, 2008, Kronos earned $55,000 in revenue from the sale
of power supplies, other electrical components and engineering services and from
the royalty from the sale of finished products by EOL. No revenue was earned
from EOL during the three month period ended, September 30, 2008.
  Global Appliance
Manufacturers. In October 2006, a leading global home appliance
manufacturer committed to fund 20% of the cost for Kronos to manufacturer a
silent kitchen range hood product.  This next generation range hood
device represented the culmination of more than twelve months of product design
and development efforts by Kronos to apply our technology to this unique
embedded residential application. The product was shipped to the customer in
October 2006.  In January 2007, the prototype design was modified
based on customer input and a revised unit was shipped to the
customer.  In addition to financial support, the customer has also
provided Kronos with product components for Kronos testing and
evaluation.  In February 2007, a second global appliance manufacturer
committed to purchase additional prototypes from Kronos for testing and
evaluation.  During the years ended June 30, 2008, Kronos earned
$34,055 in revenue from the development of prototype devices for the residential
range hood market place. No revenue was earned from a global appliance
manufacturer during the three month period ended, September 30,
2008.
  DESA.  In June
2006, the Company executed its first license for embedded applications of Kronos
technology with DESA LLC ("DESA").  The agreement provided DESA the
opportunity to embed the Kronos electrostatic air movement technology within
fireplaces, hearth systems, zone heaters and mounted electric fans and heaters
for minimum license payments.  In October 2006, DESA approved Kronos'
designs for the first Kronos-based product and committed to the funding of the
product development by Kronos.  In January 2007, DESA committed
additional funds for Kronos exploration of a second Kronos-based product
application.  By May 2007, various prototype configurations for each
of the two product applications were under test and evaluation by Kronos and
DESA.  Kronos does not have the funds to continue to pursue DESA
applications.
  Washington Technology
Center.  In June 2007, the Washington Technology Center awarded
the Company in conjunction with the University of Washington and Intel
Corporation continued funding for a research and development project based on a
novel cooling system for microelectronics and computer chips.  This
Phase III award follows the Company’s Phase 1 and Phase II awards in December
2005 and June 2006, respectively.
  NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Accounting Method.The Company's
consolidated financial statements are prepared using the accrual method of
accounting.  The Company has elected a June 30 fiscal year
end.
  Principles of
Consolidation.The consolidated
financial statements of the Company include those of the Company and its
subsidiary for the periods in which the subsidiary was owned/held by the
Company.  All significant intercompany accounts and transactions have been
eliminated in the preparation of the consolidated financial statements.  At
June 30, and September 30, 2008, the Company had only one subsidiary, Kronos Air
Technologies, Inc.
  Use of Estimates.The preparation of
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the periods.  Actual results could differ from those
estimates.
  Cash and Cash Equivalents.The
Company considers all highly liquid short-term investments, with a remaining
maturity of three months or less when purchased, to be cash equivalents.
 The Company maintains cash and cash equivalents with high-credit, quality
financial institutions. At September 30, 2008 and June 30, 2008, the cash
balances held at financial institutions were in excess of federally insured
limits.
  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.
  Fair Value of Financial Instruments.Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosures of information about
the fair value of certain financial instruments for which it is practicable to
estimate the value.  For purpose of this disclosure, the fair value of
a financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced sale or
liquidation.
 
 7
 The
carrying amounts of the Company’s short-term financial instruments, including
cash, other current assets, accounts payable, accrued expenses and notes payable
approximate fair value at September 30, 2008 due to the relatively short period
to maturity for these instruments.
  Intangibles.The Company uses
assumptions in establishing the carrying value, fair value and estimated lives
of the Company’s long-lived assets and goodwill.  The criteria used for
these evaluations include management's estimate of the assets’ continuing
ability to generate positive income from operations and positive cash flow in
future periods compared to the carrying value of the asset, the strategic
significance of any identifiable intangible asset in its business objectives, as
well as the market capitalization of the Company.  Cash flow projections
used for recoverability and impairment analysis use the same key assumptions and
are consistent with projections used for internal budgeting, and for lenders and
other third parties. If assets are considered to be impaired, the
impairment recognized is the amount by which the carrying value of the assets
exceeds the fair value of the assets.  Useful lives and related
amortization or depreciation expense are based on the Company’s estimate of the
period that the assets will generate revenues or otherwise be used by Kronos.
 Factors that would influence the likelihood of a material change in the
Company’s reported results include significant changes in the assets’ ability to
generate positive cash flow, loss of legal ownership or title to the asset, a
significant decline in the economic and competitive environment on which the
asset depends, significant changes in the Company’s strategic business
objectives, and utilization of the asset.
  Income
Taxes.  Income taxes are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 109.
 Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.  The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.  Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amounts expected to be realized, but no less than quarterly.
  Research and Development
Expenses.
Costs related to research and development are charged to research and
development expense as incurred.
  Net Loss Per
Share. Basic loss per share is computed using the weighted average
number of shares outstanding.  Diluted loss per share is computed using the
weighted average number of shares outstanding adjusted for the incremental
shares attributed to outstanding options and warrants to purchase common stock,
when their effect is dilutive.
  Revenue Recognition.The Company recognizes
revenue in accordance with Staff Accounting Bulletin (SAB) 104, which requires
evidence of an agreement, delivery of the product or services at a fixed or
determinable price, and assurance of collection within a reasonable period of
time.  Further, Kronos Air Technologies recognizes revenue on the sale of
the custom-designed contract sales under the percentage-of-completion method of
accounting in the ratio that costs incurred to date bear to estimated total
costs.  For uncompleted contracts where costs and estimated profits exceed
billings, the net amount is included as an asset in the balance sheet.  For
uncompleted contracts where billings exceed costs and estimated profits, the net
amount is included as a liability in the balance sheet.  Sales are reported
net of applicable cash discounts and allowances for returns.  Revenue from
government grants for research and development purposes is recognized as revenue
as long as the Company determines that the government will not be the sole or
principal expected ultimate customer for the research and development activity
or the products resulting from the research and development activity. 
Otherwise, such revenue is recorded as an offset to research and development
expenses in accordance with the Audit and Accounting Guide, Audits of Federal
Government Contractors.  In either case, the revenue or expense offset is
not recognized until the grant funding is invoiced and any customer acceptance
provisions are met or lapse.
  Stock, Options and Warrants Issued
for Services.Issuances of shares of
the Company's stock to employees or third parties for compensation or services
is valued using the closing market price on the date of grant for employees and
the date services are completed for non-employees. Issuances of options and
warrants of the Companies stock are valued using the Black-Scholes option
model.
  Stock Options.In December 2004, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 123R, Share-Based Payment ("SFAS No. 123R").  This
Statement is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation
guidance.  SFAS No. 123R focuses primarily on accounting for transactions
in which an entity obtains employee services in share-based payment
transactions.  The Statement requires entities to recognize stock
compensation expense for awards of equity instruments to employees based on the
grant-date fair value of those awards (with limited exceptions).  Kronos
elected to implement the provisions of SFAS No. 123R in the fiscal year ended
June 30, 2005.
  Recent
Accounting Pronouncements
 
 In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations” (“SFAS 141(R)”), and SFAS No. 160, “Accounting and Reporting
of Noncontrolling Interests in Consolidated Financial Statements, an amendment
of ARB No. 51” (“SFAS 160”).  These new standards will significantly
change the financial accounting and reporting of business combination
transactions and noncontrolling (or minority) interests in consolidated
financial statements.  SFAS 141(R) is required to be adopted
concurrently with SFAS 160 and is effective for business combination
transactions for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  Early adoption is prohibited.  The Company is currently
assessing the impact that SFAS 141(R) will have on its results of
operations and financial position.
  8
 In March
2008, the FASB issued SFAS No. 161, “ Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133“, which requires additional disclosures about the objectives of the
derivative instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations, and a
tabular disclosure of the effects of such instruments and related hedged items
on our financial position, financial performance, and cash flows. SFAS
No. 161 is effective for the Company beginning January 1,
2009.  The Company believes that, for the foreseeable future, this
statement will have no impact on its financial statements once
adopted.
 
 In May
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 162, “The Hierarchy of Generally
Accepted Accounting Principles.” The new standard is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. generally accepted accounting
principles (GAAP) for non-governmental entities. We are currently evaluating the
effects, if any, that SFAS No. 162 may have on our financial
reporting.
 
 NOTE
5 – TESSERA TRANSACTION
 
 On March
31, 2008, Kronos executed an Intellectual Property Transfer and License
Agreement with Tessera Technologies, Inc. (“Tessera”) for the transfer and
license of certain intellectual property (“IP”) rights related to Kronos
proprietary technologies to Tessera.  Kronos received an upfront and
nonrefundable fee of $3.5 million from Tessera in exchange for the transfer of
select Kronos patents covering micro-cooling applications, an exclusive license
to Kronos’ additional U.S. Patents and patents pending and related foreign
patent applications for ionic micro-cooling of integrated circuit devices or
discrete electrical components (“Ionic Micro-cooling”); as well as a twelve
month term option license  to acquire additional Kronos’ U.S. Patents and
related foreign patents for Ionic Micro-cooling.  As of November 20, 2008,
Tessera further executed its right to acquire this additional Kronos IP relating
to micro-cooling applications for $2.0 million with payments received. Kronos
retained the rights to use all its patents for all applications outside of the
field of micro-cooling. Upon the receipt of the $3.5 million from Tessera,
Kronos recognized $3,269,231 as revenue for the nonrefundable, up-front license
and IP transfer granted to Tessera and $230,769 as deferred revenue for term
license granted to Tessera. The deferred revenue will be recognized over the
twelve month term of the license. For the three month period ending, September
30, 2008, the Company recognized $57,691 in revenue from the initial deferred
revenue associated with the first group of patents transferred.  The
$2.0 million received from Tessera, in three installments between July 1, 2008
and November 20, 2008, will be recorded as revenue in a subsequent
period.  The company deferred $500,000 received on July
1,2008   These payments are for the second group of patents
included in the Tessera patent sales transaction.
  NOTE
6 -- INCOME TAXES
 
 The
composition of deferred tax assets and the related tax effects are as
follows:
 
 September30,
                          2008
                        
                        
                        June
      30,
                          2008Benefit
      from carryforward of capitaland
      net operating losses
                        
                        $
                        (9,234,840
                        )
                        
                        $
                        (8,138,840
                        )Other
      temporary differences
                        
                        
                        (157,000
                        )
                        
                        
                        (157,000
                        )Options
      issued for services
                        
                        
                        -
                        
                        
                        
                        (806,000
                        )Less:Valuation
      allowance
                        
                        
                        9,391,840
                        
                        
                        
                        9,101,840Net
      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:
 
 9
 September
      30, 2008
                          
                          
                          June
      30, 2008Amount
                          
                          
                          %
      of pre-tax Loss
                          
                          
                          Amount
                          
                          
                          %
      of pre-tax LossBenefit
      for income tax at:Federal
      statutory rate
                          
                          $
                          (1,423,000
                          )
                          
                          
                          (34.0
                          )%
                          
                          $
                          (1,481,000
                          )
                          
                          
                          (34.0
                          )%State
      statutory rate
                          
                          
                          (84,000
                          )
                          
                          
                          (2.0
                          )%
                          
                          
                          (87,000
                          )
                          
                          
                          (2.0
                          )%Non-deductible
      expenses
                          
                          
                          1,217,000
                          
                          
                          
                          29.1
                          %
                          
                          
                          872,160
                          
                          
                          
                          20.0
                          %(Decrease)
      Increase in valuation allowance
                          
                          
                          290,000
                          
                          
                          
                          6.9
                          %
                          
                          
                          695,840
                          
                          
                          
                          16.0
                          %$
                          -
                          
                          
                          
                          0.0
                          %
                          
                          $
                          -
                          
                          
                          
                          0.0
                          %
 
 The
non-deductible expenses shown above related primarily to the amortization of
intangible assets and to the accrual of stock options for compensation using
different valuation methods for financial and tax reporting
purposes.
 
 As of
September 30, 2008, the Company had approximately $20.2 million of unused
Federal net operating losses, $1.3 million capital losses and $16
million state net operating losses available for carryforward to future
years.  The benefit from carryforward of such losses will expire in various
years through 2026 and could be subject to limitations if significant ownership
changes occur in the Company.
  NOTE
7 - SEGMENTS OF BUSINESS
  The
Company has only one reportable segment, which consists of developing,
licensing, manufacturing and distributing air movement and purification devices
utilizing the Kronos technology. For the three months ended September 30, 2008
and the fiscal year ended June 30, 2008 the Company operated only in the
U.S.
  NOTE
8 - EARNINGS PER SHARE
  Weighted
average shares outstanding used in the earnings per share calculation were
487,626,691 and 242,886,244 for the three months ended September 30, 2008 and
2007, respectively.
  As of
September 30, 2008, there were outstanding options to purchase 90,259,775 shares
of the Company's common stock and outstanding warrants to purchase 15,792,342
shares of the Company's common stock. These options and warrants have been
excluded from the earnings per share calculation as their effect is
anti-dilutive. As of September 30, 2007, there were outstanding options to
purchase 25,499,538 shares of the Company's common stock and outstanding
warrants to purchase 42,300,000 shares of the Company's common stock. These
options and warrants have been excluded from the earnings per share calculation
as their effect is anti-dilutive.
  NOTE
9 - CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE
 
 On
September 29, 2008, Kronos received a notice of event of default from AirWorks
with respect to the Secured Convertible Promissory Note due June 19, 2010 (the
“Promissory Note”), issued to by the Company to AirWorks.  The notice
states that (1) an Event of Default under Section 2.1(a) of the Promissory Note
has occurred due to the failure of the Company to make interest payments on the
Promissory Note and (2) the entire principal amount of, and the interest on, the
Promissory Note is declared immediately due and payable in the amount of
$3,551,735 plus interest.
  The
Company had the following obligations as of September 30, 2008 and June 30,
2008
  September
      30 2008
                                
                                
                                June
      30, 2008Obligations
      to AirWorks Funding LLLP (1)
                                
                                $
                                3,426,135
                                
                                
                                $
                                3,426,135Obligations
      to Hilltop LLP/RS Properties LP(1)
                                
                                
                                1,147,425
                                
                                
                                
                                1,147,425Discount
      for Beneficial Conversion Feature (2)
                                
                                
                                -
                                
                                
                                
                                (3,314,620
                                )Obligations
      to Gumbinner and Sun (1)
                                
                                
                                200,000
                                
                                
                                
                                200,000Obligation
      to current employees (3)
                                
                                
                                110,484
                                
                                
                                
                                110,4844,884,044
                                
                                
                                
                                1,569,424Less:Current
      portion
                                
                                
                                4,884,044
                                
                                
                                
                                1,569,424Total
      long term obligations net ofcurrent
      portion
                                
                                $
                                -
                                
                                
                                $
                                -
  (1)  These
notes bear interest at the rate of 12% are secured by the assets of the Company
and convertible into shares of Kronos Common Stock at $0.0028 or are payable in
full on June 19, 2010. On September 29, 2008, Kronos Advanced Technologies, Inc.
(the “Company”) received a notice of event of default from AirWorks Funding LLLP
(“AirWorks”) with respect to the Secured Convertible Promissory Note due June
19, 2010 (the “Promissory Note”), issued to by the Company to AirWorks, see Note
20 Subsequent Events.
  10
 (2)Under Generally
Accepted Accounting Principles, the Company recorded a discount for the
Beneficial Conversion Feature (“BCF”) on the convertible debt issued to AirWorks
and Hilltop LLP/RS Properties.  The amount of the BCF discount was
calculated using the Black-Scholes model.  Because the maximum value
of the BCF discount cannot exceed the full value of the issued debt, the Company
recorded the discount at the full value of the debt of $3,400,000 for the
period ended June 30, 2007, and an additional BCF of $2,105,000 for the period
ended June 30, 2008.  The BCF recognized during 2008 was calculated
for additional amounts of the notes received from Airworks and Hilltop,
$1,905,000, along with the note to Gumbinner and Sun, $200,000. The Company is
amortizing the BCF discount over the three year life of the
debt.  For the fiscal years ended June 30, 2008 Company recorded a
discount amortization of $2,156,225.  On September 29, 2008, Kronos
received a notice of event of default from AirWorks Funding LLLP (“AirWorks”)
with respect to the Secured Convertible Promissory Note (the “Promissory Note”)
due June 19, 2010, issued by the Company to AirWorks.  As a result of
the Company being served notice of default, the Company recorded $3,314,620
amortization expense to fully amortize the remaining portion of the
discount.
  (3)  These
notes bear interest at the rate of 12%. They represent obligations to current
employees of the Company, which are due in full.
 
 NOTE
10 - COMMITMENTS AND CONTINGENCIES
 
 In June
2007, Kronos entered into a Funding Agreement with a group of lenders providing
for a loan, at the discretion of the lenders, in the aggregate amount of up to
$18,159,000. At the initial closing, the Company received an initial advance of
$4,259,000.  After payment in full of the amounts due under an
outstanding convertible debenture issued to Cornell Capital Partners and
settlement agreement obligation to HoMedics and the expenses of the transaction,
the remainder of $1,069,000 was used for working capital purposes.
  The
lenders were:  (i) AirWorks Funding LLLP, a newly-formed limited
partnership (“AirWorks”); (ii) Critical Capital Growth Fund, L.P. and various
Sands Brothers Venture Funds, all of which are affiliates of Laidlaw and Co.
(UK) Ltd. (collectively “Sands”) and (iii) RS Properties I LLC, a New York-based
private investment company (“RS Properties”).  Subsequently, RS Properties
assigned to Hilltop Holding Company, LP, a Delaware limited partnership,
(“Hilltop”) its promissory note together with certain other rights and
agreements relating thereto, including, without limitation, its rights and
obligations under the Funding Agreement.
   The loan
is secured by all of the Company's assets and is convertible into shares of the
Company's common stock at a conversion price of $0.003 per share, subject to
adjustment under certain circumstances.  Future installments under the
Funding Agreement, up to $13,900,000, may be advanced at the discretion of the
lenders, even if not requested by the Company.  Under the Funding Agreement
and related notes, the Company pays interest at the rate of 12% per annum.
 Of the total amount of the initial advance, interest is paid monthly
starting July 1, 2007, on $859,000, which principal amount is due and payable
December 31, 2007.  Such amount may be converted into Kronos common stock
at the option of the holder at the $0.003 conversion price only if not paid in
full by December 31, 2007.  On March 13, 2008, Critical Capital and
Sands Brothers agreed to extend the maturity date of their note until April 30,
2008.  On April 1, 2008, the Company repaid Critical Capital and Sands
Brothers the full principal amount and interest on the note.  With
respect to all other loan amounts, interest is paid quarterly starting January
1, 2008, and outstanding principal is due and payable June 19, 2010, unless
earlier converted at the option of the lenders. Assuming that the maximum
loan amount is advanced under the Funding Agreement and related notes and that
the lenders convert the entire amount of the loan into Kronos common stock at
the noted conversion price, the lenders would own approximately 93.3% of the
Company's total equity on a fully diluted, as converted basis.
  Also in
connection with the Funding Agreement, several Kronos option and warrant holders
delivered standstill agreements pursuant to which such holders agreed not to
exercise their options or warrants before December 31, 2007.  Several
stockholders also entered into Voting Agreements with the lenders pursuant to
which they agreed to vote, if and when proposed to shareholders, in favor
of:  (i) a slate of directors of the Company's board of directors as
proposed by AirWorks; (ii) adjusting the size of the Company's board of
directors such that upon the election of the slate of directors proposed by
AirWorks, such directors hold a majority of the seats on the Company's board of
directors; (iii) approving an amendment to the Company's articles of
incorporation to increase the Company's authorized common stock to a number of
shares necessary to allow the lenders to convert the entire amount of the
financing into shares of common stock of the Company as provided in the Notes
and the Funding Agreement; (iv) reincorporating the Company in Delaware; (v) a
reverse stock split proposed by AirWorks or the Company's board of directors;
and (vi) against any action or transaction that may reasonably be expected to
impede, interfere with, delay, postpone or attempt to discourage the
consummation of any of the foregoing.  Such standstill and voting
agreements, combined with the conversion into Kronos common stock of a
sufficient amount of the initial advance under the Funding Agreement, would give
the lenders voting control of the Company.
  The
Funding Agreement also gives the lenders the right to designate a majority of
the members of the Company's Board of Directors.  In accordance with
the Funding Agreement, on April 14, 2008, the lenders exercised their right to
designate a majority of the members of the Company's Board of Directors and five
new additional Board members were appointed to the Kronos Board of Directors:
 Richard Perlman, Jack Silver, James Price, Marc Kloner and Barry Salzman.
 The Funding Agreement also contains usual and customary representations
and warranties and covenants that prohibit the Company from undertaking certain
actions without the consent of AirWorks.
  Airworks,
effective as of January 1, 2008, in agreement with the Company, agreed to defer
payment of quarterly interest expenses for an unspecified period, until the
Company received a Notice of Default by Airworks on September 29,
2008.
  11
 On
September 29, 2008, Kronos received a notice of event of default from AirWorks
with respect to the Secured Convertible Promissory Note due June 19, 2010 (the
“Promissory Note”), issued to by the Company to AirWorks.  The notice
states that (1) an Event of Default under Section 2.1(a) of the Promissory Note
has occurred due to the failure of the Company to make interest payments on the
Promissory Note and (2) the entire principal amount of, and the interest on, the
Promissory Note is declared immediately due and payable in the amount of
$3,551,735 plus interest.
  Daniel R.
Dwight, former President and Chief Executive Officer, and the Company entered
into an employment agreement effective as of November 15, 2001, and was
terminated June 20, 2008. The Company and Mr. Dwight entered into a Severance
Agreement dated May 16, 2008, in which the Company recorded $243,750 as a
restructuring cost in the results for the year ended June 30, 2008.
  Dr. Igor
Krichtafovitch resigned effective January 9, 2009. Mr. Krichtafovitch has a two
year severance provision in his Employment agreement, which will be recorded as
an unsecured liability for $300,000.00.
  Richard
F. Tusing, as of June 20, 2008, was appointed Acting President, Acting Chief
Executive Officer, Chief Operating Officer, Secretary, Treasurer and Chief
Financial Officer.  The Company entered into an employment agreement
with Mr. Tusing effective as of January 1, 2003.  The initial term of Mr.
Tusing's employment agreement is for two years and will automatically renew for
successive one year terms unless Kronos or Mr. Tusing provide the other party
with written notice within three months of the end of the initial term or any
subsequent renewal term.  The Board of Directors renewed Mr. Tusing's
employment agreement on October 1, 2004, October 1, 2005, October 1, 2006,
October 1, 2007, and October 1, 2008.  Mr. Tusing's employment agreement
provides for base cash compensation of $160,000 per year.  Mr. Tusing will
be entitled to fully participate in any and all 401(k), stock option, stock
bonus, savings, profit-sharing, insurance and other similar plans and benefits
of employment.  Mr. Tusing will resign effective as of close of
business on February 13, 2009.  Mr. Tusing has a one year severance
provision in his Employment agreement, which will be recorded as an unsecured
liability for $160,000.00.  The Company has appointed Mr. Barry
Salzman as the acting President, Secretary and Treasurer of the Company,
effective February 13, 2009.
  NOTE 11 - SUBSEQUENT
EVENTS
 
 The
Company received notification from James P. McDermott and M.J. Segal on the
dates of December 22, 2008 and December 23, 2008 respectively, that Mr.
McDermott and Mr. Segal have resigned from the Kronos Board of
Directors.
  In March
2008, Kronos executed an Intellectual Property Transfer and License Agreement
with Tessera Technologies, Inc. (“Tessera”) for the transfer and license of
certain intellectual property (IP) rights related to Kronos proprietary
technologies to Tessera.  Kronos initially received $3.5 million from
Tessera in exchange for the transfer of select Kronos patents covering
micro-cooling applications and for an exclusive license to the Kronos technology
for the field of ionic micro-cooling of integrated circuit devices or discrete
electrical components.  Kronos retained the rights to use these
patents for applications outside of the field of
micro-cooling.  Tessera has exercised its further right to acquire
additional Kronos IP relating to micro-cooling applications for four quarterly
payments of $0.5 million each beginning in July 1, 2008. Kronos received a
payment of $0.5 million on July 1, 2008, a payment of $0.5 million on October 1,
2008, and an accelerated payment of $1.0 million on November 21, 2008, for the
remaining payments due on January 1, 2009 and April 1, 2009.  The
receipt of this $2.0 million constitutes payment in full for the remaining
micro-cooling related patents subject to the agreement with
Tessera.  The Company and Tessera have the option to continue to
jointly develop new technologies in this field.
  In
December 2008 and January 2009, Kronos made principal and interest payments to
Airworks and Hilltop as follows:
  Airworks
Interest: $65,000 on December 31, 2008, $545,488 on January 09, 2009, and
$1,089, January 13, 2009
  Airworks
principal: $48,750 on January 9, 2009 and $285,000 on February 4,
2009
  Hilltop
interest: $62,750 on January 9, 2009, and $12,188, January 13, 2009
  Hilltop
principal: $16,250 on January 9, 2009
  Since the
Company has not been able to locate a purchaser for its business or assets on
satisfactory terms, or otherwise cured the defaults under the Airworks and
Hilltop Promissory Notes, the Company is now in the process of transferring
control of its assets to Airworks and Hilltop under peaceful possession
procedures.
  In
addition, in light of the Company’s financial condition and the ongoing peaceful
possession procedures with its creditors, the Company has determined that it is
in its best interests to voluntarily deregister its stock with the
SEC.  The Company is secured to deregister because it has fewer than
500 shareholders of record and its total assets have not exceeded $10 million on
the last day of each of the three most recent fiscal years.  Upon
filing the applicable forms with the SEC, the Company will no longer be
obligated to file certain reports with the SEC, including Forms 10-K, 10-Q and
8-K.
  12
 ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  INTRODUCTORY
STATEMENTS
  FORWARD
LOOKING STATEMENTS AND ASSOCIATED RISKS
  THIS
REPORT CONTAINS FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS REGARDING,
AMONG OTHER THINGS: (A) OUR PROJECTED SALES AND PROFITABILITY, (B) OUR GROWTH
STRATEGIES, (C) ANTICIPATED TRENDS IN OUR INDUSTRY, (D) OUR FUTURE FINANCING
PLANS, (E) OUR ANTICIPATED NEEDS FOR WORKING CAPITAL, AND (F) THE BENEFITS
RELATED TO OUR OWNERSHIP OF KRONOS AIR TECHNOLOGIES, INC. IN ADDITION, WHEN USED
IN THIS FILING, THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS," "IN ANTICIPATION
OF," "EXPECTS," AND SIMILAR WORDS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE BASED LARGELY ON OUR
EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, MANY OF
WHICH ARE BEYOND OUR CONTROL. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING, WITHOUT
LIMITATION, THE RISKS OUTLINED UNDER "FACTORS AFFECTING KRONOS' BUSINESS AND
PROSPECTS" AND MATTERS DESCRIBED IN THIS REPORT GENERALLY. IN LIGHT OF THESE
RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS REPORT WILL IN FACT OCCUR. WE DO NOT UNDERTAKE ANY
OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR
CIRCUMSTANCES.
  GENERAL
  Kronos
Advanced Technologies, Inc. was a product development and production company
that attempted to develop and patent technology that among other things
fundamentally change the way air is moved, filtered and
sterilized.  Fourteen of the Company's U.S. patent applications and
three international patent applications have been allowed for
issuance.  To date, our ability to execute our strategy has been
restricted by our limited amount of capital.
  The
Kronos technology has numerous valuable characteristics for applications in the
indoor air quality market, including moving air and gases at high velocities
while filtering odors, smoke and particulates and sterilizing air from bacteria
and virus contamination.  A number of the scientific claims of the
Kronos technology have been tested by the U. S. and foreign governments,
multi-national companies and independent testing facilities (see “Independent
Testing – Product Claims Platform”).
  Effective
June 20, 2008, the Employment Agreement of Daniel R. Dwight, the Company’s
former President and Chief Executive officer, was terminated pursuant to terms
of the Severance Agreement and Advisory Agreement, dated May 16,
2008.  Richard F. Tusing, the Company’s Chief Operating Officer, was
appointed acting president, Chief Financial Officer, Treasurer and Secretary of
the Company.
  On
October 24, 2008, the Company terminated the employment of all of its employees
except for Mr. Tusing and Igor Krichtafovitch, its Chief Technology
Officer.  Mr Krichtafovitch resigned effective January 9,
2009.  Mr. Tusing is resigning effective close of business on February
13, 2009.  The Company has appointed  Mr. Barry Salzman as
the acting President, acting Secretary and acting Treasurer for the Company as
of February 13, 2009. As a result of the Company’s financial condition, it has
ceased substantially all of its operating activities.  Kronos is
focused on prioritizing its limited resources on either selling or licensing the
Company’s technology or liquidating the assets of the Company.
  On
September 29, 2008, the Company received a notice of event of default from
AirWorks with respect to the Secured Convertible Promissory Note due June 19,
2010, issued to by the Company to AirWorks.  The Company has been, and
continues to be, in discussions with its secured lenders regarding the
outstanding obligations under the AirWorks and Hilltop promissory notes, the
alleged occurrence of an event of default, and the enforcement of the rights
under the promissory notes.  Following the Board of Directors’
appointment of James P. McDermott and M. J. Segal to an independent committee to
investigate the foregoing, Mr. McDermott and Mr. Segal resigned from the Board
of Directors.  Since the Company was not able to locate a purchaser
for its business or assets on satisfactory terms, the Company is now in the
process of transferring control of its assets to AirWorks and Hilltop in
accordance with peaceful possession procedures.
  In
addition, in light of the Company’s financial condition and the ongoing peaceful
possession procedures with its creditors, the Company has determined that it is
in its best interests to voluntarily deregister its stock with the
SEC.  The Company is secured to deregister because it has fewer than
500 shareholders of record and its total assets have not exceeded $10 million on
the last day of each of the three most recent fiscal years.  Upon
filing the applicable forms with the SEC, the Company will no longer be
obligated to file certain reports with the SEC, including Forms 10-K, 10-Q and
8-K
  
 13
 Technology
Description and Benefits
  The
proprietary Kronos technology involves the management of corona discharge by
applying high voltage management across paired electrical grids to create an ion
exchange.  Applications for efficient high voltage management,
efficient corona discharge and ion exchange include but are not limited
to:
  ·
              air
      movement, including dielectric fluid movement and
    propulsion;
  ·
              air
      purification, including particulate removal, bacteria and viral removal,
      biohazard destruction, and odor
removal;
  ·
              temperature
      and environmental management, including space heating and
      cooling;
  ·
              microchip,
      MEMS and other electronics devices and components
  cooling;
  ·
              air
      management, including sorting and separation of air streams by particle
      content;
  ·
              sound
      generation, including high fidelity sound recreation and active noise
      cancellation;
  ·
              high
      voltage management, including development of high voltage power supplies
      and control of energy surges and electrical
  discharges;
  ·
              control
      of water and moisture content in air streams, including dehumidification
      and humidification; and
  ·
              water
      treatment, including water purification, ionization and water
      desalination.
  Independent
Testing - Product Claims Platform
  A number
of the scientific claims of the Kronos technology have been tested by the U. S.
and foreign governments, multi-national companies and independent testing
facilities.  To date, independent laboratory testing has verified the
filtration and sterilization capability of the Kronos
technology.  Summary results from select independent testing
facilities are provided below.  The tests were conducted in the U.S.
unless otherwise indicated.
  Filtration
Testing Results:
  ·
              Environmental
      Health and Engineering - reduced particle matter by up to 47% compared to
      days when the Kronos air purifiers were not operating in the waiting room
      of a pediatric office while patients were
  present.
  ·
              Aerosol
      and Air Quality Research Laboratory - up to 99.8% filtration of 0.02 to
      0.20 micron (20 to 200 nanometers) size
  particles;
  ·
              LMS
      Industries - removal of over 99.97% of 0.10 micron (100 nanometers) and
      above size particles using HVAC industry's ASHRAE 52.2 testing standard
      for filtration;
  ·
              MicroTest
      Laboratories - HEPA Clean Room Class 1000 quality particulate reduction;
      and
  ·
              Intertek
      - tobacco smoke elimination tests in accordance with ANSI/AHAM AC-1-1988
      standard entitled "American National Standard Method for Measuring
      Performance of Portable Household Electric Cord-Connected Room Air
      Cleaners," which demonstrated a Clean Air Delivery Rate ("CADR") for the
      Kronos air purifier of over 300 for the larger size Kronos air purifier
      and 80 for the smaller size using consumer filtration testing standards
      for the Association of Home Appliance Manufacturers
    ("AHAM").
  Sterilization
Testing Results:
  ·
              Environmental
      Health and Engineering (viral analysis by the University of Wisconsin
      Department of Pediatrics and Medicine):-
              collection
      and removal of a wide range of respiratory viruses, including influenza A,
      influenza B, human rhinoviruses, human coronavirus, respiratory syncytial
      virus, adenovirus, and bocavirus, from the waiting room of a pediatric
      office while patients were present.
  ·
              Scientific
      Institution of Health Care, Central Clinical Hospital #2 in Moscow
      (clinical trial):-
              100%
      decontamination of bacteria (Staphylococcus aureus) in under one hour and
      80% decontamination of general bacteria in under 24 hours from a 48m(3)
      hospital room while people were
present.
  ·
                Pulmonary
      Department of Municipal Hospital #2 in Moscow (clinical
      trial):-
                100%
      decontamination of bacteria (Staphylococcus aureus) in under five hours
      from a 66m(3) hospital room while four patients were present;
      and-
                100%
      decontamination of mildew fungi in under two hours from a 113.2m(3)
      hospital room.
  14
 ·
                    Disinfection
      Research Institute Sterilization Laboratory in Moscow:-
                    disinfected
      a room completely contaminated with Bacteriophage-
                    a
      microorganism which lives in the E. Coli bacteria. (Bacteriophage is
      widely used in virus testing because the microorganism's biological
      structure and size share many functional similarities with a wide range of
      viruses); and-
                    100%
      decontamination of room infected with bacteria (Staphylococcus aureus
      strain 906 (S. aureus) and Bacillus cereus strain 96 (B.
      cereus)-
                    S.
      aureus is a known cause of hospital-acquired infections, including skin
      lesions such as boils and furunculosis and more serious infections such as
      pneumonia and
meningitis.
  ·
              Institute
      for Veterinary Medicine in the Ukraine - destroy and sterilize air which
      had been inseminated with Anthrax and E.coli
  spores;
  ·
              New
      Hampshire Materials Laboratory - up to 95% reduction of hazardous gases,
      including numerous carcinogens found in cigarette
  smoke;
  ·
              Battelle
      PNNL - 95% destruction of Bg (anthrax simulant);
  and
  ·
              Dr.
      Sergey Stoylar, a bacteriologist from the American Bacteriological Society
      - 100% destruction of Bacillus subtilis 168 (bacteria
      simulant).
  Medical
Product Approval
  In
September 2006, the Russian Research Institute of Medical Equipment approved
EOL's Kronos-based Tree air purification device for use in hospitals and other
healthcare facilities.  The device received Category I approval, which
means the product has met the strictest regulations required for a device to be
used in operating rooms and other areas that require a sterile
environment.  In November 2006, following the Russian Research
Institute approval, the Ministry of Health Care and Social Development of the
Russian Federation issued a Registration Certificate that designates the
Kronos-based Tree air purification device for medical use.
  Market
Segmentation
  Kronos
had an initial business development strategy to attempt to develop and produce
products based on the Kronos technology to six distinct air quality market
segments: (1) air movement and purification (residential, health care,
hospitality, and commercial facilities); (2) embedded cooling and cleaning
(electronic devices and medical equipment); (3) air purification for unique
spaces (clean rooms, airplanes, automotive, and cruise ships); (4) specialized
military (naval vessels, closed vehicles and mobile facilities); (5) industrial
scrubbing (produce storage and diesel and other emissions); and (6) hazardous
gas destruction (incineration and chemical facilities).
  Kronos
has granted an exclusive license to Tessera for ionic micro-cooling of
integrated circuit devices or discrete electrical components. These contracts
are described in more detail in the “Technology Application and Product
Development” below.
  Technology
Application and Product Development
  To best
serve Kronos' targeted market segments, the Company was developing specific
product applications across two distinct product application
platforms.  A Kronos device can be either used as a standalone product
or can be embedded.  Standalone products are self-contained and only
require the user to plug the Kronos device into a wall outlet to obtain air
movement and filtration for their home, office or hotel
room.  Embedded applications of the Kronos technology require the
technology be added into another system, such as a building ventilation system
for more efficient air movement and filtration or into an electrical device such
as computer or medical equipment to replace the cooling fan or heat
sink.
  Standalone
Platform
  Residential
Products.  In October 2007, Kronos executed a Letter of Intent
for the development, manufacture and sale of air purification devices based upon
Kronos' proprietary air movement and purification technology with a leading
national retailer.  Under the terms of the Letter of Intent, the
retailer has paid Kronos $250,000 towards the development costs of the new
products and would contribute marketing resources to assist in the product
development process.  In December 2007, Kronos completed design and
developed an Alpha Prototype for the customer.  In January 2008, the
parties initiated negotiations of a definitive Product Development and Purchase
Agreement.  In February 2008, the retailer filed for
bankruptcy.  In March 2008, Kronos’ contract manufacturing partner
completed development of a Beta Prototype.  During the fiscal year
ended June 30, 2008, Kronos earned $250,000 in product development
fees.   No fees have been earned since fiscal 2008.
 
 15
  Medical
Products.In December 2005, the Company executed a
non-exclusive license agreement with EOL LLC, a Russian Federation company
("EOL"), for manufacturing and distributing Kronos-based commercial standalone
products in Russia and other select Commonwealth of Independent
States.  The initial medical products are currently being marketed in
Russia and Ukraine and marketing plans are being implanted in Kazakhstan,
Moldova and Byelorussia.  In November 2006, the Ministry of Health
Care and Social Development of the Russian Federation issued a Registration
Certificate for the product that designates the product for medical
use.  During the fiscal year ended June 30, 2007, Kronos earned
$104,000 in revenue from the sale of power supplies, other electrical components
and engineering services and from the royalty from the sale of finished products
by EOL.  During the fiscal year ended June 30, 2008, Kronos earned
$55,000 in revenue from licensing fees. No additional revenues have been earned
since fiscal 2008.
  In August
2006, the Russian Research Institute of Medical Equipment began the process for
product certification of the EOL's Kronos-based Tree air purification device for
use in medical facilities, including a successful clinical trial of EOL products
in the Pulmonary Department of Municipal Hospital #2 in Moscow.  In
October 2006, Scientific Institution of Health Care, Central Clinical Hospital
#2 in Moscow completed a second clinical trial.  As a result of these
clinical trials, the Russian Research Institute approved the Kronos-based Tree
air purification device for use in hospitals and other healthcare
facilities.  The device received Category I approval, which means the
product has met the strictest regulations required for a device to be used in
operating rooms and other areas that require a sterile
environment.  In November 2006, following the Russian Research
Institute approval, the Ministry of Health Care and Social Development of the
Russian Federation issued a Registration Certificate that designates the
Kronos-based Tree air purification device for medical use.
 
 Commercial and Other Standalone
Products.Utilizing our expanded product development
resources, Kronos completed the initial design, development and production of a
series of small multifunctional devices that can be used as space heaters,
vaporizers, disinfectors, deodorizers and/or fans.
  Embedded
Platform
  Microelectronics Cooling
Products.  In December 2004, Kronos and the University of
Washington were awarded a Phase I grant for a research and technology
development project entitled "Heat Transfer Technology for Microelectronics and
MEMS" by the Washington Technology Center (the "WTC").  The objective
of the project was to develop a novel energy-efficient heat transfer technology
for cooling microelectronics.  In January 2006, Kronos and the
University of Washington conducted a successful bench scale demonstration of
micron cooling of a MEMS chip.  In June 2006, the Company and the
University of Washington were awarded a Phase II grant for continued funding in
its novel cooling system for microelectronics and computer chips.  The
WTC contributed $100,000 as a Phase II grant for the project. Kronos provided
$35,000 in funding and $38,000 in in-kind services, including use of the Kronos
Research and Product Development Facility. In June 2007, the Company and the
University of Washington were awarded a Phase III grant for continued
funding.  This additional funding was utilized to support the
development of prototype products and all Phase III deliverables were
completed.
  In March
2008, Kronos executed an Intellectual Property Transfer and License Agreement
with Tessera Technologies, Inc. (“Tessera”) for the transfer and license of
certain intellectual property (IP) rights related to Kronos proprietary
technologies to Tessera.  Kronos initially received $3.5 million from
Tessera in exchange for the transfer of select Kronos patents covering
micro-cooling applications and for an exclusive license to the Kronos technology
for the field of ionic micro-cooling of integrated circuit devices or discrete
electrical components.  Kronos retained the rights to use these
patents for applications outside of the field of
micro-cooling.  Tessera has exercised its further right to acquire
additional Kronos IP relating to micro-cooling applications for four quarterly
payments of $0.5 million each beginning in July 1, 2008. Kronos received a
payment of $0.5 million on July 1, 2008, a payment of $0.5 million on October 1,
2008, and an accelerated payment of $1.0 million on November 21, 2008, for the
remaining payments due on January 1, 2009 and April 1, 2009.  The
receipt of this $2.0 million constitutes payment in full for the remaining
micro-cooling related patents subject to the agreement with
Tessera.  The Company and Tessera have the option to continue to
jointly develop new technologies in this field.
  Residential
Products.In October 2006, a leading global home appliance
manufacturer committed to fund 20% of the cost for Kronos to manufacturer a
silent kitchen range hood product.  This next generation range hood
device represented the culmination of more than twelve months of product design
and development effort by Kronos to apply our technology to this unique embedded
residential application.  The product was shipped to the customer in
October 2006.  In January 2007, the prototype design was modified
based on customer input and a revised unit was shipped to the
customer.  In addition to financial support, the customer has also
provided Kronos with product components for Kronos testing and
evaluation.  In February 2007, a second global appliance manufacturer
committed to purchase additional prototypes from Kronos.  During the
year ended June 30, 2007, Kronos earned $37,000 in revenue from the development
of prototype devices for the residential range hood market place.  In
October 2007, Kronos shipped the additional prototypes to the customer for
testing and evaluation.  During the year ended June 30, 2008, Kronos
earned $34,000 in product development fees.  Due to a lack of funding,
Kronos is no longer working on this project.
  Commercial Products.In June
2006, the Company executed its first license for embedded applications of Kronos
technology with DESA LLC ("DESA").  The agreement provides DESA the
opportunity to embed the Kronos electrostatic air movement technology within
fireplaces, hearth systems, zone heaters and mounted electric fans and
heaters.  In October 2006, DESA approved Kronos' designs for the first
Kronos-based product and committed to the funding of the product development by
Kronos.  In January 2007, DESA committed additional funds for Kronos
exploration of a second Kronos-based product application.  By May
2007, various prototype configurations for each of the two product applications
were under test and evaluation by Kronos and DESA. During the year ended June
30, 2008, Kronos and DESA developed a plan for product
commercialization.  Due to a lack of funding, Kronos is no longer
working on this project.
  16
  In
addition, Kronos has developed an air filtration and purification mechanism
capable of performing to HEPA quality standards, while eliminating bacteria and
viruses.  The Company believes that Kronos devices could replace
current HEPA filters with a permanent, easily cleaned, low-cost
solution.  Among the technical advantages of the Kronos technology
over HEPA filters is the ability of the Kronos-based devices to eliminate the
energy burden on air handling systems, which must generate high levels of
backpressure necessary to move air through HEPA-based
systems.  Kronos-based devices enhance the air flow, while providing
better than HEPA level filtration and purification.  Kronos was
seeking one or more strategic partners to commercialize, market and distribute
Kronos based commercial embedded air filtration and purification devices;
however, due to a lack of funding, the Company is no longer working on this
project.
  Market
Segmentation
  Kronos'
initial business development strategy was to develop and produce products based
on the Kronos technology to six distinct air quality market segments: (1) air
movement and purification (residential, health care, hospitality, and commercial
facilities); (2) embedded cooling and cleaning (electronic devices and medical
equipment); (3) air purification for unique spaces (clean rooms, airplanes,
automotive, and cruise ships); (4) specialized military (naval vessels, closed
vehicles and mobile facilities); (5) industrial scrubbing (produce storage and
diesel and other emissions); and (6) hazardous gas destruction (incineration and
chemical facilities).
  Patents
and Intellectual Property
  Kronos has received notification that
fifteen of its patent applications have been allowed for issuance by the United
States Patent and Trademark Office and six of its international patent
applications have been allowed for issuance by the Canadian Intellectual
Property Office, the Commonwealth of Australia Patent Office and the Mexican
Institute of Industrial Property.  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.
   U.S.
Patents
  Date
                                                                                                            U.S.
      Patent #
                                                                                                            Patent
      Title
                                                                                                            Description
                                                                                                            ProtectionAugust
                                                                                                            7,410,531
                                                                                                            Method
      of Controlling
                                                                                                            an
      electrode array corona
                                                                                                            20252008
                                                                                                            
                                                                                                            Fluid
      Flow
                                                                                                            including
      an array of coronaelectrodes
      discharge electrodesand
      an array of acceleration flowAugust
                                                                                                            7,262,564
                                                                                                            Alternative
                                                                                                            geometry,
      voltage ratios
                                                                                                            20242007
                                                                                                            
                                                                                                            Geometries
      and
                                                                                                            and
      power requirementsVoltage
      Supply
                                                                                                            for
      improved operationalManagement
                                                                                                            performanceJuly
                                                                                                            7,248,003
                                                                                                            Electric
      Field
                                                                                                            effective
      electric field
                                                                                                            20252007
                                                                                                            
                                                                                                            Management
                                                                                                            management
      for reducedsparkingOctober
                                                                                                            7,122,070
                                                                                                            Method
      of and
                                                                                                            inertialess
      power supply for
                                                                                                            20252006
                                                                                                            
                                                                                                            Apparatus
      for
                                                                                                            safe
      operation and sparkElectrostatic
      Fluid
                                                                                                            preventionAccelerationAugust
                                                                                                            7,157,704
                                                                                                            Corona
      Discharge
                                                                                                            method
      of generating air
                                                                                                            20232006
                                                                                                            
                                                                                                            Electrode
      and Method
                                                                                                            flow
      and air cleaning withof
      Operating
                                                                                                            reduced
      amount of ozone by-product
      and with extendedlife-span
      of the electrodesJuly
                                                                                                            7,150,780
                                                                                                            Electrostatic
      Air
                                                                                                            method
      for improving the
                                                                                                            20242006
                                                                                                            
                                                                                                            Cleaning
      Device
                                                                                                            efficiency
      of electrodes forfiltering
      micron and sub-micron
      size particlesMay
                                                                                                            7,053,565
                                                                                                            Electrostatic
      Fluid
                                                                                                            effective
      powering of the
                                                                                                            20242006
                                                                                                            
                                                                                                            Accelerator
      - Power
                                                                                                            electrodes
      for high level ofManagement
                                                                                                            air
      velocityNovember
                                                                                                            6,963,479
                                                                                                            Electrostatic
      Fluid
                                                                                                            advanced
      voltage management
                                                                                                            20232005
                                                                                                            
                                                                                                            Accelerator
      -
                                                                                                            impacts
      air filtration andAdvanced
      Geometries
                                                                                                            sterilization,
      air flow andozone
      as well as safe operationand
      spark prevention
   17
 August
                                                                                                                  6,937,455
                                                                                                                  Spark
      Management
                                                                                                                  analysis,
      detection and
                                                                                                                  20222005
                                                                                                                  
                                                                                                                  Method
      and Device
                                                                                                                  prevention
      of sparks in ahigh
      voltage field -creating
      safe, effectiveelectrostatic
      technologyproductsJuly
                                                                                                                  6,919,698
                                                                                                                  Voltage
      Management
                                                                                                                  materials
      and geometry
                                                                                                                  20232005
                                                                                                                  
                                                                                                                  for
      Electrostatic
                                                                                                                  allowing
      for spark freeFluid
      Accelerator
                                                                                                                  operation
      and use of lightweight,
      inexpensivematerials
      as the electrodesMay
                                                                                                                  6,888,314
                                                                                                                  Electrostatic
      Fluid
                                                                                                                  electrode
      design geometries
                                                                                                                  20222005
                                                                                                                  
                                                                                                                  Accelerator
      -
                                                                                                                  and
      attributes includingElectrode
      Design
                                                                                                                  micro
      channeling to achieveGeometries
                                                                                                                  unique
      air movement andpurification
      performanceApril
                                                                                                                  6,727,657
                                                                                                                  Electrostatic
      Fluid
                                                                                                                  synchronization
      of multiple
                                                                                                                  20222004
                                                                                                                  
                                                                                                                  Accelerator
      for and
                                                                                                                  stages
      of arrays -a
      Method of
                                                                                                                  increasing
      air flow and airControlling
      Fluid
                                                                                                                  flow
      efficiencyDecember
                                                                                                                  6,664,741
                                                                                                                  Method
      of and
                                                                                                                  ratio
      of voltage for
                                                                                                                  20222003
                                                                                                                  
                                                                                                                  Apparatus
      for
                                                                                                                  producing
      ion discharge toElectrostatic
      Fluid
                                                                                                                  create
      air movement andAcceleration
      Control
                                                                                                                  base
      level filtrationof
      a Fluid FlowJanuary
                                                                                                                  6,504,308
                                                                                                                  Electrostatic
      Fluid
                                                                                                                  electrode
      density core for
                                                                                                                  20192003
                                                                                                                  
                                                                                                                  Accelerator
                                                                                                                  producing
      ion discharge tocreate
      air movement andbase
      level filtration
 International Patents
 
 Kronos
has received formal notification from the Canadian Intellectual Property Office,
the Mexican Institute of Industrial Property, Commonwealth of Australia Patent
Office, the Intellectual Property Office of New Zealand and the Ukrainian Patent
Office indicating that six patents have been examined and allowed for issuance
as patents.  There are a number of other patent applications
corresponding to Kronos' fifteen U.S. Patents that have been filed and are
pending outside of the United States.
  Kronos
intends to continue to aggressively file patent applications in the U.S. and
internationally.  A number of additional patent applications have been
filed for, among other things, the control and management of electrostatic fluid
acceleration.  These additional patent applications are either being
examined or are awaiting examination by the Patent Office.
  Intellectual
Property Transfer
 
 In March
2008, Kronos transferred U.S. Patents 6,919,698 and 7,157,704 and related
foreign patents and patent applications to Tessera in conjunction with the
execution of the Intellectual Property Transfer and License Agreement and the
receipt of $3.5 million from Tessera.  The Agreement provided Tessera
the additional right to acquire U.S. Patents 6,504,308 and 6,888,314 and related
foreign and patent applications upon the payment of an additional $2.0 million,
which purchase was completed and transferred on November 21, 2008.
  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.
  18
 
 Valuation of Goodwill, Intangible
and Other Long Lived Assets.  We use assumptions in
establishing the carrying value, fair value and estimated lives of our
long-lived assets and goodwill.  The criteria used for these
evaluations include management's estimate of the asset's ability to generate
positive income from operations and positive cash flow in future periods
compared to the carrying value of the asset, the strategic significance of any
identifiable intangible asset in our business objectives, as well as the market
capitalization of Kronos.  We have used certain key assumptions in
building the cash flow projections required for evaluating the recoverability of
our intangible assets.  We have assumed revenues from the following
applications of the Kronos technology:  consumer stand-alone devices,
assisted care/skilled nursing stand-alone devices, embedded devices in the
hospitality industry and in specialized military
applications.  Expenses/cash out flows in our projections include
sales and marketing, production, distribution, general and administrative
expenses, research and development expenses and capital
expenditures.  These expenses are based on management estimates and
have been compared with industry norms (relative to sales) to determine their
reasonableness.  We use the same key assumptions for our cash flow
evaluation as we do for internal budgeting, lenders and other third parties;
therefore, they are internally and externally consistent with financial
statement and other public and private disclosures.  We are not aware
of any negative implications resulting from the projections used for purposes of
evaluating the appropriateness of the carrying value of these
assets.  If assets are considered to be impaired, the impairment
recognized is the amount by which the carrying value of the assets exceeds the
fair value of the assets.  Useful lives and related amortization or
depreciation expense are based on our estimate of the period that the assets
will generate revenues or otherwise be used by Kronos.  Factors that
would influence the likelihood of a material change in our reported results
include significant changes in the asset's ability to generate positive cash
flow, loss of legal ownership or title to the asset, a significant decline in
the economic and competitive environment on which the asset depends, significant
changes in our strategic business objectives and utilization of the
asset.
 Valuation of Deferred Income
Taxes.  Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be
realized.  The likelihood of a material change in our expected
realization of these assets is dependent on our ability to generate future
taxable income, our ability to deduct tax loss carryforwards against future
taxable income, the effectiveness of our tax planning and strategies among the
various tax jurisdictions that we operate in, and any significant changes in the
tax treatment received on our business combinations.
  Revenue
Recognition.  We recognize revenue in accordance with
Securities and Exchange Commission Staff Bulletin 104 ("SAB 104"). Further,
Kronos Air Technologies recognizes revenue on the sale of custom-designed
contract sales under the percentage-of-completion method of accounting in the
ratio that costs incurred to date bear to estimated total costs.  For
uncompleted contracts where costs and estimated profits exceed billings, the net
amount is included as an asset in the consolidated balance sheet.  For
uncompleted contracts where billings exceed costs and estimated profits, the net
amount is included as a liability in the consolidated balance
sheet.  Sales are reported net of applicable cash discounts and
allowances for returns.
 
 Share-Based Compensation.We
adopted SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), using the
Modified Prospective Approach. Under the Modified Prospective Approach, the
amount of compensation cost recognized includes: (i) compensation cost for all
share-based payments granted before but not yet vested based on the grant date
fair value estimated in accordance with the provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation” (“SFAS No. 123”) and (ii) compensation
cost for all share-based payments granted or modified based on the estimated
fair value at the date of grant or subsequent modification date in accordance
with the provisions of SFAS No. 123R.
  RESULTS
OF OPERATIONS
  Consolidated
Statement of Operations For the Three  Months Ended September 30, 2008
(“2008”) Compared with the Three  Months Ended September 30, 2007
(“2007”).
  Our net
losses for 2008 and 2007 were $4,184,000 and $1,463,000, respectively. The
$2,721,000, or 186%, increase in the net loss for 2008, as compared to 2007 was
principally the result of a $3,029,000 increase in accretion of note discount,
partially offset by decreases in compensation  of $206,000 and
research and development expenses of $68,000 and an increase in revenue for the
previous year’s period of $33,000.
  Revenue.Revenues are
generated through the licensing of Kronos technology and through sales of
services for design and development of Kronos devices at Kronos Air
Technologies, Inc. Revenues for 2008 were $57,000 compared with $25,000 for
2007, an increase of $32,000. Revenues for 2008 were from our agreements with
Tessera.  In comparison, revenues for 2007 were from our agreements
with EOL.
  Cost of Sales.Cost of sales
consists of the cost of the patents transferred and the product development
costs associated with our transfer and development agreements.  The company
incurred no costs associated with patent transfers or product development
 for the periods ended September 30 ,2008 or 2007, revenue for these
periods was derived from licensing of technologies to Tessera and EOL
respectively, and not cost was attributed to these revenues.
  Selling, General and Administrative
Expenses.Selling, General and Administrative expenses for 2008 decrease
$268,000, or 25%, to $786,000. The decrease was principally the result of a
$206,000, or 37%, decrease in compensation and benefits primarily as a result of
a $393,000, or 266%, increase in the expense for amortization of stock options
that vested, a $288,000, or 109%, increase in professional services as a result
of an increase in advisory services from our majority shareholder, as well as
legal expenses and a $190,000, or 500%, increase in product development
costs.
  19
 
  Accretion of Note Discount.Accretion of note discount for 2008 of $3,341,000 and 2007 of $286,000,
represented the amortization of the remaining beneficial conversion feature of
the AirWorks, Hilltop, Sun and Gumbinner promissory notes during the period
ending September 30, 2008.
  Interest Expense.Interest
expense for 2008 was $141,000 compared to $149,000 for the corresponding period
of the prior year. The $8,000, or 5%, decrease in interest expense for 2008, as
compared to 2007, was principally the result of the decrease in the debt
outstanding principal of $413,000 for comparable periods ending September 30,
2007 to September 30, 2008.
 Consolidated
Balance Sheet as of September 30, 2008 Compared with June 30, 2008
  Our total
assets at September 30, 2008 were $2,009,000 compared with $2,580,000 at June
30, 2008. Total assets at September 30, 2008 and June 30, 2008 were comprised
primarily of $416,000 and $872,000, respectively, of cash and $1,474,000 and
$1,546,000, respectively, of patents/intellectual property. Total current assets
at September 30, 2008 and June 30, 2008 were $525,000 and $1,023,000,
respectively, while total current liabilities for such periods were $6,693,000
and $3,080,000, respectively. This created a working capital deficit of
$6,168,000 at September 30, 2008 and a working capital deficit of $2,057,000 at
June 30, 2008.
  Stockholders'
deficit as of September 30, 2008 was $4,684,000, increased from June 30, 2008
due to the net loss of $4,184,000 for the period ended September 30,
2008.
  LIQUIDITY
AND CAPITAL RESOURCES
  Historically,
we have relied principally on the sale of common stock and secured debt and
customer contracts for research and product development to finance our
operations.
  Net cash
flow used in operating activities was $417,000 for the period ended September
30, 2008.  We were able to satisfy most of our cash requirements for
this period from the proceeds of the convertible secured promissory notes with
AirWorks, Hilltop and other lenders and the proceeds from the sale of
intellectual property assets and patents to Tessera, Inc.
  In June
2007, Kronos entered into a Funding Agreement with a group of lenders providing
for a loan, at the discretion of the lenders, in the aggregate amount of up to
$18,159,000.  At the initial closing, the Company received an initial
advance of $4,259,000.  After payment in full of the amounts due under
an outstanding convertible debenture issued to Cornell Capital Partners and
settlement agreement obligation to HoMedics and the expenses of the transaction,
the remainder of $1,069,000 was used for working capital purposes.
  The
lenders are:  (i) AirWorks Funding LLLP, a newly-formed limited partnership
(“AirWorks”); (ii) Critical Capital Growth Fund, L.P. and various Sands Brothers
Venture Funds, all of which are affiliates of Laidlaw and Co. (UK) Ltd.
(collectively “Sands”) and (iii) Hilltop Holding Company, LP, a Delaware limited
partnership, (“Hilltop”).
  The loan
is secured by all of the Company's assets and is convertible into shares of the
Company's common stock at a conversion price of $0.003 per share, subject to
adjustment under certain circumstances. Future installments under the
Funding Agreement, up to $13,900,000, may be advanced at the discretion of the
lenders, even if not requested by the Company.  Under the Funding Agreement
and related notes, the Company pays interest at the rate of 12% per annum. 
Of the total amount of the initial advance, interest is paid monthly starting
July 1, 2007, on $859,000, which principal amount is due and payable December
31, 2007.  Such amount may be converted into Kronos common stock at the
option of the holder at the $0.003 conversion price only if not paid in full by
December 31, 2007.  On March 13, 2008, Critical Capital and Sands
Brothers agreed to extend the maturity date of their note until April 30,
2008.  On April 1, 2008, the Company repaid Critical Capital and Sands
Brothers the full principal amount and interest on the note.  With
respect to all other loan amounts, interest is paid quarterly starting January
1, 2008, and outstanding principal is due and payable June 19, 2010, unless
earlier converted at the option of the lenders.  Assuming that the maximum
loan amount is advanced under the Funding Agreement and related notes and that
the lenders convert the entire amount of the loan into Kronos common stock at
the noted conversion price, the lenders would own approximately 93.3% of the
Company's total equity on a fully diluted, as converted basis.
  The
Funding Agreement also gives the lenders the right to designate a majority of
the members of the Company's Board of Directors. The Funding Agreement also
contains usual and customary representations and warranties and covenants that
prohibit the Company from undertaking certain actions without the consent of
AirWorks.
  On
September 29, 2008, the Company received a notice of event of default from
AirWorks with respect to the Secured Convertible Promissory Note due June 19,
2010 (the “Promissory Note”), issued to by the Company to
AirWorks.  The notice states that (1) an Event of Default under
Section 2.1(a) of the Promissory Note has occurred due to the failure of the
Company to make interest payments on the Promissory Note, and (2) the entire
principal amount of, and the interest on, the Promissory Note is declared
immediately due and payable in the amount of $3,551,735 plus
interest.
  The
Company has been, and continues to be, in discussions with its secured lenders
regarding the outstanding obligations under the AirWorks and Hilltop promissory
notes, the alleged occurrence of an event of default, and the enforcement of the
rights under the promissory notes.  Following the Board of Directors’
appointment of James P. McDermott and M. J. Segal to an independent committee to
investigate the foregoing, Mr. McDermott and Mr. Segal resigned from the Board
of Directors.  Since the Company was not able to locate a purchaser
for its business or assets on satisfactory terms, the Company is now in the
process of transferring control of its assets to AirWorks and Hilltop in
accordance with peaceful possession procedures.
  20
 GOING
CONCERN OPINION
  The
Report of Independent Registered Public Accounting Firm includes an explanatory
paragraph to their audit opinions issued in connection with our 2008 and 2007
financial statements that states that we do not have significant cash or other
material assets to cover our operating costs and debt obligations. As a result
of the Company’s financial condition, including receipt of the notice of event
of default from Airworks and the inability to obtain additional funding, there
is substantial doubt about our ability to continue as a going concern.  Our
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
  As a
result of the Company’s financial condition, it has discontinued substantially
all of its operating activities.  The Company is in the process of
transferring control of its assets to Airworks and Hilltop, in accordance with
peaceful possession procedures.
  FACTORS
AFFECTING KRONOS' BUSINESS AND PROSPECTS
  We are
subject to various risks, which may have a material adverse effect on our
business, financial condition and results of operations, and may result in a
decline in our stock price.  Certain risks are discussed
below:
  We
do not have sufficient cash to continue operations and require significant
additional financing to sustain our operations, and are exploring alternatives
to sell, license or liquidate the assets of the Company.
  At
September 30, 2008, and June 30, 2008, we had a working capital deficit of $6.2
million and $2.1 million, respectively. The Report of Independent Registered
Public Accounting Firm for the year ended June 30, 2008, includes an explanatory
paragraph stating that our recurring losses from operations and working capital
deficiency raise doubt about our ability to continue as a going
concern.  For the fiscal years ended June 30, 2008, and 2007, we had
an operating cash flow deficit of $0.2 million and $3.0 million and a cash
balance of $872,000 and $364,000, respectively.  Kronos has not been
successful in its attempts to sell, license or liquidate partial or all of the
Company’s assets to satisfy secured lenders’ obligations and therefore it is in
the process of transferring assets to its priority creditors.
  Since
we do not have funds to satisfy secured loans and the alleged event of default,
the Company is in the process of transferring control of its assets to its
priority creditors in accordance with peaceful possession
procedures.
  On
September 29, 2008, Kronos received a notice of event of default from AirWorks
with respect to the Secured Convertible Promissory Note due June 19, 2010,
issued by the Company to AirWorks.  The notice stated that (1) an
Event of Default under Section 2.1(a) of the Promissory Note has occurred due to
the failure of the Company to make interest payments on the Promissory Note and
(2) the entire principal amount of, and the interest on, the Promissory Note is
declared immediately due and payable in the principal amount of $3,551,735 plus
interest.  The Company requested funding from the senior lenders but
was declined.  The Company is evaluating the status of the alleged
default.
  The
Funding Agreement with the Company’s secured lenders provides that in the event
of default, the lenders have the right to seek foreclosure of all of the assets
of the Company, including all intellectual property and patent rights, all cash
assets, all physical goods and equipment and all contractual rights including
license Agreements. The Company has not been successful in its attempt to
consummate a strategic transaction, the secured lenders have enforced their
rights under the Funding Agreement and all of the Company’s remaining assets are
in the process of being foreclosed on and transferred to AirWorks and
Hilltop.
  We
have a limited operating history with significant losses and have terminated our
operations.
  We have a
limited operating history and have not been able to establish any history of
profitable operations.  We incurred a net loss of $4.2 million for the
quarter ended September 30, 2008, $1.5 million for the fiscal year ended June
30, 2008, and a net loss of $2.35 million for the fiscal year ended June 30,
2007. As a result, at September 30, 2008, June 30, 2008, and June 30, 2007, we
had an accumulated deficit of $39.1 million, $37.8 million and $33.5 million,
respectively.  Our revenues and cash flows from operations have not
been sufficient to sustain our operations.  On October 24, 2008, the
Company terminated all but two of its employees and ceased substantially all of
its operating activities.  As a subsequent event, On January 9, 2009,
Dr Krichtafovitch resigned from the Company.  As a subsequent event,
Following Acting President R. Tusing is resigning effective the close of
business on February 13, 2009 and following Mr. Tusing’s resignation, the
Company has appointed Mr. Barry Salzman as the acting president, acting,
Secretary and acting Treasurer of the Company.
  Existing
stockholders will experience significant dilution from the issuance of shares
under our secured financing or any equity financing.
  The
issuance of shares pursuant to the conversion of the AirWorks and Hilltop
Secured Convertible Promissory Note, the exercise of stock options and warrants
or any other future equity financing transaction will have a dilutive impact on
our stockholders.  As a result, our net income per share could
decrease in future periods, and the market price of our common stock could
decline.
  21
 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.  We do not have sufficient funds to enforce protection of our
intellectual property.
  Possible
future impairment of intangible assets would have a material adverse effect on
our financial condition.
  Our net
intangible assets of approximately $1.5 million as of September 30, 2008,
consist principally of purchased patent technology and marketing intangibles,
which relate to the acquisition of Kronos Air Technologies, Inc. in March 2000
and to the acquisition of license rights to fuel cell, computer and
microprocessor applications of the Kronos technology not included in the
original acquisition of Kronos Air Technologies, Inc. in May 2003 and
capitalized legal costs for securing patents.  Intangible assets
comprise 73% of our total assets as of September 30, 2008.  Intangible
assets are subject to periodic review and consideration for potential impairment
of value.  Among the factors that could give rise to impairment
include a significant adverse change in legal factors or in the business
climate, an adverse action or assessment by a regulator, unanticipated
competition, a loss of key personnel, and projections or forecasts that
demonstrate continuing losses associated with these assets. Should impairment
occur, we would be required to recognize it in our financial
statements.  A write-down of these intangible assets could have a
material adverse impact on our total assets, net worth and results of
operations.
  Our
common stock is deemed to be "penny stock," subject to special requirements and
conditions and may not be a suitable investment.
  Our
common stock is deemed to be "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934.  Penny
stocks are stocks:
  -
              with a price of less than $5.00
      per share;
  -
              that are not traded on a national
      stock exchange;
  -
              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.
  ITEM
3. Quantitative and Qualitative Disclosures About Market Risk.
  Not
applicable to smaller reporting companies.
  ITEM
4T.  CONTROLS AND PROCEDURES
 
 Evaluation of Disclosure Controls
and Procedures.As of September 30, 2008, the Company carried out an
evaluation, under the supervision of our Acting Chief Executive Officer and
Chief Financial Officer (one individual), of the effectiveness of the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934 (the "Exchange Act")) pursuant to Rule 13a-15 of
the Exchange Act. It should be noted that any system of controls, however well
designed and operated, can provide only reasonable, and not absolute, assurance
that the objectives of the system are met. Based on that evaluation, the
Company's Acting Chief Executive Officer and Chief Financial Officer (one
individual), concluded that the Company's disclosure controls and procedures
were effective at this reasonable assurance level as of September 30,
2008.
 
 22
 Changes in Internal Controls over
Financial Reporting.In connection with the evaluation of the Company's
internal controls over financial reporting during the Company's three months
ended September 30, 2008, the Company's Acting Chief Executive Officer and Chief
Financial Officer (one individual) has determined that there were no changes to
the Company's internal controls over financial reporting during the quarter that
have materially affected or is reasonably likely to affect the Company's
internal control over financial reporting.
 
  PART
II
  ITEM
1. LEGAL PROCEEDINGS
 
 From time
to time the Company may be subject to lawsuits in the normal course of
business.
  Thompson
E. Fehr has filed a complaint in the state of Utah, in the Second Judicial
District Court in Weber County, against Kronos with respect to prior services
rendered to High Voltage Integrated, Inc. (HVI), based on unpaid patent counsel
services totaling $47,130 by Fehr to HVI.  Fehr has filed total
damages claims of $444,900.00.  The Company believes this complaint is
without merit and is vigorously defending itself.
  Daniel R.
Dwight filed a lawsuit on October 17, 2008, in the state of Massachusetts, in
Suffolk County Superior Court, against Kronos for lack of payments pursuant to
the Severance Agreement dated May 16, 2008 for claims of $187, 437 plus interest
and attorney fees. The Company believes its obligations to its Secured Lenders
supercede the payment obligations to Mr. Dwight.
  In
addition, the Company received correspondence from Frederic R. Gumbinner and
Richard A. Sun, as second secured lien holders, concerning claims for late
payments and subsequent related penalties with respect to outstanding loans by
Mr. Gumbinner and Mr. Sun.  The Company has responded that the
obligation to its senior secured lien holders supercedes and takes priority to
the claims of the second secured lien holders and the existing intercreditor
agreements among the secured lenders sets for the applicable rights, obligations
and responsibilities between the lenders.
  ITEM
3.  DEFAULTS UPON SENIOR SECURITIES
  As
described above, on September 29, 2008, Kronos received a notice of event of
default from AirWorks with respect to the Secured Convertible Promissory Note
due June 19, 2010 (the “Promissory Note”), issued to by the Company to
AirWorks.  The notice states that (1) an Event of Default under
Section 2.1(a) of the Promissory Note has occurred due to the failure of the
Company to make interest payments on the Promissory Note and (2) the entire
principal amount of, and the interest on, the Promissory Note is declared
immediately due and payable in the amount of $3,551,735 plus
interest.  See Part I, Item 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations for additional details regarding
this matter.
  ITEM
6. EXHIBITS
  EXHIBIT
      NO.
                      DESCRIPTION
                      LOCATION2.1
                      Articles
      of Merger for Technology
                      Incorporated
      by reference toSelection,
      Inc. with the Nevada
                      Exhibit
      2.1 to the Registrant'sSecretary
      of State
                      Registration
      Statement on FormS-1
      filed on August 7, 2001 (the"Registration
      Statement")3.1
                      Articles
      of Incorporation
                      Incorporated
      by reference toExhibit
      3.1 to the RegistrationStatement3.2
                      Bylaws
                      Incorporated
      by reference toExhibit
      3.2 to the RegistrationStatement31
                      Certification
      of Principal Executive
                      Provided
      herewithOfficer
      and Principal Financial Officerpursuant
      to U.S.C. Section7241,
      as adopted pursuant to Section302
      of the Sarbanes-Oxley Act of 200232
                      Certification
      by Principal Executive
                      Provided
      herewithOfficer
      and Principal Financial Officerpursuant
      to 18 U.S.C. Section 1350, asadopted
      pursuant to Section 906 of theSarbanes-Oxley
      Act of 2002
   23
  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
      11, 2008
                      KRONOS
      ADVANCED TECHNOLOGIES, INC.By: /s/ Richard F.
      TusingRichard
      F. Tusing
                        acting
      President, acting Chief Executive
                        Officer,
      acting Principal Executive Officer,
                        Chief
      Financial Officer, Principal
                        Financial
      Officer, Chief Operating Officer,
                        Treasurer,
      Secretary, and
Director
   24