SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2003

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                          COMMISSION FILE NO. 000-30191

                       KRONOS ADVANCED TECHNOLOGIES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               NEVADA                                       87-0440410
               ------                                       ----------
                  (State or Other Jurisdiction (I.R.S. Employer
            of Incorporation or Organization) Identification Number)

           464 COMMON STREET, SUITE 301, BELMONT, MASSACHUSETTS 02478
           ---------------------------------------------------- -----
               (Address of Principal Executive Offices) (Zip Code)

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

           Securities registered pursuant to Section 12(g) of the Act:

                    COMMON STOCK, PAR VALUE $0.001 PER SHARE
                                (Title of Class)

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  12 months,  and (2) has been  subject to such filing
requirements for the past 90 days. Yes No X

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___

     The   aggregate   market   value  of  the  voting   common  stock  held  by
non-affiliates of the Registrant on September 23, 2003, was $22,277,975 based on
the average bid and asked prices on such date of $0.41.

     The Registrant had 54,336,524  shares of Common Stock, par value $0.001 per
share, outstanding on September 23, 2003.




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                                     PART I

ITEM 1.  BUSINESS

GENERAL DESCRIPTION OF BUSINESS

     FORWARD-LOOKING  STATEMENTS  AND  ASSOCIATED  RISKS.  THIS FILING  CONTAINS
FORWARD-LOOKING   STATEMENTS,   INCLUDING  STATEMENTS  REGARDING,   AMONG  OTHER
THINGS:(A) OUR PROJECTED SALES AND PROFITABILITY, (B) OUR GROWTH STRATEGIES, (C)
ANTICIPATED  TRENDS IN OUR INDUSTRY,  (D) OUR FUTURE  FINANCING  PLANS,  (E) OUR
ANTICIPATED  NEEDS FOR  WORKING  CAPITAL,  AND (F) THE  BENEFITS  RELATED TO OUR
OWNERSHIP  OF KRONOS  AIR  TECHNOLOGIES,  INC.  IN  ADDITION,  WHEN USED IN THIS
FILING,  THE WORDS "BELIEVES,"  "ANTICIPATES,"  "INTENDS," "IN ANTICIPATION OF,"
"EXPECTS,"  AND SIMILAR WORDS ARE INTENDED TO IDENTIFY  CERTAIN  FORWARD-LOOKING
STATEMENTS.   THESE   FORWARD-LOOKING   STATEMENTS  ARE  BASED  LARGELY  ON  OUR
EXPECTATIONS  AND ARE  SUBJECT TO A NUMBER OF RISKS AND  UNCERTAINTIES,  MANY OF
WHICH ARE BEYOND OUR CONTROL.  ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE
FORWARD-LOOKING  STATEMENTS AS A RESULT OF VARIOUS FACTORS,  INCLUDING,  WITHOUT
LIMITATION,  THE RISKS OUTLINED UNDER "FACTORS  AFFECTING  KRONOS'  BUSINESS AND
PROSPECTS"  AND MATTERS  DESCRIBED IN THIS FILING  GENERALLY.  IN LIGHT OF THESE
RISKS AND  UNCERTAINTIES,  THERE CAN BE NO  ASSURANCE  THAT THE  FORWARD-LOOKING
STATEMENTS  CONTAINED IN THIS FILING WILL IN FACT OCCUR. WE DO NOT UNDERTAKE ANY
OBLIGATION   TO  PUBLICLY   RELEASE  THE  RESULTS  OF  ANY  REVISIONS  TO  THESE
FORWARD-LOOKING  STATEMENTS  THAT MAY BE MADE TO REFLECT  ANY  FUTURE  EVENTS OR
CIRCUMSTANCES.

OUR COMPANY

     We are a Nevada corporation. Our principal executive offices are located at
464 Common Street, Suite 301, Belmont, Massachusetts 02478. Our telephone number
is (617) 993-9965. The address of our website is www.kronosati.com.  Information
on our website is not part of this filing.

CORPORATE HISTORY

     Kronos Advanced Technologies,  Inc. ("Kronos") was originally  incorporated
under the laws of the State of Utah on September 17, 1980 as Penguin  Petroleum,
Inc. Penguin Petroleum Inc.'s stockholders  approved a name change on October 6,
1982  to  Petroleum   Corporation  of  America,   Inc.  On  December  29,  1996,
stockholders  approved a reorganization  whereby they exchanged their stock on a
one-for-one  basis  with  Technology  Selection,  Inc.,  a  Nevada  corporation.
Technology  Selection,  Inc.'s  shares  began  trading  on the  Over-the-Counter
Bulletin Board on August 28, 1996 under the symbol "TSET." On November 19, 1998,
Technology Selection,  Inc. changed its name to TSET, Inc. Effective January 12,
2001,  we began  doing  business  as Kronos  Advanced  Technologies;  and, as of
January 18, 2002, we changed our ticker symbol to "KNOS." Our recent  activities
have been focused on capitalizing on our investment in Kronos Air  Technologies,
Inc., a wholly owned subsidiary of Kronos,  and we have not, to date,  generated
significant  operating  revenues.  We have never  been party to any  bankruptcy,
receivership,  or similar proceedings and, other than noted above, have not been
party to any material  reclassification,  merger,  or  consolidation  not in the
ordinary course of our business.

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<PAGE>

BUSINESS STRATEGY

     We are a high  technology  company  focused on  developing,  marketing  and
selling  products using the Company's  proprietary air movement and purification
technology. Kronos is pursuing commercialization of its patented technology in a
limited  number  of  markets;  and if we  are  successful  we  intend  to  enter
additional  markets in the future.  To date, our ability to execute our strategy
has been restricted by our limited amount of capital.

Technology Description and Benefits

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

     The  proprietary  Kronos(TM)  technology  involves the  application of high
voltage management across paired electrical grids to create an ion exchange that
moves  and  purifies   air.   Kronos(TM)   technology   has  numerous   valuable
characteristics. It moves air and gases at high velocities while removing odors,
smoke and particulates and killing  pathogens,  including bacteria and mold. The
technology  is  cost-effective   and  is  more  energy  efficient  than  current
alternative fan and filter  (including HEPA filter and ultraviolet  light based)
technologies.  To date, no commercial  products using the Kronos(TM)  technology
have been sold.

     A number of the scientific  claims of the Kronos(TM)  technology  have been
tested by the U.S. government and a few multi-national companies,  including the
U.S.  Department of Energy,  the U.S.  Department of Defense,  General Dynamics,
Underwriters Laboratory,  and Intel. Independent laboratory testing has verified
the  purification  capability of the Kronos(TM)  technology.  Tests conducted at
MicroTest   Laboratories   and  at  the  New  Hampshire   Materials   Laboratory
demonstrated HEPA Clean Room Class 1000 quality particulate  reduction and up to
95%  reduction  of  hazardous  gases  (in one air pass  through  the  Kronos(TM)
system), including numerous contaminants found in cigarette smoke.

Market Segmentation

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

     Kronos'  initial focus is on the first three of these market segments which
are described in more detail below. Kronos is currently  developing products for
the air movement and  purification,  air  purification  for unique  spaces , and
specialized  military  through  customer  contracts which were executed over the
past  twelve  months.  These  contracts  are  described  in more  detail  in the
Technology Application and Product Development section of this filing.

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o    Air Movement and  Purification.  Indoor air  pollution,  including  "sick
     building  syndrome" and "building  related illness," is primarily caused by
     inadequate  ventilation,  chemical  contaminants  from  indoor and  outdoor
     sources and  biological  contaminants.  The  addressable  air  movement and
     purification segment is made up of four principal applications:  (1) health
     care,  (2)  hospitality,  (3)  commercial  and (4)  residential.  Kronos is
     seeking to  leverage  the product  development  and  funding  resources  of
     HoMedics,  Inc., Kronos' strategic partner for  consumer-based  residential
     applications,  to develop  standalone  products  for other air movement and
     purification applications.

o    Air   Purification  for  Unique  Spaces.   Electronics,   semiconductor,
     pharmaceutical,  aerospace,  medical  and many  other  producers  depend on
     cleanroom  technology.  As  products  such  as  electronic  devices  become
     smaller,  the chance of contamination in manufacturing  becomes higher. For
     pharmaceutical  companies,  clean, safe and  contaminant-free  products are
     imperative  to  manufacturing  and  distributing  a viable  product.  Other
     potential   applications  for  the  Kronos(TM)  technology  include  closed
     environments such as aircraft,  cruise ships and other transportation modes
     that require people to breathe contaminated, re-circulated air for extended
     periods.  Kronos is  building on its  product  development  effort with its
     strategic  partner  in the  business  jet  market  to  serve  other  closed
     environment applications.

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

Technology Application and Product Development

     To best serve Kronos' targeted market  segments,  our Company is developing
specific product applications across two distinct product application platforms.
A  Kronos(TM)  device  can be  either  used as a  standalone  product  or can be
embedded.  Standalone  products are  self-contained and only require the user to
plug the Kronos(TM) device into a wall outlet to obtain air filtration for their
home, office or hotel room. Embedded  applications of the Kronos(TM)  technology
require  the  technology  be  added  into  another  system  such  as a  building
ventilation  system for more  efficient  air movement and  filtration or into an
electrical  device such as computer or medical  equipment to replace the cooling
fan.

     Standalone Platform

o    HoMedics  Contract.  In October 2002, Kronos Air Technologies,  Inc., and
     HoMedics USA, Inc. executed a Licensing Agreement granting HoMedics certain
     rights  with  respect  to the  distribution  of  the  Kronos(TM)proprietary
     technology to the  consumer.  The  agreement  provides for exclusive  North
     American,  Australian and New Zealand retail  distribution  rights for next
     generation  consumer air movement and  purification  products  based on the
     patented  Kronos(TM)technology.  In  November  2002,  Kronos  and  HoMedics
     executed a  Development  Agreement  to provide  Kronos  with the  financial
     resources believed necessary to complete  commercialization  of the initial
     Kronos(TM)-based  consumer  product line.  Kronos is working with HoMedics'
     engineers, designers,  manufacturers,  and marketing and sales personnel to
     complete the initial product line for sales and  distribution.  HoMedics is
     focused on product design and features, completion of manufacturing tooling
     and assembly line processes,  and product  packaging,  including  prominent
     display of the  "Kronos"  brand.  Kronos is focused  on  completion  of the
     technical  hardware and related power  supplies for each of the products in
     the  air  purification  product  line,  as well  as on  developing  product
     features and benefits unique to this initial consumer product line.

                                       4

<PAGE>

     The  initial  term of the  agreement  is three and one half  years with the
     option to extend the Licensing  Agreement for six additional years.  Kronos
     was compensated through an initial royalty payment and will receive ongoing
     quarterly  royalty  payments based on a percentage of sales.  HoMedics will
     pay  minimum  royalty  payments  of at least $2 million  during the initial
     three and a half year term and  on-going  royalty  payments  to extend  the
     agreement.  Kronos  will  retain  the  rights  to all  of its  intellectual
     property.

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

     In May 2003, Kronos entered into an agreement with HoMedics,  Inc. for $3.5
     million in financing,  including $3.4 million in secured debt financing and
     $100,000 for the purchase of warrants. $2.5 million was paid to Kronos upon
     execution of the  agreement and $1.0 million will be paid upon the start of
     production as defined in the Licensing  Agreement for the  Kronos(TM)-based
     air  purification  product line to be marketed and distributed by HoMedics.
     In conjunction with securing this financing,  Kronos and HoMedics agreed to
     negotiate   the   expansion   of   our    relationship    into   additional
     Kronos(TM)-based  stand-alone  consumer products,  including fans, heaters,
     humidifiers and dehumidifiers,  as well as geographic expansion into Europe
     and Asia.

     Kronos is seeking to leverage its consumer  product  development  work with
     HoMedics to develop and produce our own  commercial  line of standalone air
     purifiers.  This  commercial line of  Kronos(TM)-based  air purifiers would
     attempt to address  the  specific  air  quality  issues,  including  odors,
     bacteria  and viruses,  found in most  nursing  home and  assisted  living,
     healthcare and other commercial facilities.

     Embedded Platform

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

     In November 2002, the U. S. Navy awarded Kronos a Small Business Innovation
     Research Phase II contract worth $580,000,  plus an option of $145,000. The
     Phase II contract  (commercialization phase) is an extension of the Phase I
     and the Phase I Option  work that began in 2001.  It is  intended  that the
     Kronos(TM)  devices being developed under this contract will be embedded in
     existing  HVAC  systems  in  order  to  move  air  more   efficiently  than
     traditional, fan-based technology.

                                       5

<PAGE>

     During Phase II, Kronos will attempt to develop,  produce and install a set
     of  fully  controlled  devices  that  represent  a  "cell"  of an  advanced
     distributive  air management  system with medium capacity airflow in a U.S.
     Navy  unique  environment.  The  "cell"  will  be  designed  to  be  easily
     adjustable  to  a  variety  of  parameters  such  as  duct  size,   airflow
     requirements,  and air  quality.  The goal of this  development  work is to
     significantly  reduce or replace  altogether  the current HVAC air handling
     systems on naval  ships.  During the  initial  six months of the  contract,
     Kronos has designed a new generation power supply,  improved the efficiency
     of the core  technology to allow for increased air movement and filtration,
     and  initiated  selection  with the U. S. Navy and Northrop  Grumman of the
     specifications  for the commercial  products to be built under the Phase II
     contract.  As of June 30,  2003,  the U. S. Navy had  provided  Kronos with
     $150,000 in funding for this effort under the Phase II contract.

     As part of its air management system, Kronos intends to develop and test an
     air filtration  mechanism capable of performing to HEPA quality  standards.
     We believe that Kronos(TM)  devices could replace current HEPA filters with
     a  permanent,  easily  cleaned,  low-cost  solution.  The U.S.  Navy unique
     environment   includes   shock   exposure,    vibration,    Electromagnetic
     Interference/Compatibility  (EMI/EMC),  and salt spray.  Kronos(TM) devices
     will be built and tested to meet  specific  Navy  standards.  Testing shall
     include assessments for system  performance,  including control techniques,
     noise levels, acquisition and lifecycle costs.

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

     Kronos has begun the process for  obtaining  Phase III  (production  phase)
     support  for the  Kronos(TM)-based  advanced  distributive  air  management
     system being  developed  under Phase II. Phase III contracts may be awarded
     prior to completion of Phase II contract work.  Kronos is working  directly
     with Dawn Breaker, a U. S. Government entity established for the purpose of
     supporting companies seeking Phase III contracts.

o    U.S. Army SBIR Contracts.  In August 2003,  Kronos was awarded the option
     on its U. S. Army  Small  Business  Innovation  Research  Phase I  contract
     bringing the value of the Phase I contract award to $120,000. In July 2003,
     Kronos obtained a Pre-Award notice from the U. S. Army for a Small Business
     Innovation Research Phase II contract worth $730,000.  During the Pre-Award
     stage, the U. S. Army will need to complete the necessary documentation for
     Kronos to begin work on Phase II. The U. S. Army expects that completion of
     the documentation will take approximately 90 days. The Phase II contract is
     an  extension  of the Phase I work that began in 2002.  We  anticipate  the
     Kronos(TM)devices manufactured under this contract will further demonstrate
     the  versatility  of  the  Kronos(TM)technology  to  meet  airflow,  system
     pressure and reduced humidity  requirements  for HVAC systems.  In December
     2001, Kronos was awarded the Phase I contract.  Phase I of the contract was
     worth $70,000 in funding to investigate  and analyze the feasibility of the
     Kronos(TM)technology  to reduce humidity in HVAC systems.  Dehumidification
     is essential to making HVAC systems more energy efficient.

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

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

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

COMPETITION

     In each of these  market  segments,  there are a large  number of incumbent
specialty,  national  and global  competitors.  These  competitors  have  firmly
established products, customers, distribution and sales channels and broad brand
recognition.  These competitors have significantly  greater financial  resources
than our Company. The consumer,  commercial and industrial fan, air movement and
air purification  markets are highly  competitive based on price,  availability,
customization,  service and warranty.  Kronos  intends to position  itself based
upon its advantages in features and performance to create a beneficial  value to
its  customers.  Kronos  intends to compete in  licensing  of air  movement  and
purification   technologies   to  existing   manufacturers   and  product  sales
organizations.

PATENTS AND INTELLECTUAL PROPERTY

     In August  2003,  Kronos  received  a Notice of  Allowance  from the United
States  Patent and  Trademark  Office  indicating  that its  patent  application
entitled Method of and Apparatus for Electrostatic Fluid Acceleration Control of
a Fluid Flow has been examined and allowed for issuance as a U.S. patent.  It is
expected that the U. S. Patent will be issued in due course.  This latest patent
when  formally  issued will provide  intellectual  property  protection  for key
aspects of Kronos' technology until late in 2020.

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

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<PAGE>

     In  addition  to the  Electrostatic  Fluid  Accelerator  and  Method of and
Apparatus for Electrostatic Fluid Acceleration  Control of a Fluid Flow patents,
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.  There are a number of  corresponding  patent
applications,  which  have been  filed and are  pending  outside  of the  United
States.

MILESTONES

     Our primary  business  objectives over the next 12 months are the launch of
Kronos(TM)-based  standalone  consumer and commercial  products and to establish
strategic   partners  for  developing  and   commercializing   embedded  product
applications.  The primary milestones  necessary to achieve these objectives are
as follows:

o        adaptation of the initial standalone consumer product line for
         commercial applications including assisted living, nursing home and
         healthcare facilities;

o        hiring additional marketing and sales personnel to expand Kronos'
         commercial customer base to allow Kronos to increase both near term and
         long term revenue;

o        expansion of external partnerships and resources to facilitate the
         production and post-sale servicing of Kronos(TM)products;

o        expansion of technical resources and product engineering to better
         position Kronos' ability to address specific customer issues and needs;
         and

o        continuation of implementation of Kronos' intellectual property
         strategies, including continuation of its U.S. and international patent
         filing process to enable a full development and effective management of
         its intellectual property rights and assets.

     We estimate that achievement of our business plan will require  substantial
additional  funding.  We anticipate  that the source of funding will be obtained
pursuant to the senior debt funding from HoMedics,  Fusion  Capital  transaction
and/or the sale of additional  equity in our Company,  cash flow  generated from
government grants and contracts,  which includes funding from the Small Business
Innovation  Research  contracts  sponsored by the U.S.  Navy and Army awarded to
Kronos Air Technologies, and cash flow generated from customer revenue. Pursuant
to discussions  with the companies that we will be licensing our technology,  we
anticipate  generating  cash flow in our 2004 fiscal year from  advance  funding
from these companies for production  development  work. As set forth below,  our
agreement  with  HoMedics  limits our  ability to borrow  money and as a result,
required capital will be from the sale of equity,  cash flow from operations and
/ or the sale or licensing of the Kronos(TM) technology to other parties.

HOMEDICS SENIOR DEBT TRANSACTION

     In May 2003,  Kronos entered into an agreement  with a strategic  customer,
HoMedics, Inc., for $3.5 million in financing, including $3.4 million in secured
debt financing and $100,000 for the purchase of warrants.  $2.5 million was paid
to Kronos upon execution of the agreement and $1.0 million will be paid upon the
start of production as defined in the Licensing  Agreement for the  Kronos(TM) -
based air purification product line to be marketed and distributed by HoMedics.

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<PAGE>

     The loan has the  following  features:  (i) six percent  (6%)  interest per
annum with no interest  payments  during the first twelve months;  (ii) five (5)
year term with no payments  required  until August 2004  (interest  accrues) and
principal  amortized  over the remaining  four years with payments due quarterly
unless HoMedics  provides  notice to waive the payment  obligation for any given
quarter,  which  in  such  event  shall  add to the  final  payment  due;  (iii)
affirmative and negative  covenants,  including  restrictions on Kronos' ability
(a) to declare or pay distributions,  dividends or management fees to any of its
shareholders,  (b) to incur, create,  assume or permit to exist any indebtedness
or  liability  for  borrowed  money,  or any  other  indebtedness  or  liability
evidenced by notes,  bonds,  debentures,  or similar  obligations,  or any other
indebtedness  whatsoever,  with certain limited exceptions,  (c) create,  incur,
assume or suffer to exist any mortgage,  pledge,  encumbrance security interest,
lien or charge  of any kind  upon any of its  property  or  assets,  (d) to make
loans,  advances or extensions of credit to any person, with limited exceptions,
(e) to guarantee or otherwise,  directly or indirectly,  in any way be or become
responsible for obligations of any person, and (f) to purchase,  redeem,  retire
or  otherwise  acquire  any of the shares of its  capital  stock;  (iv) a setoff
arrangement with HoMedics' license whereby the outstanding principal and accrued
interest on the note shall be offset by any royalty  payments due to Kronos from
HoMedics;  and  (v)  a  security  interest  in  Kronos'  assets,  including  its
intellectual  property. In exchange for providing $3.4 million in debt financing
and  $100,000,  Kronos  provided  HoMedics  with two  warrants:  (i) 6.7 million
warrants (which equated to 10% of the then fully diluted shares) fully vested at
the time of funding and (ii) 6.7 million  warrants  (which equated to 10% of the
then fully  diluted  shares)  which will vest only (1) if Kronos does not prepay
the entire  amount of principal  and interest due under the Notes by November 8,
2005;  (2) upon a default by Kronos,  or (3) Kronos  does not earn,  at any time
after the date of this  agreement but prior to November 8, 2005,  revenues in an
aggregate  amount equal to or greater than $3.5 million.  The exercise price was
set  at  the  market  price  at  the  time  of  closing  ($0.10).  HoMedics  has
antidilution rights for any funds raised at less than $0.20 per share, excluding
options or shares issued to management, directors, and consultants in the normal
course of business.  HoMedics  antidilution rights do not apply for funds raised
at greater than $0.20 per share.

FUSION CAPITAL TRANSACTION

     On August 12, 2002, we entered into a common stock purchase  agreement with
Fusion Capital.  Pursuant to the common stock purchase  agreement and subject to
the  condition  that Fusion  Capital is not  obligated nor permitted to purchase
shares of our common stock if the  per-share  price of our common stock does not
equal or exceed the floor price of $0.10,  Fusion Capital has agreed to purchase
on each  trading  day  during the term of the  agreement,  $10,000 of our common
stock or an aggregate of $6.0 million.  The $6.0 million of our common stock can
be purchased over a 30-month period, subject to a six-month extension or earlier
termination at our sole discretion and subject to certain  events.  The purchase
price per share is equal to the  lesser of (i) the  lowest  price of our  common
stock on the purchase  date; or (ii) the average of the three (3) lowest closing
sale prices of our common stock during the twelve (12) consecutive  trading days
prior to the date of a  purchase  by Fusion  Capital.  However,  there can be no
assurance  of how much cash we will  receive,  if any,  under the  common  stock
purchase agreement with Fusion Capital. As of June 30, 2003, Kronos has obtained
$579,000 under the stock purchase agreement.

                                       9

<PAGE>

RETENTION OF THE EAGLE ROCK GROUP, LLC

     On July 9, 2001, we signed an agreement to utilize the  strategic  planning
and  business  plan  execution  services of The Eagle Rock Group,  LLC.  ("Eagle
Rock").  Pursuant to the  agreement  that we entered  into with Eagle  Rock,  we
issued to Eagle  Rock a ten-year  warrant  granting  them the right to  purchase
1,400,000  shares of our common  stock at an exercise  price of $0.68 per share.
The  warrant  contains  redemption  rights  in the  event  that we enter  into a
transaction that results in a change of control of our company.  Effective March
11, 2002, we entered into a new agreement  with Eagle Rock for a nearly one year
period ending March 1, 2003.  Pursuant to the agreement,  we issued Eagle Rock a
ten-year  warrant  granting  them the right to  purchase  900,000  shares of our
common  stock.  Two  hundred and fifty  thousand  (250,000)  warrant  shares are
exercisable  at an exercise  price of $0.42 and two  hundred and fifty  thousand
(250,000)  warrant shares are exercisable at an exercise price of $0.205.  These
warrants were earned over a 12-month period and four hundred thousand  (400,000)
warrant  shares are  exercisable  at an exercise price of $0.145 and were earned
upon the securing of our Licensing  Agreement with  HoMedics.  The Company is no
longer compensating Eagle Rock for any work it may perform on our behalf.

EMPLOYEES

     On  September  23, 2003,  Kronos and its  subsidiaries  had nine  full-time
employees.  Of the total  number of  full-time  employees,  one works in general
management, five in research and product development, two in marketing and sales
and  operations,  one in finance,  and none are employed in  administrative  and
other support positions.  None of the employees are represented by unions. There
has been no  disruption of operations  due to a labor  dispute.  We consider our
relations with our employees to be good.

FACTORS AFFECTING KRONOS' BUSINESS AND PROSPECTS

     We are subject to various risks which may have a material adverse effect on
our business, financial condition and results of operations, and may result in a
decline in our stock price. Certain risks are discussed below:

WE HAVE A LIMITED OPERATING HISTORY WITH SIGNIFICANT LOSSES AND EXPECT LOSSES TO
CONTINUE FOR THE FORESEEABLE FUTURE

     We have  only  recently  begun  implementing  our  plan to  prioritize  and
concentrate  our management and financial  resources to fully  capitalize on our
investment in Kronos Air  Technologies  and have yet to establish any history of
profitable  operations.  For the year ended June 30, 2003,  we had negative cash
flows from our  operations.  We have incurred  annual net losses of $2.8 million
during each of the past two fiscal years of operation.  As a result, at June 30,
2003, we had an accumulated deficit of $17.5 million. For the fiscal years ended
June 30, 2003 and 2002, we had revenue of $559,000 and $93,000, respectively. We
have  incurred net losses from  continuing  operations  of $2.8 million and $3.5
million for the fiscal years ended June 30, 2003 and 2002.  For the fiscal years
ended  June 30,  2003 and  2002,  we  generated  negative  cash  flows  from our
operations. Our revenues and cash flows from operations have not been sufficient
to sustain our operations. We have sustained our operations through the issuance
of our common  stock and the  incurrence  of secured  debt.  We expect  that our
revenues and cash flows from  operations  may not be  sufficient  to sustain our
operations  for the  foreseeable  future.  Our  profitability  will  require the
successful  commercialization of our Kronos(TM) technologies.  No assurances can
be  given  that we will be able to  successfully  commercialize  our  Kronos(TM)
technologies or that we will ever be profitable.

                                       10

<PAGE>

WE WILL REQUIRE SIGNIFICANT ADDITIONAL FINANCING TO SUSTAIN OUR OPERATIONS AND
WITHOUT IT WE WILL NOT BE ABLE TO CONTINUE OPERATIONS

     At June 30, 2003, we had a working  capital  deficit of $1.2  million.  The
independent  auditor's  report for the years  ended  June 30,  2003 and June 30,
2002, includes an explanatory  paragraph to their audit opinion stating that our
recurring   losses  from  operations  and  working  capital   deficiency   raise
substantial  doubt about our ability to  continue  as a going  concern.  For the
years ended 2003 and 2002, we had an operating cash flow deficit of $2.0 million
and $1.5 million,  respectively.  We currently do not have sufficient  financial
resources to fund our operations or pay certain existing obligations or those of
our subsidiary.  Therefore,  we need  substantial  additional  funds to continue
these operations and pay certain existing obligations.

     If obtaining  sufficient  financing from the U.S Navy, U.S. Army,  HoMedics
and  /or  Fusion  Capital  were  to be  unavailable  and  if we  are  unable  to
commercialize  and sell the  products  or  technologies,  we will need to secure
another source of funding in order to satisfy our working capital needs. Even if
we are able to access the funds available under the, U.S. Navy and U.S Army SBIR
contracts,  HoMedics  senior debt  agreement  and / or the Fusion  common  stock
purchase agreement,  we may still need additional capital to fully implement our
business,  operating  and  development  plans.  At June 30, 2003,  we had a cash
balance of  $641,000.  Should the  financing  we require to sustain  our working
capital needs be unavailable,  or prohibitively expensive when we require it, we
would be forced to curtail our business operations.

EXISTING SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF
SHARES UNDER THE COMMON STOCK PURCHASE AGREEMENT WITH FUSION CAPITAL AND ANY
OTHER EQUITY FINANCING

     The sale of shares  pursuant  to our  agreement  with Fusion  Capital,  the
exercise  of  HoMedics  stock  warrants  or any other  future  equity  financing
transaction will have a dilutive impact on our  stockholders.  As a result,  our
net income per share could decrease in future  periods,  and the market price of
our common stock could decline.  In addition,  the lower our stock price is, the
more  shares  of  common  stock we will have to issue  under  the  common  stock
purchase agreement with Fusion Capital in order to draw down the full amount. If
our stock  price is  lower,  then our  existing  stockholders  would  experience
greater dilution.  We cannot predict the actual number of shares of common stock
that will be issued  pursuant to the agreement  with Fusion Capital or any other
future equity financing transaction,  in part, because the purchase price of the
shares will fluctuate based on prevailing  market  conditions and we do not know
the exact amount of funds we will need.

FAILURE TO DEVELOP MANUFACTURING CAPABILITIES WOULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS

     The manufacture of consumer products by HoMedics based on our technology is
in the initial  stage.  We have no  experience  manufacturing  and  distributing
commercial  quantities of our Kronos'  products.  Kronos currently does not have
any  commercial-scale   manufacturing  facilities.  Kronos  does  not  have  any
contractual relationships with third parties to contract manufacture.  If Kronos
is unable to acquire adequate  manufacturing  capabilities or if it cannot enter
into satisfactory  arrangements with third parties to manufacture the Kronos(TM)
products on  commercially  reasonable  terms,  we would be forced to curtail our
business  operations.  There can be no assurance that we will be able to acquire
adequate  manufacturing  capabilities  or be able  to  enter  into  satisfactory
arrangements with third parties to manufacture the Kronos(TM) products.

                                       11

<PAGE>

COMPETITION IN THE MARKET FOR AIR MOVEMENT AND PURIFICATION DEVICES MAY RESULT
IN THE FAILURE OF THE KRONOS(TM)PRODUCTS TO ACHIEVE MARKET ACCEPTANCE

     Kronos presently faces competition from other companies that are developing
or that  currently  sell air movement and  purification  devices.  Many of these
competitors  have  substantially  greater  financial,  research and development,
manufacturing,  and  sales  and  marketing  resources  than  we do.  Many of the
products  sold  by  Kronos'  competitors  already  have  brand  recognition  and
established  positions in the markets that we have targeted for penetration.  In
the  event  that the  Kronos(TM)  products  do not  favorably  compete  with the
products  sold by our  competitors,  we would be forced to curtail our  business
operations.

OUR FAILURE TO ENFORCE PROTECTION OF OUR INTELLECTUAL PROPERTY WOULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS

     A significant  part of our success depends in part on our ability to obtain
and  defend our  intellectual  property,  including  patent  protection  for our
products  and  processes,  preserve  our trade  secrets,  defend and enforce our
rights against  infringement  and operate  without  infringing  the  proprietary
rights of third parties,  both in the United States and in other countries.  Our
limited amount of capital  impedes our current ability to protect and defend our
intellectual property.

     In January 2003, Kronos received formal notification from the United States
Patent  and  Trademark   Office   indicating  that  its   application   entitled
Electrostatic  Fluid Accelerator had been examined and allowed for issuance as a
U.S. patent (#6,504,308).  The patent will provide protection for key aspects of
Kronos'(TM)  technology  until late in 2019. In August 2003,  Kronos  received a
Notice  of  Allowance  from  the  United  States  Patent  and  Trademark  Office
indicating  that its patent  application  entitled  Method of and  Apparatus for
Electrostatic  Fluid Acceleration  Control of a Fluid Flow has been examined and
allowed for issuance as a U.S. patent. It is expected that the U. S. Patent will
issue in due course.  We have  additional  U.S. and foreign patent  applications
pending.  The validity and breadth of our  intellectual  property  claims in ion
wind generation and  electrostatic  fluid  acceleration  and control  technology
involve  complex  legal and  factual  questions  and,  therefore,  may be highly
uncertain.  Despite our efforts to protect our intellectual  proprietary rights,
existing  copyright,  trademark  and  trade  secret  laws  afford  only  limited
protection.

     Our industry is characterized by frequent  intellectual property litigation
based on allegations of infringement of intellectual  property rights.  Although
we are not aware of any  intellectual  property  claims  against us, we may be a
party to litigation in the future.

POSSIBLE FUTURE IMPAIRMENT OF INTANGIBLE ASSETS WOULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION

     Our net intangible assets of approximately $2.5 million as of June 30, 2003
consist  principally of purchased patent  technology and marketing  intangibles,
which relate to the acquisition of Kronos Air  Technologies,  Inc. in March 2000
and  to  the   acquisition  of  license  rights  to  fuel  cell,   computer  and
microprocessor  applications  of the  Kronos(TM)  technology not included in the
original  acquisition of Kronos Air Technologies,  Inc. in May 2003.  Intangible
assets comprise 78% of our total assets as of June 30, 2003.  Intangible  assets
are subject to periodic  review and  consideration  for potential  impairment of
value.  Among  the  factors  that  could  give  rise  to  impairment  include  a
significant  adverse  change in legal  factors or in the  business  climate,  an
adverse action or assessment by a regulator,  unanticipated  competition, a loss
of key  personnel,  and  projections or forecasts  that  demonstrate  continuing
losses  associated  with these  assets.  In the case of our  intangible  assets,
specific  factors  that  could  give rise to  impairment  would be,  but are not
limited to, an inability to obtain patents,  the untimely death or other loss of
Dr. Igor  Krichtafovitch,  the lead inventor of the  Kronos(TM)  technology  and
Kronos Air  Technologies  Chief Technology  Officer,  or the ability to create a
customer base for the sale or licensing of the Kronos(TM) technology.

                                       12

<PAGE>

     Should an  impairment  occur,  we would be required to  recognize it in our
financial  statements.  A  write-down  of these  intangible  assets could have a
material  adverse  impact  on  our  total  assets,  net  worth  and  results  of
operations.

OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," SUBJECT TO SPECIAL REQUIREMENTS
AND CONDITIONS, AND MAY NOT BE A SUITABLE INVESTMENT

     Our common  stock is deemed to be "penny  stock" as that term is defined in
Rule 3a51-1 promulgated under the Securities  Exchange Act of 1934. Penny stocks
are stocks:

o        With a price of less than $5.00 per share;

o        That are not traded on a "recognized" national exchange;

o        Whose prices are not quoted on the Nasdaq automated quotation system
         (Nasdaq listed stock must still have a price of not less than $5.00 per
         share); or

o        In issuers with net tangible assets less than $2.0 million (if the
         issuer has been in continuous operation for at least three years) or
         $5.0 million (if in continuous operation for less than three years), or
         with average revenues of less than $6.0 million for the last three
         years.

     Broker/dealers  dealing in penny stocks are  required to provide  potential
investors  with a  document  disclosing  the  risks of penny  stocks.  Moreover,
broker/dealers  are required to determine whether an investment in a penny stock
is a suitable  investment for a prospective  investor.  These  requirements  may
reduce  the  potential  market for our common  stock by  reducing  the number of
potential investors. This may make it more difficult for investors in our common
stock to resell  shares to third parties or to otherwise  dispose of them.  This
could cause our stock price to decline.

WE RELY ON MANAGEMENT AND RESEARCH PERSONNEL, THE LOSS OF WHOSE SERVICES COULD
HAVE A MATERIAL ADVERSE EFFECT UPON OUR BUSINESS

     We rely principally  upon the services of our senior executive  management,
and certain key employees, including the Kronos research team, the loss of whose
services  could have a material  adverse effect upon our business and prospects.
Competition for  appropriately  qualified  personnel is intense.  Our ability to
attract and retain highly qualified senior management and technical research and
development  personnel  are  believed to be an  important  element of our future
success.  Our  failure to attract  and retain such  personnel  may,  among other
things,   limit  the  rate  at  which  we  can  expand  operations  and  achieve
profitability.  There can be no  assurance  that we will be able to attract  and
retain  senior   management  and  key  employees  having   competency  in  those
substantive areas deemed important to the successful implementation of our plans
to fully  capitalize on our  investment in the  Kronos(TM)  technology,  and the
inability to do so or any difficulties encountered by management in establishing
effective working relationships among them may adversely affect our business and
prospects.  Currently,  we do not carry key person life insurance for any of our
executive management, or key employees.

                                       13

<PAGE>

OUR FAILURE TO TIMELY FILE FEDERAL AND STATE INCOME TAX RETURNS FOR CALENDAR
YEARS 1997 THROUGH 2001 MAY RESULT IN THE IMPOSITION OF INTEREST AND PENALTIES

     We failed to timely file  federal and state income tax returns for calendar
years 1997 through 2001, respectively; however, we are now current in all of our
income tax filings. We had operating losses for each year during the period 1997
through  2001,  and there  were no income  taxes due and owing for those  years.
These  returns  could be  subject  to review and  potential  examination  by the
respective  taxing   authorities.   Should  any  of  these  returns  come  under
examination by federal or state authorities, our positions on certain income tax
issues  could  be  challenged.  The  impact,  if any,  of the  potential  future
examination cannot be determined at this time. If our positions are successfully
challenged,  we may be forced to pay income  taxes,  interest and  penalties for
those years.

ITEM 2.  PROPERTIES

     Our principal executive office is located at 464 Common Street,  Suite 301,
Belmont, Massachusetts. The offices of the Kronos Research Center are located at
8549/8551 154th Avenue NE, Redmond, Washington. Kronos is committed through June
30, 2004 to annual lease  payments on operating  leases for 4,000 square feet of
office/research  lab  premises of $61,836 per year.  We  consider  our  existing
facilities to be adequate for our foreseeable needs.


ITEM 3.  LEGAL PROCEEDINGS

      None


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

      None.




















                                       14

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock trades on the  Over-the-Counter  Bulletin  Board under the
trading symbol "KNOS." Our high and low bid prices by quarter during fiscal 2003
and 2002 are presented as follows:

                                                               FISCAL YEAR 2003
                                                               HIGH         LOW

           First Quarter (July 2002 to September 2002)        $0.200      $0.140
           Second Quarter (October 2002 to December 2002)     $0.170      $0.110
           Third Quarter (January 2003 to March 2003)         $0.129      $0.087
           Fourth Quarter (April 2003 to June 2003)           $0.290      $0.085


                                                               FISCAL YEAR 2002
                                                               HIGH         LOW

           First Quarter (July 2001 to September 2001)        $0.700      $0.300
           Second Quarter (October 2001 to December 2001)     $0.530      $0.210
           Third Quarter (January 2002 to March 2002)         $0.280      $0.185
           Fourth Quarter (April 2002 to June 2002)           $0.330      $0.140



     On September 23, 2003, the closing price of our common stock as reported on
the Over-the-Counter  Bulletin Board was $0.41 per share. On September 23, 2003,
we had  approximately  1,500  beneficial  stockholders  of our common  stock and
54,336,524 shares of our common stock were issued and outstanding.

DIVIDENDS

     We have not declared or paid  dividends  on our common stock during  fiscal
2002 or 2003 and do not plan to declare  or pay  dividends  on our common  stock
during  fiscal  2004.  Our dividend  practices  are  determined  by our Board of
Directors  and may be changed  from time to time.  We will base any  issuance of
dividends upon our earnings (if any), financial condition, capital requirements,
acquisition  strategies,  and other factors considered important by our Board of
Directors. Nevada law and our Articles of Incorporation do not require our Board
of Directors to declare  dividends on our common stock.  We expect to retain any
earnings  generated by our operations for the  development  and expansion of our
business and do not anticipate  paying any dividends to our stockholders for the
foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

     Except as  otherwise  noted,  all of the  following  shares were issued and
options and  warrants  granted  pursuant  to the  exemption  provided  for under
Section 4(2) of the  Securities Act of 1933, as amended,  as a "transaction  not
involving a public  offering."  No  commissions  were paid,  and no  underwriter
participated,  in connection with any of these transactions.  Each such issuance
was made  pursuant to individual  contracts  which are discrete from one another
and are made only with persons who were  sophisticated in such  transactions and
who had knowledge of and access to sufficient  information  about Kronos to make
an informed  investment  decision.  Among this information was the fact that the
securities were restricted securities.

                                       15

<PAGE>

     All investors participating in private placements for cash were "accredited
investors"  within the meaning of Regulation D. In addition,  we note that there
are several  categories of recipients of these shares.  These include  investors
for cash, officers, directors, consultants, litigants and former shareholders of
private  companies  acquired  by  Kronos.  Kronos  does not  believe  that these
categories of recipients  should be integrated with each other under the concept
of  integration.  Under  Securities  Act  Release  Nos.  4552  and  4434,  these
categories  would  not  involve  a single  plan of  financing  and  would not be
considered to be made for the same general purpose.  As a result,  each category
should be reviewed on its own.  Given the small  number of  purchasers  in these
categories,  Kronos  believes that these  transactions  complied in all respects
with Section  4(2).  Kronos  believes  that this  conclusion is true even if the
transactions   occurring   within  each  category  are  integrated   with  other
transactions occurring within six months or one year of a given transaction.

     In April 1999, we issued  1,000,000  shares of our common stock,  valued at
$0.30 per share,  at an aggregate value of $300,000,  to The Pangea Group,  LLC,
the nominee of Jeffrey A. Wilson,  a former  director and  executive  officer of
Kronos,  based on an employment  agreement dated April 16, 1999. The fair market
value of a share of our common stock on April 16, 1999,  the date of grant,  was
$1.00 per share.  In September  2001,  Kronos  determined  that such  employment
agreement was null and void from its inception.  As a consequence,  the issuance
of the 1,000,000  common shares is void as of April 16, 1999, the effective date
of the employment agreement, and these shares of common stock will be treated as
if they never were issued.  The issuance of such shares is not  reflected in the
financial statements.

     In August 1999, we issued  100,000  shares of our common  stock,  valued at
$0.50 per share (the fair market  value for our shares as of such  date),  at an
aggregate value of $50,000,  to twelve persons in exchange for ownership of U.S.
patent no. 4,803,632 (issued February 7, 1989) and related intellectual property
rights  relating to a  technology  and device  referred  to as the  "Intelligent
Utility Meter System".

     In January 2000,  we issued  74,094  shares of our common stock,  valued at
$0.69 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $51,125 in cash.

     In February  2000, we issued  80,435 shares of our common stock,  valued at
$0.92 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $74,000 in cash.

     In March 2000,  we issued  619,645  shares of our common  stock,  valued at
$1.81 per share (the negotiated purchase price for such shares), at an aggregate
value of  $1,119,234,  to nine  persons  in  exchange  for all of the issued and
outstanding shares of common stock of Atomic Soccer owned by such persons.

     In March 2000,  we issued  380,355  shares of our common  stock,  valued at
$1.81 per share (the negotiated purchase price for such shares), at an aggregate
value  of  $687,016,  to one  person  in  exchange  for  all of the  issued  and
outstanding shares of common stock of Atomic Soccer owned by such person.

     In March 2000,  we issued  37,555 shares of our common stock as part of the
Atomic Soccer acquisition.

                                       16

<PAGE>

     In March 2000, we issued  2,250,000  shares of our common stock,  valued at
$1.49 per share (the negotiated purchase price for such shares), at an aggregate
value of  $3,346,875,  to six  persons  in  exchange  for 100% of the issued and
outstanding common stock of Kronos Air Technologies.

     In March 2000, we issued 45,045 shares of our common stock, valued at $2.22
per share (the  negotiated  purchase  price for such shares),  to one person,  a
stockholder of Kronos, in exchange for $100,000 in cash.

     In March 2000, we issued 78,325 shares of our common stock, valued at $2.03
per share (the  negotiated  purchase  price for such shares),  to one person,  a
stockholder of Kronos, in exchange for $159,000 in cash.

     In April 2000, we issued 77,670 shares of our common stock, valued at $1.03
per share (the  negotiated  purchase  price for such shares),  to one person,  a
stockholder of Kronos, in exchange for $80,000 in cash.

     In April 2000,  we issued  179,641  shares of our common  stock,  valued at
$1.67 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $300,000 in cash.

     In May 2000,  we issued  1,298,701  shares of our common  stock,  valued at
$1.96 per share (the negotiated purchase price for such shares), at an aggregate
value of  $2,550,000,  to five  persons in  exchange  for 100% of the issued and
outstanding common stock of Aperion Audio.

     In May 2000, we issued 180,000 shares of our common stock,  valued at $1.96
per share (the negotiated purchase price for such shares), at an aggregate value
of $353,430,  to five persons in exchange for 100% of the issued and outstanding
membership  interests of Cancer  Detection  International.  In 2001, there was a
20,000 common share  adjustment  ($39,250) to this purchase,  resulting in a net
160,000 shares of our common stock being issued.

       In May 2000, we issued 57,971 shares of our common stock, valued at $1.38
per share (the negotiated purchase price for such shares), to one person, a
stockholder of Kronos, in exchange for $80,000 in cash.

     In May 2000, we issued 14,815 shares of our common stock,  valued at $3.375
per  share  (the  fair  market  value for our  shares  as of such  date),  at an
aggregate  value of $50,000,  to Richard A.  Papworth,  a director and executive
officer of Kronos, based on an employment agreement dated May 19, 2000.

     In June 2000, we issued 52,980 shares of our common stock,  valued at $1.51
per share (the  negotiated  purchase  price for such shares),  to one person,  a
stockholder of Kronos, in exchange for $80,000 in cash.

     In June 2000, we issued 122,699 shares of our common stock, valued at $1.63
per share (the negotiated purchase price for such shares), at an aggregate value
of  $200,000,  to Erik W.  Black,  a director  and former  executive  officer of
Kronos.

     In July 2000, we issued 161,538 shares of our common stock, valued at $1.17
per share (the  negotiated  purchase  price for such shares),  to one person,  a
stockholder of Kronos, in exchange for $189,000 in cash.

                                       17

<PAGE>

     In August  2000,  we issued  5,000  shares of our common  stock,  valued at
$1.312 per share (the fair market  value for our shares as of such date),  at an
aggregate value of $6,560, to an executive officer of Kronos, as compensation.

     In August 2000, we issued  120,000  shares of our common  stock,  valued at
$1.00 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $120,000 in cash.

     In August 2000, we issued 8,004 shares of our common stock, valued at $1.42
per share (the negotiated  exchange value of such shares), at an aggregate value
of $11,366, to one person in liquidation of indebtedness of Atomic Soccer.

     In August 2000,  we issued  44,667  shares of our common  stock,  valued at
$1.24 per share (the negotiated  exchange value of such shares), at an aggregate
value of  $55,388,  to two  persons in  liquidation  of  indebtedness  of Atomic
Soccer.

     In September 2000, we issued 309,588 shares of our common stock,  valued at
$1.00 per share (the negotiated  exchange value of such shares), at an aggregate
value of  $309,588,  to two persons in  liquidation  of  indebtedness  of Atomic
Soccer.

     In September  2000, we issued 45,800 shares of our common stock,  valued at
$1.00 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $45,800 in cash.

     In September 2000, we issued 559,000 shares of our common stock,  valued at
$1.00 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $559,000 in cash.

     In September 2000, we issued 150,000 shares of our common stock,  valued at
$1.00 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $150,000 in cash.

     In December 2000, we issued  168,492 shares of our common stock,  valued at
$0.59 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $100,000 in cash.

     In December  2000, we issued  39,091 shares of our common stock,  valued at
$0.57 per share (the negotiated  purchase price of such shares), to two persons,
stockholders of Kronos, in exchange for $22,340 in cash.

     In January 2001, we issued  687,500  shares of our common stock,  valued at
$0.58 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $400,000 in cash.

     In January  2001,  we issued  7,693 shares of our common  stock,  valued at
$0.65 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $5,000 in cash.

                                       18

<PAGE>

     In January 2001,  we issued  50,000  shares of our common stock,  valued at
$0.60 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $30,000 in cash.

     In January 2001,  we issued  10,000  shares of our common stock,  valued at
$0.64 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $6,400 in cash.

     In January 2001,  we issued  40,000  shares of our common stock,  valued at
$1.25 per share (the fair market  value for our shares as of such  date),  at an
aggregate  value of  $50,000,  to one  person in  exchange  for  legal  services
rendered to Kronos Air Technologies.

     In January  2001,  we issued  4,915 shares of our common  stock,  valued at
$1.25 per share (the fair market  value for our shares as of such  date),  at an
aggregate value of $6,144, to five persons,  directors,  executive officers, and
employees of Kronos Air Technologies, as compensation.

     In March 2001,  we issued  186,302  shares of our common  stock,  valued at
$0.72 per share (the negotiated  purchase price for such shares), to one person,
a stockholder of Kronos, in exchange for $135,000 in cash.

     In April 2001, we issued 97,020 shares of our common stock, valued at $1.00
per share (the negotiated exchange value for such shares), at an aggregate value
of $97,020, to two persons, in liquidation of indebtedness of Atomic Soccer.

     In April 2001, we issued 38,038 shares of our common stock, valued at $0.46
per share (the  negotiated  purchase  price for such shares),  to one person,  a
stockholder of Kronos, in exchange for $17,530 in cash.

     In April 2001, we issued 2,000 shares of our common stock, valued at $0.885
per  share  (the  fair  market  value for our  shares  as of such  date),  at an
aggregate  value  of  $1,770,   to  one  person,   an  employee  of  Kronos  Air
Technologies, as compensation.

     In April 2001,  pursuant to a stock option agreement,  we granted five-year
options to acquire  450,000 shares of our common stock,  at an exercise price of
$0.885 per share (the fair market value for our shares as of the date of grant),
at an aggregate value of $398,250, to nine persons,  including Daniel R. Dwight,
Richard A.  Papworth,  and  Richard  F.  Tusing  all of whom are  directors  and
executive  officers  of  Kronos,  Erik W.  Black who is a  director  and  former
executive  officer,  Jeffrey D. Wilson who is a former  director  and  executive
officer,  and Charles D.  Strang,  who is a former  director.  All such  options
immediately vested.

     In April 2001,  pursuant to a stock option  agreement,  we granted ten-year
options to acquire  398,475 shares of our common stock,  at an exercise price of
$0.885 per share (the fair market value for our shares as of the date of grant),
at an aggregate value of $352,650 to Richard A. Papworth,  who is a director and
executive  officer of Kronos, in consideration of the waiver of certain contract
rights. All such options immediately vested.

     In April 2001, we granted five-year options to acquire shares of our common
stock,  at an exercise  price of $1.12 per share (the fair market  value for our
shares as of the date of  grant),  to one person who is an officer of Kronos Air
Technologies,  as  partial  compensation  for  services  pursuant  to an accrual
formula set forth in a consulting  agreement.  As of June 30, 2003, such accrued
options  entitled this person to acquire  208,800 shares of our common stock, at
an aggregate value of $233,856. All such options are immediately vested.

                                       19

<PAGE>

     In May 2001, we issued 891,891 shares of our common stock,  valued at $0.34
per share (the  negotiated  purchase  price for such shares),  to one person,  a
stockholder of Kronos, in exchange for $300,000 in cash.

     In May 2001, we issued  52,778 shares of our common stock,  valued at $0.36
per share (the  negotiated  purchase  price for such shares),  to one person,  a
stockholder of Kronos, in exchange for $19,000 in cash.

     In May 2001,  pursuant to a stock  option  agreement,  we granted  ten-year
options to acquire  250,000 shares of our common stock,  at an exercise price of
$0.710 per share (the fair market value for our shares as of the date of grant),
at an aggregate  value of $177,500,  to Jeffrey D. Wilson and Charles D. Strang,
each of whom are former  directors of Kronos,  as  compensation  for services as
directors. All such options immediately vested.

     In May 2001, we granted  five-year  options to acquire shares of our common
stock,  at an exercise  price of $0.96 per share (the fair market  value for our
shares as of the date of grant), to Daniel R. Dwight and Richard F. Tusing, each
of whom are directors of Kronos,  as partial  compensation for services pursuant
to an accrual  formula set forth in a  consulting  agreement.  As of October 10,
2001, such accrued options  entitled these two persons to acquire 821,400 shares
of our  common  stock,  at an  aggregate  value of  $788,544.  All such  options
immediately vested.

     In June 2001, we issued 50,000 shares of our common stock,  valued at $0.95
per share (the fair market value for our shares as of such date) at an aggregate
value of $47,500,  to Wei Li, a former director of Kronos,  as compensation  for
his service as a director.

     In July 2001, we issued 238,806 shares of our common stock, valued at $0.33
per share (the  negotiated  purchase  price for such shares),  to one person,  a
stockholder of Kronos, in exchange for $80,000 in cash.

     In July 2001, we issued 375,000 shares of our common stock, valued at $0.57
per share (the fair market value of our shares as of such date), at an aggregate
value of  $213,750,  to one person in  settlement  of  litigation  pursuant to a
Mutual Release and Settlement  Agreement dated as of July 7, 2001.  These shares
were delivered to the escrow agent on May 31, 2002.

     In July 2001, we issued 250 shares of our common stock, valued at $0.45 per
share (the fair  market  value of our shares as of such date),  at an  aggregate
value of $113,  to one  person,  an  employee  of Kronos  Air  Technologies,  as
compensation.

     In August 2001, we granted a ten-year  warrant to acquire  1,400,000 shares
of our common  stock,  at an exercise  price of $0.68 per share (the fair market
value  for our  shares  as of the  date of  grant),  at an  aggregate  value  of
$686,000,  to Eagle Rock Group as compensation  pursuant to a warrant  agreement
dated August 7, 2001,  for  services  provided in  connection  with a consulting
agreement dated July 2, 2001. Pursuant to such consulting agreement, a principal
of the recipient of the warrant  currently serves as a director of Kronos.  Such
warrant vested immediately.

     On October 1, 2001,  we  authorized  the issuance of 360,000  shares of our
common stock pursuant to a consulting agreement,  valued at $0.28 per share (the
fair-market  value of our  shares as of such  date),  at an  aggregate  value of
$100,800, to Fusion Capital, LLC, in exchange for consulting services.

                                       20

<PAGE>

     On October 1, 2001, we authorized  the issuance of 1,000,000  shares of our
common stock pursuant to a pledge,  valued at $0.448 per share,  at an aggregate
value of $447,982, to Fusion Capital, LLC, in exchange for $447,982 in cash.

     On October 1, 2001, we issued 2,250 shares of our common  stock,  valued at
$0.452 per share (the fair-market value of our shares on April 9, 2001 and 1,250
of our shares on September 7, 2001), at an aggregate  value of $4,147.50,  to an
employee of Kronos, as compensation.

     On November 15, 2001, we granted options to acquire 1,000,000 shares of our
common stock at an exercise price of $0.66 for 250,000 of these  options,  $0.56
for 250,000 of these options and $0.42 for 500,000 of these options to Daniel R.
Dwight,  a senior  executive  office of the Company,  as part of his  employment
agreement  entitling  him to  acquire  these  options  at a  aggregate  value of
$515,000.

     In February  2002, we granted  options to acquire  4,580,000  shares of our
common stock at an exercise price of $0.68 for 2,650,000 of these options and an
exercise  price  of $0.25  on the  remaining  1,930,000.  Of the  total  amount,
2,850,000  options  were granted to Daniel R.  Dwight,  Richard A.  Papworth and
Richard F.  Tusing,  all of whom are  directors  and  officers  of  Kronos.  The
exercise  price for 1,700,000 of these  options is $0.68 and the exercise  price
for 1,150,000 of these options is $0.25.

     On May 7, 2002,  we  completed  a private  placement  of our  common  stock
pursuant  to which we sold  1,971,976  shares of our  common  stock at $0.17 per
share to seven  accredited  investors  for  consideration  of $335,100  cash and
1,429,695  shares of our common  stock at $0.17 per share to six  members of our
management  team and / or  directors,  including  Daniel R.  Dwight,  Richard A.
Papworth,  Richard  F.  Tusing,  Erik W.  Black,  and  James P.  McDermott,  for
consideration of $39,987 cash and commitments to convert $203,061 of debt.

     On June 12, 2002, we issued 500,000  shares of our common stock,  valued at
$0.21 per share  (the  fair-market  value of our  shares as of such  date) at an
aggregate  value of $105,000 to two person  pursuant to a Settlement  agreement,
dated June 7, 2002, with Aperion Audio.

     On December 6, 2002, we issued 100,000  shares of our common stock,  valued
at $0.115 per share (the fair-market  value of our shares as of such date) at an
aggregate  value of $11,500 to Aperion Audio for forbearance on the note payable
to Aperion Audio.

     On December 24, 2002, we issued 206,000 shares of our common stock,  valued
at $0.11 per share (the  fair-market  value of our shares as of such date) at an
aggregate value of $22,660 for reduction in debt owed to Jeffery A. Wilson.

     On March 3, 2003,  we granted  options to acquire  2,165,000  shares of our
common stock at an exercise price of $0.185. Of the 2,165,000 options, 1,560,000
options  were granted to Daniel R.  Dwight,  Richard A.  Papworth and Richard F.
Tusing, all of whom are directors and officers of Kronos.

     On March 31, 2003, we issued  49,811 shares of our common stock,  valued at
$0.17 per share  (the  fair-market  value of our  shares as of such  date) at an
aggregate value of $8,468 for reimbursement of expenses to an employee.

                                       21

<PAGE>

     On May 7, 2003, we issued 2,790,000  shares of our common stock,  valued at
$.098 per share  (the  fair-market  value of our  shares as of such  date) at an
aggregate  value of $273,420 to acquire  certain  intellectual  property  rights
related to  "Electron  Wind  Generation".  These shares were issued with certain
rights  allowing the Company to buy back all or a portion of the shares at fixed
prices  through  the year 2006.  The Company has the right to buy back shares at
$0.15  per share in 2003,  $.017  per share in 2004,  $0.19 in 2005 and $0.20 in
2006.

     On May 12, 2003. we issued  warrants to purchase  13,492,342  shares of our
common stock at an exercise price of $0.10.  The warrants were issued as part of
a secured financing with HoMedics.

     On June 30, 2003, we issued 207,533  shares of our common stock,  valued at
$0.165  per share  (the  fair-market  value of our shares as of such date) at an
aggregate value of $34,489 for services rendered to two outside consultants.

     On June 30,  2003,  we granted  options to  acquire  30,000  options of our
common  stock at an  exercise  price of $0.36 and 18,000  options at an exercise
price of $0.10 to two outside consultants,  respectively,  for services rendered
and 50,000  options at an  exercise  price of $0.185 to Jeffery A.  Wilson,  our
former Chairman and Chief Executive Officer, for services rendered.



















                                       22

<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The  following   information   should  be  read  in  conjunction  with  our
consolidated  financial  statements and the notes thereto appearing elsewhere in
this filing.  Certain  statements  within this Item and  throughout  this Annual
Report on Form 10-KSB and the documents incorporated herein are "forward-looking
statements."

GENERAL

     Kronos Advanced  Technologies,Inc.  is a high technology industrial company
focused on  developing,  marketing and selling  products  based on the Company's
proprietary air movement and  purification  technology.  Kronos is attempting to
actively commercialize its technology in a number of markets.

Recent Developments

     HoMedics  Contract.  In October 2002,  Kronos Air  Technologies,  Inc., and
HoMedics  USA,  Inc.   executed  a  Licensing   Agreement  to  bring  Kronos(TM)
proprietary  technology  to the consumer.  The agreement  provides for exclusive
North American,  Australian and New Zealand retail  distribution rights for next
generation  consumer air movement and  purification  products  based on patented
Kronos(TM) technology.  In May 2003, Kronos and HoMedics agreed to negotiate the
expansion of our relationship into additional Kronos-based  stand-alone consumer
products, including fans, heaters, humidifiers and dehumidifiers.

     In November 2002, Kronos and HoMedics  executed a Development  Agreement to
provide  Kronos with the  financial  resources  believed  necessary  to complete
commercialization of the initial  Kronos(TM)-based  consumer product.  Kronos is
working with HoMedics' engineers,  designers,  manufacturers,  and marketing and
sales personnel to complete the initial product line for sales and distribution.
HoMedics is focused on product design and features,  completion of manufacturing
tooling and assembly line processes, and product packaging,  including prominent
display of the "Kronos" brand.  Kronos is focused on completion of the technical
hardware and related power supplies for each of the products in the HoMedics air
purification  product  line,  as  well as on  developing  product  features  and
benefits unique to this initial consumer product line.

     U.S. Navy SBIR  Contracts.  In November 2002,  Kronos executed an agreement
with the U.S. Navy to develop a new ventilation system for naval ships.  Working
under a Small Business Innovation Research contract,  the Company is in Phase II
(commercialization  phase) of this contract, which provides Kronos with up to an
additional $725,000 of developmental  funding over the next 24 months. The Phase
II  contract  is an  extension  of the Phase I and the Phase I Option  work that
began in 2001. It is intended that the Kronos(TM)  devices being developed under
this  contract  will be embedded in existing  HVAC  systems in order to move air
more efficiently than traditional,  fan-based technology. During the initial six
months of the contract,  Kronos designed a new generation power supply, improved
the efficiency of the of the core technology to allow for increased air movement
and filtration, and initiated selection with the U. S. Navy and Northrop Grumman
of the specifications for the commercial products to be built under the Phase II
contract.  As of June 30, 2003, U. S. Navy had provided  Kronos with $150,000 in
funding under the Phase II contract.

                                       23

<PAGE>

     U.S. Army SBIR Contracts.  In July 2003, Kronos Air Technologies obtained a
Pre-Award  notice from the U. S. Army for a Small Business  Innovation  Research
Phase II contract worth  $730,000.  The Phase II contract is an extension of the
Phase I work that began in 2002.  Phase I of the contract  provides  $120,000 to
investigate and analyze the  feasibility of the Kronos(TM)  technology to reduce
humidity  in  heating,   ventilation  and  air   conditioning   (HVAC)  systems.
Dehumidification is essential to making HVAC systems more energy efficient.  The
Phase II  funding  will be used to  manufacturer  devices  that will  attempt to
further  demonstrate  the  versatility  of the  Kronos(TM)  technology  to  meet
airflow, system pressure and reduced humidity requirements for HVAC systems.

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

     Senior Debt Financing. In May 2003, Kronos entered into an agreement with a
strategic customer,  HoMedics, Inc., for $3.4 million in secured debt financing.
$2.4 million was paid to Kronos upon execution of the agreement and $1.0 million
will be paid upon the start of production as defined in the Licensing  Agreement
for  the  Kronos-based  air  purification   product  line  to  be  marketed  and
distributed by HoMedics.

CRITICAL ACCOUNTING POLICIES

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

     Allowance  for  Doubtful  Accounts.   We  provide  a  reserve  against  our
receivables for estimated  losses that may result from our customers'  inability
to pay.  These  reserves are based on  potential  uncollectible  accounts,  aged
receivables,  historical losses and our customers'  credit-worthiness.  Should a
customer's  account  become  past due,  we  generally  will  place a hold on the
account and  discontinue  further  shipments  and/or  services  provided to that
customer, minimizing further risk of loss.

     Valuation  of  Goodwill,  Intangible  and Other Long Lived  Assets.  We use
assumptions in establishing  the carrying value,  fair value and estimated lives
of our long-lived  assets and goodwill.  The criteria used for these evaluations
include management's estimate of the asset's ability to generate positive income
from  operations  and  positive  cash flow in  future  periods  compared  to the
carrying  value of the asset,  the strategic  significance  of any  identifiable
intangible   asset  in  our   business   objectives,   as  well  as  the  market
capitalization  of Kronos.  We have used certain key assumptions in building the
cash  flow  projections  required  for  evaluating  the  recoverablility  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

                                       24

<PAGE>

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  101  ("SAB  101").  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 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.

RESULTS OF OPERATIONS

Consolidated Statement of Operations For the Year Ended June 30, 2003.

     Our net losses for each of the  current  years ended June 30, 2003 and June
30, 2002 were $2.8  million.  Our net loss from  continuing  operations  for the
current  year ended June 30, 2003 was $2.8 million  compared  with a net loss of
$3.5 million for the prior year.  The  decrease in the net loss from  continuing
operations  for the year ended June 30, 2003, as compared to the prior year, was
principally  the result of a 503%  increase  in revenue  to  $559,000  and a 14%
reduction in operating costs to $2.9 million.

     Revenue.  Revenues are  generated  through sales of services for design and
development of Kronos(TM) devices at Kronos Air Technologies,  Inc. Revenues for
the year ended June 30, 2003 were  $559,000  compared  with $93,000 in the prior
year.  Current  year  revenues  were  primarily  from our  HoMedics  development
agreement,  U.S. Navy Small Business Innovative Research Phase II contract, U.S.
Army Small Business Innovative Research Phase I contract and our contract with a
business jet manufacturer.

                                       25

<PAGE>

     Cost of Sales.  Cost of sales for the year ended June 30, 2003 was $314,000
compared  with $78,000 for the prior year.  Cost of sales is primarily  research
and  development  costs and  material  and labor  associated  with our  HoMedics
development  agreement,  U.S. Navy Small Business  Innovative  Research Phase II
contract,  U.S. Army Small  Business  Innovative  Research  Phase I contract and
contract with a business jet manufacturer.

     Selling,  General  and  Administrative   Expenses.   Selling,  General  and
Administrative expenses for the year ended June 30, 2003 decreased $469,000 from
the prior year to $2.9 million.  The decrease was  principally  the result of an
$856,000  reduction  in  professional  services,  $108,000  reduction in general
research  and  development  expenses  and $27,000  reduction  in other  selling,
general  and  administrative   expenses  off  set  by  a  $511,000  increase  in
compensation and benefits.  The reduction in professional services was primarily
the result of Daniel R. Dwight, our President and Chief Operating  Officer,  and
Richard F. Tusing,  our Chief Operating  Officer,  terminating  their consulting
agreements with Kronos in November 2001 and January 2003, respectively,  and the
completion of a 12 month consulting  agreement with the Eagle Rock Group, LLC in
March 2003. The increase in  compensation  and benefits was primarily the result
of Messrs.  Dwight and Tusing entering into employment  contracts with Kronos in
November 2001 and January 2003, respectively.

Consolidated Balance Sheet as of June 30, 2003

     Our total  assets at June 30,  2003 were $3.2  million  compared  with $2.4
million at June 30,  2002.  Total assets at June 30, 2003 and June 30, 2002 were
comprised  primarily  of  $2.5  million  and  $2.2  million,   respectively,  of
patents/intellectual  property.  Total current  assets at June 30, 2003 and 2002
were $724,000 and $123,000,  respectively,  while total current  liabilities for
those same periods were $1.9 million and $1.8 million, respectively,  creating a
working  capital  deficit of $1.2  million and $1.7  million at each  respective
period end. This working  capital  deficit is primarily due to accrued  expenses
and payables to directors and officers.

     Shareholders'  deficit as of June 30, 2003 and 2002 was ($1.2  million) and
($385,000),  respectively,  representing a decrease of $849,000. The decrease in
shareholders'  equity is  primarily  the result of incurring a $2.8 million loss
from continuing  operations for the twelve months ended June 30, 2003, offset by
the sale and issuance,  net of offering  costs,  of $986,000 of common stock and
the sale of $893,000 of unexercised warrants.

Consolidated Statement of Operations for the Year Ended June 30, 2002

     Our net loss for the year ended  June 30,  2002 was $2.8  million  compared
with a net loss of $9.9 million for the prior year. The decrease in the net loss
for the year ended June 30, 2002, as compared to the prior year,  was the result
of a gain  on  the  disposition  of  Aperion  Audio,  which  was a  discontinued
operation and not associated with the air purification business, for $682,000 in
the year ended  June 30,  2002  compared  with a loss of $6.3  million  from the
operation and disposition of discontinued operations for the year ended June 30,
2001. The net loss from continuing  operations  decreased  $107,000 for the year
ended June 30, 2002 compared to the prior year.

     Revenue.  Revenues are generated  through  sales of  Kronos(TM)  devices at
Kronos Air  Technologies,  Inc.  Revenues  for the year ended June 30, 2002 were
$93,000 compared with $95,000 in the prior year.  Fiscal year 2002 revenues were
primarily  from  our  U.S.  Navy  Small  Business  Innovative  Research  Phase I
contract.

                                       26

<PAGE>

     Cost of Sales.  Cost of sales for the year ended June 30,  2002 was $78,000
compared  with $63,000 for the prior year.  Cost of sales is primarily  research
and development  costs  associated with our U.S. Navy Small Business  Innovative
Research Phase I contract.

     Selling,  General  and  Administrative   Expenses.   Selling,  General  and
Administrative  expenses for the year ended June 30, 2002 decreased $10,000 from
the prior year to $3.4 million of which  professional  services  paid/accrued to
management   consultants   ($1.6  million),   legal  ($215,000)  and  accounting
professionals  ($186,000)  engaged  by the  Company  were  $2.0  million  or 60%
compared to 22% in the prior year. The majority of the consulting  fees expensed
in the  current  year  ($943,000)  relate to the value of  warrants  and options
issued for consulting  services.  Compensation and benefits were $520,000 or 15%
compared to 35% in the prior year,  depreciation  and  intangibles  amortization
were $287,000 or 8% compared to 17% in the prior year,  research and development
was  $224,000  or 7% compared  to 9% in the prior  year,  and other  general and
administrative expenses were $338,000 or 10% compared to 17% in the prior year.

Consolidated Balance Sheet as of June 30, 2002

     Our total  assets at June 30,  2002 were $2.4  million  compared  with $3.1
million at June 30, 2001. Total assets at June 30, 2002 were comprised primarily
of $2.2 million of patents/intellectual  property. Total assets at June 30, 2001
were comprised  primarily of $2.4 million of  patents/intellectual  property and
$521,800 of deferred  financing fees.  Total current assets at June 30, 2002 and
2001 were $123,000 and $70,000,  respectively,  while total current  liabilities
for  those  same  periods  were $1.8  million  and $1.9  million,  respectively,
creating a working  capital  deficit of $1.7 million at each  respective  period
end.  This  working  capital  deficit is primarily  due to accrued  expenses for
compensation,   management   consulting   and   other   professional   services.
Shareholders'  equity  (deficit) as of June 30, 2002 and 2001 was $(385,000) and
$479,000, respectively, representing a decrease of $0.8 million. The decrease in
shareholders'  equity  (deficit)  is  primarily  the result of  incurring a $2.8
million loss from  continuing  operations  for the twelve  months ended June 30,
2002, offset by the sale and issuance, net of offering costs, of $1.7 million of
common stock.

LIQUIDITY AND CAPITAL RESOURCES

     Historically,  we have relied  principally  on the sale of common  stock to
finance our operations.

     On May 9,  2003,  we  closed on a $3.5  million  secured  financing  from a
strategic  customer,  HoMedics,  Inc.  $2.5  million was advanced to Kronos upon
execution of the  agreement  and $1.0 million will be advanced upon the start of
production for the Kronos-based air purification product line to be marketed and
distributed by HoMedics.

     On May 7, 2002, we completed a successful  private  placement of our common
stock  through which we sold  1,971,176  shares of our common stock at $0.17 per
share to seven  accredited  investors  for  consideration  of $335,100  cash and
1,429,695  shares of our common  stock at $0.17 per share to six  members of our
management  team  and / or  directors  for  consideration  of  $39,987  cash and
conversion of $203,061 of debt into equity.

                                       27

<PAGE>

     Kronos SBIR  contracts  with the U. S.  Military,  including the U. S. Army
Phase I  Option  and  Phase  II and the U.  S.  Navy  Phase  II  contracts,  are
potentially worth up to $1.5 million in product  development and testing support
for Kronos Air  Technologies.  In November  2002,  Kronos Air  Technologies  was
awarded  by the U. S. Navy for a Small  Business  Innovation  Research  Phase II
contract worth $580,000, plus an option of $150,000. As of June 30, 2003, Kronos
has received $150,000 in funding under the U. S. Navy SBIR Phase II contract. In
July 2003,  Kronos Air  Technologies  obtained a Pre-Award notice from the U. S.
Army  for a SBIR  II  contract  worth  $730,000.  In  August  2003,  Kronos  Air
Technologies  obtained  notice  from the U. S.  Army for the  option of the SBIR
Phase I contract worth $50,000.  To earn these future  amounts,  we will have to
complete the required work.

     Net cash flow used in  operating  activities  was $2.0 million for the year
ended June 30, 2003. We were able to satisfy most of our cash  requirements  for
this period from the proceeds of secured debt facility and the issuance and sale
of our common stock.

     On June 19, 2001, we entered into a common stock  purchase  agreement  with
Fusion Capital. Pursuant to this agreement, we have sold approximately 6 million
shares of our common stock and have received $1,339,000.

     On August 12, 2002, we terminated our common stock purchase agreement dated
June 19, 2001 and entered into a new common stock purchase agreement with Fusion
Capital.  Pursuant to the 2002 common stock purchase  agreement,  Fusion Capital
has agreed to  purchase on each  trading  day during the term of the  agreement,
$10,000 of our common stock or an aggregate of $6.0 million. The $6.0 million of
our common stock can be purchased over a 30-month period, subject to a six-month
extension or earlier  termination at our sole  discretion and subject to certain
events.  The  purchase  price of the  shares of common  stock will be equal to a
price based upon the future  market price of our common stock  without any fixed
discount to the  then-current  market  price.  Fusion  Capital is  obligated  to
purchase  shares under the  agreement as long as the share price exceeds a floor
of $0.10.  However,  there can be no assurance of how much cash we will receive,
if any, under the common stock purchase agreement with Fusion Capital.

     We estimate that achievement of our business plan will require  substantial
additional  funding.  We anticipate  that the source of funding will be obtained
pursuant to the senior debt funding from HoMedics,  Fusion  Capital  transaction
and/or the sale of additional  equity in our Company,  cash flow  generated from
government grants and contracts,  which includes funding from the Small Business
Innovation  Research  contracts  sponsored  by the United  States  Navy and Army
awarded  to Kronos  Air  Technologies,  and cash flow  generated  from  customer
revenue.  Pursuant to  discussions  with the companies that we will be licensing
our technology,  we anticipate generating cash flow in our 2004 fiscal year from
advance funding from these companies for production  development work. There are
no  assurances  that these  sources of funding will be adequate to meet our cash
flow needs.

GOING CONCERN OPINION

     Our  independent  auditors have included an explanatory  paragraph to their
audit opinions issued in connection with our 2003 and 2002 financial  statements
that states that we do not have  significant  cash or other  material  assets to
cover our operating costs. Our ability to obtain additional funding will largely
determine our ability to continue in business. Accordingly, there is substantial
doubt about our ability to continue as a going concern. Our financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

     We can  make no  assurance  that we will be able to  successfully  develop,
manufacturer and sell commercial  products on a broad basis. While attempting to
make this transition,  we will be subject to all the risks inherent in a growing
venture,  including,  but not limited  to, the need to develop  and  manufacture
reliable and  effective  products,  develop  marketing  expertise and expand our
sales force.

                                       28

<PAGE>



ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      Our consolidated financial statements appear beginning at page F-1.


              KRONOS ADVANCED TECHNOLOGIES, INC. AND SUBSIDIARIES

               CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2003



 Report of Independent Certified Public Accountants                      F-2

 Report of Independent Certified Public Accountants                      F-3

 Consolidated Balance Sheets as of June 30, 2003 and June 30, 2002       F-4

 Consolidated Statements of Operations for the years ended June 30,
     2003 and 2002                                                       F-5

 Consolidated Statements of Cash Flows for the years ended June 30,
     2003 and 2002                                                       F-6

 Consolidated Statement of Changes of Shareholders' Deficit for years
     ended June 30, 2003 and 2002                                        F-7

 Notes to Consolidated Financial Statements                         F-8 to F-23



















                                      F-1



<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Kronos Advanced Technologies, Inc.

     We have  audited  the  accompanying  consolidated  balance  sheet of Kronos
Advanced  Technologies,  Inc. and Subsidiary as of June 30, 2003 and the related
consolidated statements of operations,  shareholders' deficit and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

     We conducted our audit in  accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material  misstatement.  An audit includes examining on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,   the  consolidated   financial  position  of  Kronos  Advanced
Technologies,  Inc.  and  Subsidiary  as of June 30,  2003 and the  consolidated
results  of its  operations  and its  cash  flows  for the  year  then  ended in
conformity with accounting principles generally accepted in the United States of
America.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming  that the Company  will  continue as a going  concern.  The Company has
incurred  significant  losses and has a working capital deficiency as more fully
described in Note 3. These issues among others raise substantial doubt about the
Company's ability to continue as a going concern.  Management's  plans in regard
to these  matters  are also  described  in Note 3.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.



                                            /s/Sherb & Co., LLP
                                           ----------------------------
                                               Sherb & Co., LLP
                                               Certified Public Accountants

New York, New York
September 19, 2003

                                      F - 2
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
Kronos Advanced Technologies, Inc.

We have audited the accompanying  consolidated  balance sheet of Kronos Advanced
Technologies,  Inc. and its  subsidiaries  as of June 30, 2002,  and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Kronos
Advanced  Technologies,  Inc. and its  subsidiaries as of June 30, 2002, and the
consolidated  results of their operations and their  consolidated cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As shown in the financial  statements,
the Company incurred a net loss from continuing  operations of $3,465,985 during
the year ended  June 30,  2002,  and,  as of that date,  the  Company's  current
liabilities  exceeded its current  assets by $1,653,906.  These  factors,  among
others,  as discussed in Note 3 of Notes to Consolidated  Financial  Statements,
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 3. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.

/s/  GRANT THORNTON LLP

Portland, Oregon
September 4, 2002

                                       F-3


<PAGE>

                        KRONOS ADVANCED TECHNOLGIES, INC.
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                          June 30,                     June 30,
                                                           2003                          2002
                                                   --------------------         --------------------
 Assets

 Current Assets
<S>                                                <C>                          <C>
     Cash                                          $           641,178          $            21,510
     Accounts receivable, net                                   48,766                          700
     Prepaids                                                   34,135                      101,029
                                                   --------------------         --------------------
                Total Current Assets                           724,079                      123,239
                                                   --------------------         --------------------

 Property and Equipment                                         74,673                       62,723
     Less: Accumulated Depreciation                            (46,631)                     (33,348)
                                                   --------------------         --------------------
                Net Property and Equipment                      28,042                       29,375
                                                   --------------------         --------------------

 Other Assets
     Intangibles                                             2,487,473                    2,213,917
                                                   --------------------         --------------------
                Total Other Assets                           2,487,473                    2,213,917
                                                   --------------------         --------------------

 Total Assets                                      $         3,239,594          $         2,366,531
                                                   ====================         ====================

 Liabilities and Shareholders' Deficit

 Current Liabilities

     Accrued expenses and payables to
      directors and officers                       $         1,172,015          $           886,447
     Accounts payable                                          218,338                      254,201
     Accrued expenses                                          174,677                      100,797
     Deferred revenue                                          133,751                         -
     Notes payable, current portion                            185,670                      535,700
                                                   --------------------         --------------------
                Total Current Liabilities                    1,884,451                    1,777,145
                                                   --------------------         --------------------
 Long Term Liabilities
     Notes payable                                           2,676,479                      225,466
                Discount on notes payable                     (893,046)                        -
                                                   --------------------         --------------------
                Total Long Term Liabilities                  1,783,433                      225,466
                                                   --------------------         --------------------
                Total Liabilities                            3,647,884                    2,002,611
                                                   --------------------         --------------------

 Redeemable Warrants                                           805,300                      748,500
                                                   --------------------         --------------------

 Shareholders' Deficit
     Common stock, authorized 500,000,000
      shares of $.001 par value
      Issued and outstanding -
      53,836,524 and 43,937,907, respectively                   53,837                       43,938
     Capital in excess of par value                         16,240,378                   14,371,113
     Deferred equity compensation                                 -                         (41,668)
     Accumulated deficit                                   (17,527,805)                 (14,757,963)
                                                   --------------------         --------------------
                Total Shareholders' Deficit                 (1,233,590)                    (384,580)
                                                   --------------------         --------------------

 Total Liabilities and Shareholders' Deficit       $         3,239,594          $         2,366,531
                                                   ====================         ====================

</TABLE>





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

                                       F-4

<PAGE>



                        KRONOS ADANCED TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                 Year ended June 30,
                                                         ---------------------------------
                                                             2003             2002
                                                         ---------------- ----------------

<S>                                                      <C>                <C>
 Sales                                                   $      558,590     $      92,589
 Cost of sales                                                  314,496            77,589
                                                         ---------------- ----------------
 Gross Profit                                                   244,094            15,000
                                                         ---------------- ----------------

 Selling, General and Administrative expenses

     Compensation and benefits                                1,031,375           520,021
     Research and development                                   116,251           224,086
     Professional services                                    1,156,903         2,012,485
     Depreciation and amortization                              284,647           286,696
     Facilities                                                  96,579            83,881
     Other selling general and administrative expenses          226,716           253,935
                                                         ---------------- ----------------
 Total Selling, General and Administrative expenses           2,912,471         3,381,104
                                                         ---------------- ----------------

 Net Operating Loss                                          (2,668,377)       (3,366,104)
 Other Income / (Expense)                                        83,380               639
 Interest Expense                                              (184,845)         (100,520)
                                                         ---------------- ----------------
 Net Loss Before Taxes                                       (2,769,842)       (3,465,985)

 Provision for Taxes                                               -                 -
                                                         ---------------- ----------------

Net Loss From Continuing Operations                          (2,769,842)       (3,465,985)
Gain on disposal of discontinued operations,
 net of income tax of $0                                           -              681,808

                                                         ---------------- ----------------
Net Loss                                                 $   (2,769,842)  $    (2,784,177)
                                                         ================ ================

 Basic Loss Per Share:
        Loss from continuing operations                  $        (0.06)  $         (0.09)
        Income from discontinued operations                       -                  0.02
                                                         ---------------- ----------------
        Net Loss                                         $        (0.06)  $         (0.07)
                                                         ================ ================

 Diluted Loss Per Share:
        Loss from continuing operations                  $        (0.06)  $        (0.09)
        Income from discontinued operations                       -                 0.02
                                                         ---------------- ----------------
        Net Loss                                         $        (0.06)  $        (0.07)
                                                         ================ ================

Weighted Average Shares Outstanding                          48,258,340       37,088,274
                                                         ================ ================


</TABLE>


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

                                       F-5

<PAGE>

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

                                                                         For the year ended June 30,
                                                                  ------------------------------------------
                                                                         2003                   2002
                                                                  --------------------    ------------------
<S>                                                               <C>                     <C>
  CASH FLOWS FROM OPERATING ACTIVITIES

          Net loss from continuing operations                     $        (2,769,842)    $      (3,465,985)
          Adjustments to reconcile net loss to net cash
                 used in by operations
                 Depreciation and amortization                                284,647               286,696
                 Common stock issued for compensation/services                119,925               805,167
          Change In:
                 Accounts receivable                                          (48,066)                 (700)
                 Prepaid expenses and other assets                             66,894               (63,350)
                 Deferred revenue                                             133,751                  -
                 Accounts payable                                            (211,589)              826,700
                 Accrued expenses and other liabilities                       411,059               108,475
                                                                  --------------------    ------------------
     Net cash provided by Continuing Operations                            (2,013,221)           (1,502,997)
                                                                  --------------------    ------------------
CASH FLOWS FROM INVESTING ACTIVITIES

                 Purchases of property and equipment                          (11,950)                 -
                 Investment in patent protection                               (1,500)              (53,757)
                                                                  --------------------    ------------------
     Net cash provided by Investing Activities                                (13,450)              (53,757)
                                                                  --------------------    ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
                 Issuance of common stock                                     723,000             1,649,695
                 Proceeds from short-term borrowings                          283,889               130,700
                 Repayments of short-term borrowings                         (760,550)             (155,000)
                 Proceeds from long-term borrowings                         2,400,000                  -
                 Deferred finance costs paid                                     -                  (79,750)
                                                                  --------------------    ------------------
     Net cash provided by Financing Activities                              2,646,339             1,545,645
                                                                  --------------------    ------------------
NET (DECREASE) INCREASE IN CASH                                               619,668               (11,109)
CASH
     Beginning of period                                                       21,510                32,619
                                                                  --------------------    ------------------
     End of period                                                $           641,178     $          21,510
                                                                  ====================    ==================

Supplemental schedule of non-cash investing and financing
 activities:
     Interest paid in cash                                        $              -        $         22,149
     Income taxes                                                 $              -        $           -
Non-cash investing and financing activities:
     Debt satisfied with stock                                    $           206,000     $        696,195
     Issuance of notes payable for accrued payables               $              -        $        471,566
     Issuance of stock in legal settlement                        $              -        $        115,000
     Acquisition of intellectual property with stock              $           273,420     $           -
     Issuance of warrants for secured financing                   $           100,000     $           -


</TABLE>







    The accompanying notes are an integral part of this financial statement.

                                       F-6

<PAGE>

                        KRONOS ADANCED TECHNOLOGIES, INC.
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>


                                                                                                                           Total
                                                           Common Stock       Capital in                     Deferred  Shareholders'
                                                      ---------------------  Excess of Par   Accumulated     equity       Equity
                                                        Shares      Amount       Value        Deficit      compensation   (Deficit)
                                                      ----------- ---------- ------------- -------------- ------------ -------------
<S>              <C> <C>                               <C>        <C>        <C>           <C>            <C>          <C>
 BALANCE at June 30, 2001                              34,000,978 $   34,001 $  12,418,350 $ (11,973,785) $     -      $    478,566

        Shares issued on July 6, 2001 for cash            238,806        239        79,761          -           -            80,000
        Shares issued on July 20, 2001 as
         compensation                                         250       -              113          -           -               113
        Shares issued on October 1, 2001 for
         consulting services                              360,000        360       100,440          -           -           100,800
        Shares issued on October 1, 2001 as
         compensation                                       2,250          2         1,446          -           -             1,448
        Shares issued on October 1, 2001 for cash       1,000,000      1,000       446,982          -           -           447,982
        Shares issued on November 30, 2001 to Fusion
         Capital for cash                                 100,000        100        23,400          -           -            23,500
        Shares issued on December 10, 2001 to Fusion
         Capital for cash                                  50,000         50        10,950          -           -            11,000
        Shares issued on December 12, 2001 to Fusion
         Capital for cash                                 100,000        100        20,900          -           -            21,000
        Shares issued on December 13, 2001 to Fusion
         Capital for cash                                  75,000         75        16,050          -           -            16,125
        Shares issued on December 14, 2001 to Fusion
         Capital for cash                                 500,000        500       107,000          -           -           107,500
        Shares issued in January 2002 to Fusion
         Capital for cash                                 925,000        925       194,700          -           -           195,625
        Shares issued in February 2002 to Fusion
         Capital for cash                                 350,000        350        69,150          -           -            69,500
        Shares issued in March 2002 to Fusion Capital
         for cash                                       1,683,333      1,684       260,691          -           -           262,375
        Shares issued in April 2002 to Fusion Capital
         for cash                                         178,571        179        24,821          -           -            25,000
        Shares issued in May 2002 to Fusion Capital
         for cash                                          97,848         98        14,903          -           -            15,001
        Shares issued on May 31, 2002 for cash          2,206,394      2,206       372,881          -           -           375,087
        Shares issued on May 31, 2002 for payment of
         debt                                           1,194,477      1,194       201,867          -           -           203,061
        Shares issued on May 31, 2002 in settlement of
         Foster & Price litigation                        375,000        375       213,375          -           -           213,750
        Shares issued on June 7, 2002 in Aperion Audio
         sale and settlement                              500,000        500       114,500          -           -           115,000
        Stock options granted at June 30, 2002 for
         consulting services                                 -          -          279,384          -           -           279,384
        Amortization of deferred financing fees              -          -         (600,550)         -           -          (600,550)
        Deferred equity compensation at June 30, 2002        -          -             -             -        (41,668)       (41,668)
        Net loss for the year ended June 30, 2002            -          -             -       (2,784,177)       -        (2,784,177)
                                                      ----------- ---------- ------------- -------------- ------------ -------------
  BALANCE at June 30, 2002                             43,937,907    43,938     14,371,113   (14,757,963)    (41,668)      (384,580)

                                       F-7

<PAGE>

        Shares issued in July 2002 for cash               150,000       150         26,100          -           -            26,250
        Shares issued in August 2002 for cash             790,248       790        116,928          -           -           117,718
        Shares issued in September 2002 for cash          263,141       263         38,769          -           -            39,032
         Stock options granted at Sept 30, 2002 for
         consulting services                                                         5,674          -           -             5,674
        Shares issued in October 2002 for cash          1,750,000     1,750        173,250          -           -           175,000
        Shares issued in November 2002 for cash           189,884       190         24,810          -           -            25,000
        Shares issued in December 2002 for cash           350,000       350         34,650          -           -            35,000
        Shares issued in December 2002 for debt
         reduction                                        306,000       306         33,854          -           -            34,160
        Stock options granted at December 31, 2002 for
         consulting services                                                         5,225          -           -             5,225
        Shares issued in January 2003 for cash          1,000,000     1,000         99,000          -           -           100,000
        Shares issued in February 2003 for cash           850,000       850         84,150          -           -            85,000
        Shares issued in March 2003 for cash              704,811       705         73,263          -           -            73,968
        Stock options granted at March 31, 2002 for
         consulting services                                 -         -             1,955          -           -             1,955
        Amortization of deferred equity compensation                                                -         41,668         41,668
        Shares issued in April 2003 for cash              545,000       545         53,955          -           -            54,500
        Shares issued for acquisition of intellectual
         property rights                                2,790,000     2,790        270,630          -           -           273,420
        Warrants issued to HoMedics                          -         -           993,046          -           -           993,046
        Costs associated with equity  financing              -         -          (216,055)         -           -          (216,055)
        Shares issued in June for consulting services     209,533       210         34,489          -           -            34,699
        Options issued in June for consulting services       -         -            15,572          -           -            15,572
        Net loss for the year ended June 30, 2003            -         -              -       (2,769,842)       -        (2,769,842)
                                                      ----------- ---------- ------------- -------------- ------------ -------------
 BALANCE at June 30, 2003                             53,836,524  $ 53,837   $  16,240,378$  (17,527,805)$       -    $  (1,233,590)
                                                      =========== ========== ============= ============== ============ =============
</TABLE>

    The accompanying notes are an integral part of this financial statement.

                                     F-7(a)


<PAGE>



               KRONOS ADVANCED TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, we changed the Company  ticker symbol to "KNOS." We
have  confined  most  of our  recent  activities  to  develop  the  Kronos  (TM)
technology.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Reclassifications.   Certain  reclassifications  have  been  made  to  the  2002
financial statements in order to conform to the 2003 presentation. None of these
reclassifications  affected previously  reported financial position,  results of
operations or cash flows of the Company.

Principles  of  Consolidation.  The  consolidated  financial  statements  of the
Company  include  those of the Company and of each of its  subsidiaries  for the
periods  in  which  the  subsidiaries  were  owned/held  by  the  Company.   All
significant  intercompany  accounts and transactions have been eliminated in the
preparation of the consolidated  financial statements.  At June 30, 2003, we had
only one subsidiary, Kronos Air Technologies, Inc.

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

Concentrations  of Credit  Risk.  Financial  instruments  which can  potentially
subject the Company to  concentrations  of credit risk  consist  principally  of
trade  receivables.  The Company  manages its exposure to risk  through  ongoing
credit  evaluations of its customers and generally does not require  collateral.
The Company  maintains an allowance for doubtful  accounts for potential  losses
and does not  believe it is exposed to  concentrations  of credit  risk that are
likely to have a material adverse impact on the Company's  financial position or
results of operations.  We have cash in a bank account in excess of the $100,000
maximum amount insured by the Federal Deposit Insurance (FDIC).

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.

Accounts  Receivable.  The  Company  provides an  allowance  for losses on trade
receivables based on a review of the current status of existing  receivables and
management's  evaluation of periodic aging of accounts.  Accounts receivable are
shown net of  allowances  for doubtful  accounts of $0 at June 30, 2003 and June
30, 2002. The Company charges off accounts  receivable against the allowance for
losses when an account is deemed to be uncollectable.

                                       F-8

<PAGE>

Property  and   Equipment.   Property  and   equipment  are  recorded  at  cost.
Depreciation  is provided over the estimated  useful lives of the assets,  which
range from three to seven years. Expenditures for major renewals and betterments
that extend the  original  estimated  economic  useful  lives of the  applicable
assets are  capitalized.  Expenditures  for normal repairs and  maintenance  are
charged to expense as incurred. The cost and related accumulated depreciation of
assets sold or otherwise disposed of are removed from the accounts, and any gain
or loss is included in operations.

Intangibles.  The Company uses  assumptions in establishing  the carrying value,
fair  value and  estimated  lives of our  long-lived  assets and  goodwill.  The
criteria used for these evaluations include management's estimate of the asset's
continuing ability to generate positive income from operations and positive cash
flow in  future  periods  compared  to the  carrying  value  of the  asset,  the
strategic  significance  of any  identifiable  intangible  asset in our business
objectives,  as well as the  market  capitalization  of the  Company.  Cash flow
projections  used for  recoverability  and impairment  analysis use the same key
assumptions and are consistent with projections used for internal budgeting, and
for lenders and other third  parties.  If assets are  considered to be impaired,
the  impairment  recognized  is the  amount by which the  carrying  value of the
assets  exceeds  the  fair  value  of  the  assets.  Useful  lives  and  related
amortization  or  depreciation  expense are based on our  estimate of the period
that the assets will generate  revenues or otherwise be used by Kronos.  Factors
that would influence the likelihood of a material change in our reported results
include  significant  changes in the asset's  ability to generate  positive cash
flow,  loss of legal  ownership or title to the asset, a significant  decline in
the economic and competitive environment on which the asset depends, significant
changes in our strategic business objectives, and utilization of the asset.

Income Taxes.  Income taxes are accounted for in accordance  with the provisions
of SFAS No. 109.  Deferred tax assets and  liabilities  are  recognized  for the
future tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective  tax bases.  Deferred tax assets and  liabilities  are measured using
enacted  tax rates  expected  to apply to  taxable  income in the years in which
those temporary  differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.  Valuation allowances are
established,  when  necessary,  to reduce  deferred  tax  assets to the  amounts
expected to be realized, but no less than quarterly.

Research and Development Expenses. Costs related to research and development are
charged to research and development expense as incurred.

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

Revenue  Recognition.  The Company  recognizes  revenue in accordance with Staff
Accounting Bulletin (SAB) 101, 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

                                       F-9

<PAGE>

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 Company's stock are valued using the Black-Scholes option model.

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

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

     The Company is required  under SFAS 123 to disclose  pro forma  information
regarding  option  grants made to its  employees  based on  specified  valuation
techniques that produce estimated  compensation  charges. For the purpose of pro
forma disclosures, the estimated fair value of the options is amortized over the
vesting period. The pro forma information is as follows:

                                                     June 30,
                                  ----------------------------------------------
                                           2003                   2002
                                  --------------------    ----------------------
                                                Pro                       Pro
                                   Reported     Forma       Reported     Forma
                                  --------- ----------    ----------- ----------
Net income (loss)                 $  (2,770) $ (3,011)    $  (2,784)  $  (3,602)
Earnings (loss) per Share:
--------------------------------      (0.06)    (0.06)        (0.07)      (0.10)
         Basic                        (0.06)    (0.06)        (0.07)      (0.10)
         Diluted

     The fair value of each option grant is estimated on the date of grant using
the Black  Scholes  option-pricing  method with the following  weighted  average
assumptions used for grants as of June 30, 2003:

                                      F-10

<PAGE>

                                           2003                   2002
                                  --------------------    ----------------------
Risk free interest rate                    4.0%                   4.0%
Expected dividend yield                      0%                     0%
Expected lives                        3 to 10 years           3 to 10 years
Expected volatility                        140%                   143%


Other  Assets.  In 2002,  Deferred  Financing  costs  related to a common  stock
purchase agreement have been offset against the proceeds on a  dollar-for-dollar
basis. Financing costs related to a financing where the proceeds are certain and
are  received  at  established  intervals  will be offset  ratably  against  the
proceeds as they are received.

Recent Accounting Pronouncements.

     In August 2002, the Financial  Accounting  Standards  Board issued SFAS No.
146,  "Accounting for Costs Associated with Exit, or Disposal  Activities." This
Statement addresses financial accounting and reporting for costs associated with
exit or disposal activities.  The adoption of SFAS 146 had no significant impact
on the Company's financial  statements.  This statement is effective for exit or
disposal activities initiated after December 31, 2002.

     In December 2002, the Financial  Accounting Standards Board issued SFAS No.
148,  "Accounting for Stock-Based  Compensation--Transition  and  Disclosure--An
Amendment  of FASB  Statement  No.  123." This  Statement  amends  SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  to provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation.  In addition,  this Statement amends the
disclosure  requirements  of Statement 123 to require  prominent  disclosures in
both annual and interim financial  statements about the method of accounting for
stock-based employee  compensation and the effect of the method used on reported
results. The the adoption of SFAS 148 had no significant impact on the Company's
financial statements.  This statement is effective for interim periods beginning
after December 15, 2002 and for fiscal years ending after December 15, 2002.

     In April 2003,  the Financial  Accounting  Standards  Board issued SFAS No.
149, "Amendment of FASB Statement No. 133 on Derivative  Instruments and Hedging
Activities."  This  Statement  amends and  clarifies  financial  accounting  and
reporting for derivative  instruments,  including certain derivative instruments
embedded in other contracts  (collectively  referred to as derivatives)  and for
hedging  activities  under FASB  Statement No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities."  The Company believes the adoption of SFAS
149 will have not significant impact on its financial statements.  The statement
is effective for contracts entered into or modified after June 30, 2003.

     In May 2003, the Financial  Accounting Standards Board issued SFAS No. 150,
"Accounting  for Certain  Financial  Instruments  with  Characteristics  of both
Liabilities and Equity." This Statement  establishes standards for how an issuer
classifies and measures certain financial  instruments with  characteristics  of
both  liabilities  and equity.  It requires that an issuer  classify a financial
instrument  that is  within  its  scope  as a  liability  (or an  asset  in some
circumstances).  SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003 and,  otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. We are currently  evaluating
the impact that the adoption of SFAS No. 150 will have on our financial position
and  results  of   operations,   however  at  June  30,  2003  the  Company  has
approximately $805,300 in Redeemable Warrants that may be potentially classified
as a liability.

                                      F-11

<PAGE>

NOTE 3 - REALIZATION OF ASSETS

     The accompanying 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 current year ended June 30, 2003. In addition, the Company has used,
rather than provided cash in its operations.  The Company is currently using its
resources to raise capital necessary 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 financial statements do not include any adjustments relating to
the  recoverability  and classification of recorded asset amounts or amounts and
classification  of  liabilities  that might be  necessary  should the Company be
unable to continue in existence.

     Management has taken the following  steps with respect to its operating and
financial requirements,  which it believes are sufficient to provide the Company
with the ability to continue in existence:

     HoMedics Licensing Agreement. In October 2002, Kronos Air Technologies,
     Inc., and HoMedics USA, Inc. executed a multiyear, multi-million-dollar
     Licensing Agreement to bring Kronos(TM) proprietary technology to the
     consumer. The agreement provides for exclusive North American, Australian
     and New Zealand retail distribution rights for next generation consumer air
     movement and purification products based on the patented Kronos(TM)
     technology. In November 2002, Kronos and HoMedics executed a Development
     Agreement to provide Kronos with the financial resources necessary to
     complete commercialization of the initial Kronos(TM)-based consumer product
     line. Kronos is working with HoMedics' engineers, designers, manufacturers,
     and marketing and sales personnel to complete the initial product line for
     sales and distribution. HoMedics is focused on product design and features,
     completion of manufacturing tooling and assembly line processes, and
     product packaging, including prominent display of the "Kronos" brand.
     Kronos is focused on completion of the technical hardware and related power
     supplies for each of the products in the air purification product line, as
     well as on developing product features and benefits unique to this initial
     consumer product line.

     The initial term of the agreement is three and one half years with the
     option to extend the agreement for six additional years. Kronos will be
     compensated through an initial royalty payment and ongoing quarterly
     royalty payments based on a percentage of sales. HoMedics will pay minimum
     royalty payments of at least $2 million during the initial term and
     on-going royalty payments to extend the agreement. Kronos will retain full
     rights to all of its intellectual property.

     US Navy SBIR.  In  November  2002,  Kronos was  awarded by the U. S. Navy a
     Small Business Innovation Research Phase II contract. The Phase II contract
     (commercialization  phase) is an  extension  of the Phase I and the Phase I
     Option work that began in 2001. It is intended that the Kronos(TM)  devices
     being  developed  under this  contract  will be embedded  in existing  HVAC
     systems in order to move air more efficiently than  traditional,  fan-based
     technology.  During Phase II, Kronos shall  develop,  produce and install a
     set of fully  controlled  devices  that  represent  a "cell" of an advanced
     distributive  air management  system with medium capacity airflow in a U.S.
     Navy  unique  environment.  The  "cell"  will  be  designed  to  be  easily
     adjustable  to  a  variety  of  parameters  such  as  duct  size,   airflow
     requirements, and air quality. As of June 30, 2003, U. S. Navy had provided
     Kronos  with  $150,000  in  funding  for this  effort  under  the  Phase II
     contract.

                                      F-12

<PAGE>

     HoMedics  provided  debt  financing.  In May 2003,  Kronos  entered into an
     agreement with HoMedics, Inc. for $3.5 million in financing, including $3.4
     million  in  secured  debt  financing  and  $100,000  for the  purchase  of
     warrants.  $2.5 million was paid to Kronos upon  execution of the agreement
     and $1.0  million will be paid upon the start of  production  as defined in
     the Licensing Agreement for the  Kronos(TM)-based  air purification product
     line to be marketed  and  distributed  by  HoMedics.  In  conjunction  with
     securing  this  financing,  Kronos and  HoMedics  agreed to  negotiate  the
     expansion of our relationship into additional Kronos(TM)-based  stand-alone
     consumer products,  including fans, heaters, humidifiers and dehumidifiers,
     as well as geographic expansion into Europe and Asia.

     Fusion  Capital.  During our year ended June 30,  2003,  we sold  6,543,273
     shares of our common stock to Fusion  Capital for $723,000  under the terms
     of our Common Stock Purchase  Agreements dated August 12, 2002 and June 19,
     2001.

NOTE 4 - BUSINESS COMBINATIONS

     On March 13, 2000, the Company  acquired Kronos Air  Technologies,  Inc. (a
development stage company),  a Nevada corporation.  Kronos Air Technologies is a
research and development  company having  headquarters  in Redmond,  Washington.
Kronos Air Technologies owns all of the intellectual property rights,  including
certain  patents and  patents  pending,  for a  technology  known as  "KronosTM"
(formerly  named the  "electron  wind  generator").  The  consideration  for the
acquisition  was  2,250,000  shares of the Company's  common stock.  The Company
acquired all of the issued and  outstanding  shares of Kronos Air  Technologies.
The  transaction  was  accounted  for using the purchase  method of  accounting,
accordingly,  the results of operations  from March 13, 2000 are included in the
consolidated  statement of operations.  The total purchase price of $3.3 million
was  determined  based upon the market value of stock issued which  incorporates
the restrictions on the  transferability  of the shares and was allocated to the
net  assets  acquired  based  on  their  fair  market  values  at  the  date  of
acquisition.  Of the  purchase  price,  $633,000  was  allocated  to  in-process
technology  which had not  reached  technological  feasibility  and which had no
alternative  future use which the Company  expensed as of the acquisition  date.
The remainder of the purchase price was allocated to purchased  technology ($2.1
million) and identifiable  intangibles ($0.6 million), which are being amortized
on a straight line basis over 10 years.

     On May 4, 2000, the Company  acquired  Aperion Audio.  The Company acquired
all of Aperion Audio's issued and  outstanding  shares in exchange for 1,298,701
shares of the Company's  common stock.  This subsidiary was sold on June 7, 2002
generating a gain (after impairment adjustment) of $0.7 million (See note 14).


NOTE 5 - PREPAID AND OTHER CURRENT ASSETS

       Prepaid and other current assets at June 30, consist of the following:

                                                   2003             2002
                                              ------------     -------------
        Lease deposits                        $     6,056      $     23,253
        Advances to employees                        -               15,000
        Prepaid insurance                          27,079            22,456
        Prepaid professional fees                   1,000            40,320
                                              ------------     -------------
        Prepaid and other current assets      $    34,135      $    101,029
                                              ============     =============

                                      F-13

<PAGE>

NOTE 6 - PROPERTY AND EQUIPMENT

       Property and equipment at June 30, consists of the following:

                                                   2003             2002
                                              ------------     -------------
           Leasehold improvements             $     5,139      $      5,139
           Office furniture and fixtures           54,061            54,061
           Machinery and equipment                 15,473             3,523
                                              ------------     -------------
                                                   74,673            62,723
           Less accumulated depreciation          (46,631)          (33,348)
                                              ------------     -------------
           Net property and equipment         $    28,042      $     29,375
                                              ============     =============

       Depreciation expense for the years ended June 30, 2003 and 2002 was
$13,283 and $15,332, respectively.

NOTE 7 - INTANGIBLES

       Intangible assets at June 30, consist of the following:
                                                   2003             2002
                                              ------------     -------------
             Marketing intangibles            $   587,711      $    587,711
             Purchased patent technology        2,669,355         2,125,935
             Developed patent technology          134,954           133,454
                                              ------------     -------------
                                                3,392,020         2,847,100
             Less accumulated amortization       (904,547)         (633,183)
                                              ------------     -------------
             Net intangible assets            $  2,487,473     $  2,213,917
                                              ============     =============

     Purchased  patent  technology  includes  property  that was acquired in the
Kronos  acquisition and relates to a patent  application that was pending at the
acquisition date. In January 2003, Kronos received formal  notification from the
US Patent and  Trademark  Office that this patent had been  examined and allowed
for issuance. In addition, it includes licensing rights on the above patent that
was purchased in May 2003.  The Company  purchased  license rights to fuel cell,
computer  and  microprocessor  applications  of the  Kronos(TM)  technology  for
$543,420  ($270,000  cash and  2,790,000  restricted  common  shares  valued  at
$273,420).

     Intangible  assets are being  amortized  on a  straight  line basis over 10
years.  Amortization  expense  for the years  ended  June 30,  2003 and 2002 was
$271,364 and $271,364, respectively.

                                      F-14

<PAGE>

NOTE 8 - ACCRUED EXPENSES

       Accrued expenses at June 30, consist of the following:
                                                   2003             2002
                                              ------------     -------------
  Accrued compensation                        $   539,656      $    154,928
  Accrued interest                                 24,467            29,038
  Accrued professional services                   131,696            80,795
                                              ------------     -------------
                                              $   695,819      $    264,761
                                              ============     =============

         Interest on unpaid salaries is accruing at the rate of 12% per annum.

NOTE 9 - NOTES PAYABLE

       The Company had the following obligations as of June 30, 2003 and 2002,

                                                   2003             2002
                                              ------------     -------------
  Obligation to Fusion Capital (1)            $      -         $    123,000
  Obligation to Aperion Audio (2)                    -              200,466
  Obligation to former Director (3)                84,725           360,000
  Obligation to The Eagle Rock Group (4)             -               70,000
  Obligation to HoMedics (5)                    2,400,000              -
  Obligation for finance leases (6)                72,424              -

  Obligations to others (7)                       305,000             7,700
                                              ------------     -------------
                                                2,862,149           761,166
 Less:
  Current portion                                 185,670           535,700

                                              ------------     -------------
  Total long term obligations net of
      current portion                         $ 2,676,479      $    225,466
                                              ============     =============

(1)      This is a non-interest bearing demand obligation and is only
         outstanding until Fusion Capital purchases enough stock from the
         Company to eliminate the advance position.

(2)      This note is  non-interest  bearing with an initial  payment of $35,000
         and monthly  payments  thereafter of $15,000 until the note is paid in
         full.  This note has been paid in full.

(3)      This note is to a former  director  of the  Company  and bears
         interest  at 12%.  The note calls for  quarterly  payments  of
         principal and interest of $10,000 until the note is paid in full.

(4)      This note bears  interest at the rate of 12%.  Payment  terms are for
         monthly  interest  only payments with the balance due on March 1, 2003.
         This note has been paid in full.

(5)      This note has a 5 year term and bears interest at 6%. In the first year
         no payments for interest or principal are required. Payments on accrued
         interest and principal are due quarterly thereafter. This note was
         issued along with warrants for the purchase of 13.4 million shares of
         the Company's common stock. As a result, the note was recorded with a
         discount of $893,000 that is being amortized against earnings using the
         interest rate method of amortization.

(6)      See note 10

                                      F-15

<PAGE>

(7)      There are two obligations to others. One is non-interest bearing in
         settlement of a claim by Dutchess Capital and requires a monthly
         payment of $5,000 until the remaining balance of $35,000 is paid in
         full. The other note, for $270,000, is for the acquisition of license
         rights of the Kronos(TM) technology (see note 7). This note is
         non-interest bearing with quarterly payments of $30,000 until paid in
         full.


NOTE 10 - LEASES

     The  Company  has  entered  into  a  non-cancelable   operating  lease  for
facilities. Rental expense was approximately $66,500 and $62,000 for years ended
June 30, 2003 and 2002,  respectively.  Future minimum lease payments under this
operating lease are $61,836 for the year ending June 30, 2004 and $0 thereafter.

     The Company has entered into capital leases for  equipment.  The leases are
for 36 months and contain  bargain  purchase  provisions so that the Company can
purchase the equipment at the end of each lease.  The  following  sets forth the
minimum  future  lease  payments  and present  values of the net  minimum  lease
payments under these capital leases:

         Year ended June 30,


         2004                                               $    36,337
         2005                                                    36,337
         2006                                                    28,112
                                                            ------------
         Total minimum lease payments                           100,786
         Less: Executory costs                                     -
                                                            ------------
         Net minimum lease payments                             100,786
         Less:  Imputed interest                                 28,362
                                                            ------------
         Present value of net minimum lease payments        $    72,424
                                                            ============

     In the year ended June 30, 2003,  the Company paid $4,008 in principal  and
$4,451 in interest on capital leases.  Of the equipment that was purchased using
capital leases,  $10,650 was capitalized and the remaining  $65,782 was expensed
through research and development and cost of sales.

NOTE 11 - EARNINGS (LOSS) PER SHARE

     As of June 30, 2003, there were outstanding  options to purchase 10,101,675
shares of Kronos common stock and  outstanding  warrants to purchase  15,792,342
shares of Kronos  common  stock.  These  options and warrants have been excluded
from the earnings per share calculation as their effect is anti-dilutive.  As of
June 30, 2002,  there were outstanding  options to purchase  7,641,975 shares of
Kronos common stock and  outstanding  warrants to purchase  1,900,000  shares of
Kronos  common  stock.  These  options and warrants  have been excluded from the
earnings per share calculation as their effect is anti-dilutive.

                                      F-16

<PAGE>

NOTE 12 - INCOME TAXES

       The composition of deferred tax assets and the related tax effects at
June 30, 2003 and 2002 are as follows:
                                                  2003                2002
                                              -------------      ---------------
Benefit from carryforward of capital and net
operating losses                              $  4,034,973       $    2,685,915

Other temporary differences                        188,206              220,332
Less:
  Valuation allowance                           (4,223,178)          (2,906,247)
                                              -------------      ---------------
  Net deferred tax asset                      $       -          $         -
                                              =============      ===============

     The other temporary differences shown above relate primarily to and accrued
and deferred compensation.  The difference between the income tax benefit in the
accompanying  statements of  operations  and the amount that would result if the
U.S. Federal statutory rate of 34% were applied to pre-tax loss is as follows:

<TABLE>
<CAPTION>

                                                                       June 30,
                                    --------------------------------------------------------------------------------
                                                     2003                                    2002
                                    --------------------------------------------------------------------------------
                                           Amount        % of pre-tax Loss         Amount        % of pre-tax Loss
                                    --------------------------------------------------------------------------------
Benefit for income tax at:
<S>                                        <C>                  <C>                <C>                 <C>
 Federal statutory rate                    $941,746             34.0%              $946,620            34.0%
State statutory rate                         55,208              2.0%                55,494              2.0%
Non-deductible expenses                     319,977             11.7%             (111,278)            (4.0)%
Acquired NOL and other                         -                 0.0%               248,489              8.9%
Increase in valuation allowance         (1,316,931)           (47.7)%           (1,139,325)           (40.9)%
                                    --------------------------------------------------------------------------------
                                    $         -                  0.0%        $        -                  0.0%
                                    ================================================================================
</TABLE>

     The   non-deductible   expenses  shown  above  related   primarily  to  the
amortization  of intangible  assets and to the differences in treatment of stock
options issued for compensation for financial and tax purposes.

     At June 30,  2003,  for  federal  income tax and  alternative  minimum  tax
reporting purposes, the Company has approximately $8.7 million of unused Federal
net operating  losses,  $2.3 million  capital  losses and $7.5 million State net
operating  losses  available for  carryforward to future years. The benefit from
carryforward  of such losses will expire in various  years between 2006 and 2023
and could be subject to limitations if  significant  ownership  changes occur in
the Company.

NOTE 13 - CONSULTING AGREEMENTS

     On July 9, 2001,  the Company  signed an agreement to utilize the strategic
planning  and business  plan  execution  services of The Eagle Rock Group,  LLC.
("Eagle  Rock").  Pursuant to the agreement  that the Company  entered into with
Eagle Rock,  the Company issued to Eagle Rock a ten-year  warrant  granting them
the right to  purchase  1,400,000  shares of the  Company's  common  stock at an
exercise price of $0.68 per share. The warrant contains redemption rights in the
event that we enter into a  transaction  that  results in a change of control of
the Company.  The warrant was valued at $686,000 using the Black-Scholes  option
valuation model and was initially  recorded as deferred equity  compensation and
amortized  into  current  period  professional  services  expense  at a rate  of
$137,200  per month over the term of the  agreement.  Amortization  for the year
ended  June 30,  2002 was  $686,000.  The shares  underlying  the  warrant  have
subscription  rights in the event that the  Company  issues any rights to all of
its  stockholders  to subscribe  for shares of the Company's  common  stock.  In
addition,  the warrant contains  redemption rights in the event that the Company
enters into a transaction that results in a change of control of the Company.

                                      F-17

<PAGE>

     On  October  1,  2001,  the  Company  entered  into a 15  month  consulting
agreement with Joshua B. Scheinfeld and Steven G. Martin for consulting services
with respect to operations,  executive  employment  issues,  employee  staffing,
strategy, capital structure and other matters as specified from time to time. As
consideration  for their  services,  the Company  issued  360,000  shares of its
common  stock.  In  accordance  with  EITF  96-18,   the  measurement  date  was
established  as the  contract  date of  October  1, 2001 as the  share  grant is
non-forfeitable and fully vested on that date. The stock was valued on that date
at $0.28 a share  (the  closing  price  for the  Company's  common  stock on the
measurement  date).  The stock  issuance , valued at $100,800  was recorded as a
prepaid  consulting fee and was amortized to  Professional  Fee Expense  ratably
over the 15 month term of the contract. Under this contract, expenses of $40,320
and  $60,480  were  recorded  for the  years  ended  June  30,  2003  and  2002,
respectively.

     Effective March 11, 2002, the Company entered into a new agreement with the
Eagle Rock Group for a nearly one year period ending March 1, 2003.  Pursuant to
the agreement, the Company issued a note for the outstanding balance of $120,000
due to The Eagle Rock Group,  which has been paid in full.  The Company  granted
Eagle Rock a ten-year warrant granting them the right to purchase 900,000 shares
of our common stock. Two hundred and fifty thousand  (250,000) warrant shares at
an exercise price of $0.42 and two hundred and fifty thousand  (250,000) warrant
shares at an  exercise  price of $0.  205 (the  closing  price of the  Company's
common  stock on March 1, 2002)  were  earned  over a  12-month  period and four
hundred  thousand  (400,000)  warrant shares at an exercise price of $0.145 were
earned upon securing of our Licensing  Agreement with  HoMedics.  These warrants
are  irrevocable  and are fully  vested.  For the 400,000  warrants  earned upon
securing the HoMedics  License  Agreement,  the measurement  date is October 22,
2003 as the warrants  became fully vested and  non-forfeitable  on the date. The
value assigned to these 400,000 warrants is $56,800 and was determined using the
Black-Scholes  option valuation model. The $56,800 was expensed in the period of
the measurement  date. For the other 500,000  warrants,  the measurement date is
March 1, 2002 as the warrants are fully vested and non-forfeitable on that date.
The value  assigned to these  warrants is $62,500 and was  determined  using the
Black-Scholes  option  valuation  model.  The 500,000  warrants  are for general
consulting services for a 12 month period. The $62,500 was expensed ratably over
the term of the consulting  contract.  Under this contract,  expenses of $98,467
and  $20,833  were  recorded  for the  years  ended  June  30,  2003  and  2002,
respectively.

NOTE 14 - DISCONTINUED OPERATIONS

     On September 14, 2001 the board approved a formal plan of action to sell or
otherwise dispose of Aperion Audio. The Company accrued $150,000 for anticipated
operating  losses during the  phase-out  period.  At June 30, 2001,  the Company
recognized an impairment loss on the intangible asset related to its acquisition
of Aperion Audio of $2,294,000. The sale of Kronos-owned shares of Aperion Audio
common stock was completed on June 7, 2002,  pursuant to a Settlement  Agreement
and Mutual  Release.  The Company sold the shares of Aperion Audio to an Aperion
Audio management group ("the Buyers"). Pursuant to the sale, the Buyers received
500,000 shares of the Company's common stock.  Under this  agreement/settlement,
the  Company  agreed to pay the  remaining  $213,900  of  capital  contributions
previously  agreed to at the time the Company acquired Aperion Audio, as well as
Aperion Audio's legal fees  associated  with the arbitration of $21,566,  in the
form of a  non-interest  bearing  note  payable  over  the  next 14  months.  In
exchange,  the Company  received a full release of all  liabilities,  and claims
including  the release of the potential  liability for  $3,750,000 of additional
consideration to be paid in shares of Kronos Advanced Technologies,  Inc. common
stock via an earn-out provision in the Acquisition  Agreement.  As a result, the
Company has no additional risk of loss or any other  commitments  other than the
$235,466 fixed  payment.  As of June 30, 2003 the note to Aperion Audio was paid
in full.

                                      F-18

<PAGE>

     At June 30, 2001,  when the Company wrote down to $0 the  intangible  asset
associated  with its  investment  in Aperion  Audio,  it created a negative book
value for this investment of approximately  $800,000.  The later sale of Aperion
resulted  in a gain of  $682,000  which  is  recognized  in the  June  30,  2002
statement  of  operations.  For tax  purposes,  there  was no write  down in the
Aperion Audio intangible asset,  therefore,  there will be no tax effect on this
gain.

     The Company's  consolidated  financial statements for all periods have been
reclassified  to report  separately the results of operations and operating cash
flows from continuing operations and the discontinued operations.  Aperion Audio
is included in the financial  statements  as  discontinued  operations.  The net
revenues of Aperion  Audio are included in the  financial  statements  under Net
Income (Loss) from  Discontinued  Operations.  Operating results of discontinued
operations for the year ended June 30, 2002 are as follows:

                  Operating Results of Discontinued Operations:

                                                            2002
                                                       -------------
                                                       Aperion Audio
                                                       -------------
Sales                                                  $  853,656
Cost of sales                                            (340,479)
Depreciation and amortization                             (12,133)
General and administrative                               (672,127)
                                                       ------------
Operating loss                                           (171,083)

Other income                                               22,799
Interest expense                                          (25,584)
Provision for future operating losses                     139,094
Minority interest                                          34,774
                                                       ------------
Income (Loss) pre-tax                                        -

Income taxes (benefits)                                      -
                                                       ------------
Loss from discontinued operations                       $    -
                                                       ============

NOTE 15 - STOCK OPTIONS AND WARRANTS

     On February 12, 2002, the Board of Directors  approved the TSET, Inc. Stock
Option  Plan  under  which  Kronos'  key  employees,  consultants,   independent
contractors,  officers and  directors  are  eligible to receive  grants of stock
options.  Kronos has reserved a total of 6,250,000  shares of common stock under
the Stock  Option  Plan.  Prior to that,  the Company had no formal stock option
plan but offered as special  compensation  to certain  officers,  directors  and
third  party  consultants  the  granting  of  non-qualified  options to purchase
Company  shares at the market  price of such shares as of the option grant date.
The options  generally  have terms of three to ten years.  The  Company  granted
non-qualified stock options totaling 2,459,700 and 6,084,900 shares in the years
ended June 30, 2003 and 2002, respectively.

                                      F-19

<PAGE>

     The Company has elected to follow APB No. 25;  "Accounting for Stock Issued
to Employees"  ("APB 25"),  and related  interpretations  in accounting  for its
employee  stock  options.  Under  APB 25,  because  the  exercise  price  of the
Company's employee stock options equals the market price of the underlying stock
on the date of the  grant,  no  compensation  expense is  recognized.  Pro forma
information  regarding  net  income  per  share is  required  by SFAS  No.  123,
"Accounting  for  Stock-Based  Compensation",  and has been determined as if the
Company had accounted for its employee stock options under the fair value method
of that statement

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  Because the Company's  employee stock options have
characteristics  significantly  different  from  those of  traded  options,  and
because changes in the subjective  input  assumptions can materially  affect the
fair value estimate,  in the Company's opinion the existing  available models do
not  necessarily  provide a  reliable  single  measure  of the fair value of the
Company's employee stock options.

     Using the Black-Scholes  option valuation model, the weighted average grant
date fair value of options granted during the years ended June 30, 2003 and 2002
was $.10 and $0.14 per option share, respectively.

     A summary of the Company's  stock option  activity and related  information
for the years ended June 30, 2003 and 2002 is as follows (in  thousands,  except
per share amounts):

                                                                  Weighted
                                                                  Average
                                                   Shares      Exercise Price
                                                  --------     --------------
     Outstanding at June 30, 2001                    1,557         $  0.89
          Granted                                    6,085            0.54
          Exercised                                      -             -
          Cancelled                                      -             -
                                                   -------     --------------
     Outstanding at June 30, 2002                    7,642            0.61
          Granted                                    2,460            0.22
          Exercised                                      -             -
          Cancelled                                      -             -
                                                   -------     --------------
     Outstanding as June 30, 2003                   10,102         $  0.52
                                                   =======     ==============

                                      F-20

<PAGE>

     A summary of options  outstanding  and  exercisable  at June 30, 2003 is as
follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                         Options Outstanding                        Options Exercisable
                              ---------------------------------------------  --------------------------------
                                                Weighted
                                                Average
                                               Remaining        Weighted
           Range of                             Life (in        Average          Range of
        Exercise Prices        Options           years)      Exercise Price   Exercise Prices        Options
      -----------------        -------         ---------     --------------  ------------------      -------
      June 30, 2003

<S>     <C>       <C>              <C>            <C>               <C>      <C>       <C>               <C>
        $0.71  -  $1.12            127            2.50              $0.96    $0.71  -  $1.12             127
        $0.21  -  $0.49             30            5.00              $0.36    $0.21  -  $0.49              30
        $0.00  -  $0.20          2,303            9.70              $0.18    $0.00  -  $0.20           2,303

      June 30, 2002

        $0.71  -  $1.12          2,002            5.31              $0.91    $0.71  -  $1.12           2,002
        $0.50  -  $0.70          3,150            9.00              $0.67    $0.50  -  $0.70           3,150
        $0.21  -  $0.49          2,490            8.97              $0.28    $0.21  -  $0.49           2,490

</TABLE>

     A summary of the Company's stock warrant  activity and related  information
for the years ended June 30, 2003 and 2002 is as follows (in  thousands,  except
per share amounts):

                                                               Weighted Average
                                                  Warrants      Exercise Price
                                                -----------    ----------------
     Outstanding at June 30, 2001                     -        $           -
                                                     1,900                0.58
          Granted                                     -                    -
          Exercised                                   -                    -
          Cancelled                              ----------    ----------------
     Outstanding at June 30, 2002                    1,900                0.58
          Granted                                   13,892                0.10
          Exercised                                   -                    -
          Cancelled                                   -                    -
                                                 ----------    ----------------
     Outstanding as June 30, 2003                   15,792     $          0.16
                                                 ==========    ================



NOTE 16 - COMMITMENTS AND CONTINGENCIES

     In May 2003,  Kronos entered into an agreement  with a strategic  customer,
HoMedics, Inc., for $3.5 million in financing, including $3.4 million in secured
debt financing and $100,000 for the purchase of warrants.  $2.5 million was paid
to Kronos upon execution of the agreement and $1.0 million will be paid upon the
start of production as defined in the Licensing  Agreement for the  Kronos-based
air purification product line to be marketed and distributed by HoMedics.  There
is a risk that we will not be successful  in achieving  production as defined in
the  Licensing  Agreement.  In  exchange  for  providing  $3.4  million  in debt
financing  and $100,000,  Kronos  provided  HoMedics with two warrants:  (i) 6.7
million  warrants  (which equated to 10% of the then fully diluted shares) fully
vested at the time of funding and (ii) 6.7 million  warrants  (which  equated to
10% of the then fully  diluted  shares)  which will vest only if (1) Kronos does
not prepay the entire  amount of  principal  and interest due under the Notes by
November  8,  2005;  (2)  Kronos  is in  default  under  any of  the  Investment
Documents,  or (3)  Kronos  does not  earn,  at any time  after the date of this
Agreement but prior to November 8, 2005,  revenues in an aggregate  amount equal
to or greater than $3.5 million.  The exercise price was set at the market price
at the time of closing  ($0.10).  HoMedics may not be diluted below 7.5% for the
first  warrant (15% for both  warrants)  for any funds raised at less than $0.20
per share,  excluding  options or shares issued to  management,  directors,  and
consultants  in the normal  course of business.  No  anti-dilution  measures for
funds raised at greater than $0.20 per share.

EMPLOYMENT AGREEMENTS

     The Company entered into an Employment  agreement with an officer effective
as of November 15, 2001. The initial term of the  Employment  Agreement is for 2
years and will  automatically  renew for  successive 1 year terms unless written
notice within 3 months of the end of the initial term or any subsequent  renewal
term is received by either party. The Board of Directors  renewed the Employment
Agreement on August 13, 2003.  The Employment  Agreement  provides for base cash
compensation  of $180,000 per year and  eligibility  for annual  incentive bonus
compensation  in an amount equal to annual  salary based on the  achievement  of
certain bonus objectives. In addition, the Company granted 1,000,000 immediately
vested and exercisable, ten-year stock options at various exercise prices.

    The Company  entered into an Employment  agreement with an officer effective
as of January 1, 2003.  The initial  term of the  Employment  Agreement is for 2
years and will  automatically  renew for  successive 1 year terms unless written
notice within 3 months of the end of the initial term or any subsequent  renewal
term is received by either party.  The  Employment  Agreement  provides for base
cash compensation of $160,000 per year.

                                      F-21

<PAGE>

NOTE 17 - MAJOR CUSTOMERS

     As of June 30, 2003, the Company has two major customers:  HoMedics and the
U.S. Navy. Of the $559,000 in revenue  recorded in the year ended June 30, 2003,
$432,000 or 77% was derived from these two customers.

NOTE 18 - SEGMENTS OF BUSINESS

     The Company  operates  principally  in one segment of business:  The Kronos
segment  licenses,  manufactures  and distributes air movement and  purification
devices  utilizing  the  Kronos(TM)  technology.  All other  segments  have been
disposed  of or  discontinued.  In the year ended  June 30,  2003,  the  Company
operated only in the U.S.

NOTE 19 - RELATED PARTIES

     During the year ended June 30, 2003, the Company had a consulting agreement
with a member of the board of directors,  who is also an officer of the Company.
The  agreement  provided  for cash and equity  compensation  per hour of service
provided. At June 30, 2003, the Company had accrued cash compensation under this
agreement of $452,000 and had granted  options to acquire  549,700  shares at an
exercise price of $0.96 per share. In addition, as of June 30, 2003, the Company
has outstanding  obligations for past compensation to the remaining officers and
directors of $720,000.  These unpaid amounts  currently  accrue  interest at the
rate of 12% per annum.

NOTE 20 - STOCKHOLDERS' EQUITY (DEFICIT)

     During the year ended June 30, 2003, the Company issued 6,593,000 shares of
its common stock for $731,000 in cash.  The Company issued 209,500 shares valued
at $34,700 and options to purchase  224,700 shares of its common stock valued at
$28,000 for consulting services.

     In December  2002,  the Company  issued  206,000 shares in exchange for the
assignment of a $206,000  note payable to Jeff Wilson,  a former  director.  The
Company  also  issued  100,000  shares to Aperion  Audio to modify  the  payment
schedule on its note payable to Aperion.

     In May 2003,  the Company  issued  2,790,000  shares of its common stock to
acquire intellectual  property rights related to computers,  microprocessors and
fuel cells. These shares were issued with certain rights allowing the Company to
buy back all or a portion of the shares at fixed  prices  through the year 2006.
The Company  has the right to buy back shares at $0.15 per share in 2003,  $.017
per share in 2004, $0.19 in 2005 and $0.20 in 2006..

                                      F-22

<PAGE>

NOTE 21 - SUBSEQUENT EVENTS

     In August  2003,  Kronos  received  a Notice of  Allowance  from the United
States  Patent and  Trademark  Office  indicating  that its  patent  application
entitled Method of and Apparatus for Electrostatic Fluid Acceleration Control of
a Fluid Flow has been examined and allowed for issuance as a U.S. patent.  It is
expected that the U. S. Patent will be issued in due course.  This latest patent
when  formally  issued will provide  intellectual  property  protection  for key
aspects of Kronos' technology until late in 2020.

     In July 2003,  Kronos obtained a Pre-Award  notice from the U.S. Army for a
Small  Business  Innovation  Research  Phase II contract.  During the  Pre-Award
stage,  the U.S.  Army will need to complete  the  necessary  documentation  for
Kronos to begin work on Phase II. The U.S.  Army expects that  completion of the
documentation  will take  approximately  90 days.  The Phase II  contract  is an
extension of the Phase I work that began in 2002.

     In August  2003,  Kronos  was  awarded  the  option on its U.S.  Army Small
Business Innovation Research Phase I contract.

















                                      F-23

<PAGE>

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

(1) (i)  Effective  August 22,  2003,  we dismissed  Grant  Thornton LLP ("Grant
Thornton") as our independent certified public accountants.

(ii) Grant Thornton's report on our Company's financial  statements for the past
two fiscal years did not contain an adverse  opinion or a disclaimer of opinion,
and was not qualified as to uncertainty,  audit scope, or accounting principles;
however,  the report was modified to include an  explanatory  paragraph  wherein
Grant  Thornton  expressed  substantial  doubt  about our  Company's  ability to
continue as a going concern.

(iii) The change of  independent  accountants  was approved by the  Registrant's
Board of Directors on August 18, 2003.

(iv) During our most recent two fiscal years, as well as the subsequent  interim
period through  August 22, 2003,  there were no  disagreements  on any matter of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedures,  which  disagreements if not resolved to their satisfaction
would have caused them to make reference in connection with their opinion to the
subject matter of the disagreement.

(v) During our most recent two fiscal years,  as well as the subsequent  interim
period through August 22, 2003, Grant Thornton did not advise our Company of any
of the matters identified in paragraph (a)(1)(v) of Item 304 of Regulation S-K.

(vi) We  requested  Grant  Thornton  to furnish a letter  addressed  to the SEC,
stating  whether it agrees with the statements  made by the  Registrant  and, if
not, stating the respects in which it does not agree.

(B) NEW INDEPENDENT ACCOUNTANTS

On August 22, 2003, we engaged  Sherb & Company,  LLP ("Sherb & Company") as our
principal accountant to audit our financial statements. We did not consult Sherb
& Company on any matters described in paragraph (a)(2)(i) or (ii) of Item 304 of
Regulation S-K during our two most recent fiscal years or any subsequent interim
period prior to engaging Sherb & Company.

ITEM 8A.  CONTROLS AND PROCEDURES

     Evaluation of Disclosure  Controls and Procedures.  Within 90 days prior to
the filing date of this report,  our Company  carried out an  evaluation  of the
effectiveness  of the  design  and  operation  of its  disclosure  controls  and
procedures  pursuant to Exchange Act Rule 13a-14. This evaluation was done under
the supervision and with the participation of our Company's  President and Chief
Financial Officer. Based upon that evaluation, they concluded that our Company's
disclosure  controls and  procedures  are effective in gathering,  analyzing and
disclosing  information needed to satisfy our Company's  disclosure  obligations
under the Exchange Act.

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

                                       29

<PAGE>

PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Our directors and executive officers and their ages as of September 22,
2003, are as follows:

          NAME                 AGE    POSITION
          -------------------- -----  ----------------------------------------
          Daniel R. Dwight      43    Director; President and Chief
                                          Executive Officer

          Richard A. Papworth   45    Director; Chief Financial Officer,
                                          Secretary, and Treasurer

          Richard F. Tusing     46    Director; Chief Operating Officer

          Erik W. Black         33    Director

          Spencer I. Browne     53    Director

          James P. McDermott    41    Director

          M. J. Segal           58    Director


     Daniel R Dwight,  43,  has served as a Director  of Kronos  since  November
2000, and as a Director and Chief Executive  Officer of Kronos Air  Technologies
since  January  2001.  Effective  October 16,  2001,  Mr.  Dwight was  appointed
President and Chief Executive Officer of Kronos. He has extensive  experience in
private  equity  and  operations  in a wide  variety  of high  growth  and  core
industrial businesses. Mr. Dwight spent 17 years with General Electric including
10 years of operations,  manufacturing, and business development experience with
GE's  industrial  businesses,  and seven years of  international  investment and
private equity experience with GE Capital.  He has had responsibility for over a
$1 billion in merger and acquisition and private equity  transactions at GE. Mr.
Dwight  initiated GE Capital's entry in the Asia private equity market.  Between
1995 and 1999,  the  Asian  equity  portfolio  grew to  include  consolidations,
leveraged   buyouts,   growth  capital  and  minority   investments  in  diverse
industries,  including  information  technology,   telecommunications  services,
consumer products, services and distribution, and contract manufacturing.  Since
1982,  Mr.  Dwight  has  held  other  leadership   positions   domestically  and
internationally  with GE Capital,  as well as senior positions with GE Corporate
Business Development  (1989-1992) and GE Corporate Audit Staff (1984-1987).  Mr.
Dwight holds an MBA in Finance and Marketing  with Honors from The University of
Chicago  Graduate  School of Business and a B.S. in Accounting  with Honors from
the University of Vermont.

     Richard A.  Papworth,  45,  became a Director  of Kronos in June 2001,  was
appointed  Chief  Financial  Officer of Kronos in May 2000,  and has served as a
Director,  Chief  Financial  Officer,  and Treasurer of Kronos Air  Technologies
since January 2001, and as Assistant  Secretary of Kronos Air Technologies since
December  2000.  Mr.  Papworth  has had diverse  finance,  tax,  and  accounting
experience    in   a   range    of    industries,    including    real    estate
development/construction,   software  development,   publishing,   distribution,
financial  institutions,  and  investment  companies.  From  1997-2000,  he  was
Vice-President  and  Controller of the U.S. and European  operations of Wilshire
Financial Services Group ("WFSG").  From 1996-97, he was Chief Financial Officer
of First Bank of Beverly Hills, a banking subsidiary of WFSG. From 1995-96,  Mr.
Papworth was Treasurer for Maintenance Warehouse America Corporation. From

                                       30

<PAGE>

1994-95,  he maintained a private management and finance consulting practice for
select clients.  From 1989-94,  Mr. Papworth worked for Morrison Homes, the U.S.
home building  division of U.K.-based George Wimpey Plc., during which period he
held  various  positions  including  Chief  Financial  Officer,  Treasurer,  and
Assistant  Treasurer.  From 1985-89,  he engaged in tax consulting with Deloitte
and  Touche.  He  received  a B.S.  in  accounting  (with  minors  in  business,
economics, and Spanish) and a Macc (Masters of Accountancy) with emphasis in tax
law, from Brigham Young  University in 1984. Mr.  Papworth  became licensed as a
certified  public  accountant in the State of California in 1987.  Mr.  Papworth
speaks Spanish fluently.

     Richard F.  Tusing,  46, has served as a Director of Kronos  since  October
2000 and as a Director of Kronos Air  Technologies  since  January  2001 and was
appointed  Chief  Operating  Officer  on January  1,  2002.  Mr.  Tusing has had
extensive experience in developing new enterprises, negotiating the licensing of
intellectual   property   rights,   and   managing   technical   and   financial
organizations,  and has more than 20 years of business development,  operations,
and consulting experience in the technology and  telecommunications  industries.
Prior to his  services  to Kronos,  Mr.  Tusing  spent  four years in  executive
management  with  several  emerging  technology  companies,  14 years in various
managerial and executive  positions  with MCI  Communications  Corporation,  and
three additional years in managerial consulting. From 1982-1996, Mr. Tusing held
multiple managerial and executive positions with MCI Communications Corporation.
From 1994-1996, he served as MCI's Director of Strategy and Technology, managing
MCI's  emerging  technologies   division  (having  primary   responsibility  for
evaluating,  licensing,  investing  in, and acquiring  third-party  technologies
deemed of strategic  importance  to MCI),  and also oversaw the  development  of
several early-stage and venture-backed  software and hardware companies; in this
capacity,  Mr. Tusing managed more than 100 scientists and engineers  developing
state-of-the-art  technologies.  From  1992-1994,  Mr. Tusing founded MCI Metro,
MCI's  entree into the local  telephone  services  business  and, as MCI Metro's
Managing Director,  managed telecommunications  operations,  developed financial
and ordering systems, and led efforts in designing its marketing campaigns. From
1990-1992,  he served as Director of Finance and Business  Development for MCI's
western region. From 1982-1990,  Mr. Tusing held other management and leadership
positions within MCI,  including  service as MCI's Pacific  Division's  Regional
Financial Controller,  Manager of MCI's Western Region's Information  Technology
Division,  and  led  MCI's  National  Corporate  Financial  Systems  Development
Organization.  Mr.  Tusing  received  B.S.  degrees in business  management  and
psychology from the University of Maryland in 1979.

     Erik W. Black,  33, became a Director of Kronos in June 2001. Mr. Black was
Executive  Vice-President - Business Development of Kronos from May 2000 through
December  2001.  Before joining  Kronos,  Mr. Black served from 1997 - 2000 as a
business  and  corporate  strategy  consultant  to the office of the Chairman on
Funding  Selection,  Inc.,  an investment  banking and mergers and  acquisitions
company.  From 1999 - 2000,  Mr.  Black has  worked as an  e-business  associate
consultant  for IBM Global  Services.  From 1998 - 1999,  Mr. Black was the sole
proprietor of E.B. Web Designs, an Internet  development services and consulting
company.  From 1996 - 1997, Mr. Black worked as the  communications  coordinator
for the Synthetic  Organic  Chemical  Manufacturers  Association  in Washington,
D.C., from 1995 - 1996 and as an associate  consultant for Robert Charles Lesser
& Co., a real estate  consulting  firm.  He received an M.B.A.  and a Masters of
Information  Management  degrees from Arizona State University in 2000, a Global
Leadership  Certificate  from  Thunderbird  - The  American  Graduate  School of
International  Management in 2000, and a B.A. from Pomona College in 1995, where
he graduated magna cum laude and was elected to Phi Beta Kappa. Mr. Black speaks
Russian fluently.

                                       31

<PAGE>

     Spenser I.  Browne,  53,  became a Director of Kronos in August  2003.  Mr.
Browne has over 30 years of corporate governance, operations and entrepreneurial
expertise.  He has held various executive and management  positions with several
New York Stock Exchange and NASDAQ listed companies.  Since 1996, Mr. Browne has
been  a  principal  of  Strategic  Asset  Management,  LLC,  a  privately  owned
investment  firm,  which he  founded  in 1996.  He also  currently  serves  as a
director  and  chairmen of  Internet  Commerce  Corporation  (NASDAQ:  ICCA),  a
director  of Annaly  Mortgage  Management  (NYSE:  NLY) and a director  of Delta
Financial  Corporation  (AMEX:  DFC). From 1988 until 1996, Mr. Browne served as
President, Chief Executive Officer and a director of Asset Investors Corporation
(AIC), a New York Stock Exchange  company (NYSE:  ANL) he co-founded in 1986. He
also served as President,  Chief Executive  Officer and a director of Commercial
Assets,  Inc.,  an affiliate of AIC,  from its  formation in 1993 until 1996. In
addition, from 1990 until 1996, Mr. Browne served as President and a director of
M.D.C. Holdings,  Inc. (NYSE: MDC), the parent company of a major homebuilder in
Colorado.  Originally from  Philadelphia,  Mr. Browne graduated from the Wharton
School of the University of Pennsylvania and Villanova University School of Law.

     James P.  McDermott,  41 became a  Director  of Kronos  in July  2001.  Mr.
McDermott  has  over 18  years  of  financial  and  operational  problem-solving
experience.  Mr. McDermott is a co-founder and is currently a Managing  Director
of Eagle Rock  Advisors,  LLC, the Manager for The Eagle Rock Group,  LLC.  From
1992 through 2000, Mr. McDermott held various managerial and executive positions
with PennCorp Financial Group, Inc. and its affiliates.  From 1998 through 2000,
Mr.  McDermott  was  Executive  Vice-President  and Chief  Financial  Officer of
PennCorp  Financial  Group.  While serving in this position,  Mr.  McDermott was
one-third of the executive  management  team that was responsible for developing
and implementing operational stabilization,  debt reduction and recapitalization
plans for the company.  From 1995 through 1998, Mr.  McDermott  served as Senior
Vice-President  of PennCorp  Financial  Group. Mr. McDermott worked closely with
the Audit  Committee  of the Board of  Directors on  evaluating  the  PennCorp's
accounting and actuarial practices.  In addition,  Mr. McDermott was responsible
for  developing a  corporate-wide  technology  management  program  resulting in
technology convergence and cost savings to the company's technology budget. From
1994 through 1998, Mr. McDermott was a principal in  Knightsbridge  Capital Fund
I,  LP,  a  $92  million   investment  fund   specializing  in   leverage-equity
acquisitions of insurance and  insurance-related  businesses.  Mr. McDermott was
also  the  founding  Chairman  of  the  e-business  Internet  service  provider,
Kivex.com,  and a senior manager of one of the world's leading public accounting
firms,  KPMG. Mr.  McDermott  received a B.S. Degree in Business  Administration
from the University of Wisconsin, Madison.

     M. J. Segal,  58,  became a Director of Kronos in September  2003.  Mr. Mr.
Segal has over 35 years of corporate governance,  entrepreneurial and investment
banking  expertise.  Mr. Segal founded the investment banking firm of M.J. Segal
Associates in 1987. Since 1992, the firm has specialized in researching  private
equity  opportunities in both private and emerging growth public companies.  The
Segal group  caters  primarily  to  institutional  clients,  private  investment
partnerships  and  professional  money managers.  After starting his career as a
stockbroker and financial planner in 1966 with Philadelphia based New York Stock
Exchange  firm,  Robinson & Company,  Mr. Segal joined  Josephthal & Co. Inc., a
leading  full-service  investment  banking and brokerage  firm in New York.  Mr.
Segal  has  served as  senior  vice  president  of the  congressionally  charted
National Corporation for Housing Partnerships in Washington, D. C. and president
of its investment  banking  subsidiary and has qualified as a NASD broker/dealer
financial  principal.  Originally  from  Philadelphia,  Mr.  Segal  attended the
Wharton  School of the University of  Pennsylvania  and is a graduate of The New
York Institute of Finance.

                                       32

<PAGE>

DIRECTORS

     Our Board of Directors consists of eight seats.  Directors serve for a term
of one year and stand for election at our annual meeting of  stockholders.  Five
of our current directors were elected at our annual meeting of stockholders held
on December 30, 2002, and two additional  directors  wereappointed in August and
September  2003,  respectively.  One  vacancy  currently  exists on the Board of
Directors as of the date of this filing.  Pursuant to our Bylaws,  a majority of
directors may appoint a successor to fill any vacancy on the Board of Directors.

ADVISORY BOARD

     We established  an Advisory Board in July 2001 to assist  management in the
development  of long-range  business plans for our Company.  Currently,  William
Poster and Charles Strang are the only Advisory Board Members.

     Mr. Poster is a seasoned  entrepreneur  with a successful track record as a
founder  of  several  businesses  spanning  five  continents.   Mr.  Poster  has
experience in developing  business  opportunities in the United States,  Europe,
Asia and the Middle  East.  Mr.  Poster  recently  stepped  down as President of
Computer  Systems &  Communications  Corporation,  a wholly-owned  subsidiary of
General   Dynamics.   Computer  Systems  &   Communications   Corporation  is  a
cutting-edge  communications  and technology company that Mr. Poster founded and
later sold to General  Dynamics.  Mr. Poster is currently a principal with Eagle
Rock Advisors, LLC.

     Mr. Strang is a former Kronos  Director from January 2001 through  December
2002. Mr. Strang was named National Commissioner of NASCAR (National Association
for Stock Car Racing) in 1998 and continues to serve in that  capacity.  In 1989
Mr. Strang received  President  Bush's American  Vocation Success Award; in 1992
was  elected  to  the  Hall  of  Fame  of  the  National  Marine   Manufacturers
Association;  in  1990  was  awarded  the  Medal  of  Honor  of  the  Union  for
International  Motorboating;  and is a life member of the Society of  Automotive
Engineers.  He also  currently  serves as a Director of the American  Power Boat
Association  (the  U.S.   governing  body  for  powerboat   racing)  and  Senior
Vice-President of the Union for International  Motorboating (the world governing
body for powerboat racing, with approximately 60 member nations).

     We will  continue  to  evaluate  additional  potential  candidates  for our
Advisory Board.

COMMITTEES

     On September 11, 2001,  the Board of Directors  established a  Compensation
Committee  consisting  of at  least  two  independent  members  of the  Board of
Directors.  The  Compensation  Committee  is charged with  reviewing  and making
recommendations  concerning  Kronos' general  compensation  strategy,  reviewing
salaries for officers,  reviewing  employee  benefit  plans,  and  administering
Kronos' stock  incentive  plan, once adopted and  implemented.  Messrs.  Browne,
McDermott and Segal are the current members of the Compensation Committee.

     On  September  4, 2003,  the Board of  Directors  established  an Executive
Committee.  The purpose of the Executive Committee is to exercise all the powers
and  authority  of the Board of  Directors in the  management  of the  property,
affairs and business of the Company.  The  Committee  shall  consist of no fewer
than three  members,  including  the Chief  Executive  Officer  of the  Company.
Messrs. Browne, Dwight,  McDermott,  Segal and Tusing are the current members of
the Executive Committee.

                                       33

<PAGE>

     On  September  10,  2003,  the  Board  of  Directors  established  an Audit
Committee  consisting  of at  least  two  independent  members  of the  Board of
Directors.  The Audit  Committee  is  charged  with  providing  independent  and
objective  oversight of the  accounting  functions and internal  controls of the
Company  and  its  subsidiaries  to  ensure  the  objectivity  of the  Company's
financial  statements.  Messrs.  Browne,  McDermott  and Segal  are the  current
members of the Audit Committee.


COMPENSATION OF DIRECTORS

     Cash  Compensation.  Our Bylaws provide that, by resolution of the Board of
Directors,  each  director  may be  reimbursed  his  expenses of  attendance  at
meetings of the Board of Directors;  likewise, each director may be paid a fixed
sum or receive a stated salary as a director.  As of the date of this filing, no
director  receives  any  salary  or  other  form of cash  compensation  for such
service. No director is precluded from serving our Company in any other capacity
and receiving compensation from us in connection therewith.

     Share  Based  Compensation.  Each  non-executive  director  is  entitled to
receive  annually 70,000  fully-vested  stock option grants,  7,000 stock option
grants per meeting  attended  via  conference  call,  14,000  option  grants per
meeting attended in person, 3,500 option grants per meeting for participation on
a committee or 5,000 stock  option  grants per meeting for chairing a committee,
as compensation for their services as members of our Board of Directors.

     As of December  30, 2002,  Messrs.  Black and  McDermott  have been granted
79,041 and 70,959 option grants, respectively as compensation for their services
as members of our Board of Directors.  Messrs.  Tusing, Dwight and Papworth have
each been granted  111,644,  107,808,  and 79,041,  respectively,  shares of our
common  stock as  compensation  for their  services  as  members of our Board of
Directors.  Effective August 6, 2003, non-executive directors, including Messrs.
Dwight,  Papworth  and  Tusing  will not be  compensated  separately  for  their
services as members of our Board of Directors.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers,  and persons who own more than 10% of a registered class
of our equity  securities to file with the  Securities  and Exchange  commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other of our equity  securities.  Officers,  directors  and greater than 10%
shareholders are required by SEC regulations to furnish us copies of all Section
16(a) forms they file.

     To our  knowledge,  based  solely on a review of the copies of such reports
furnished to us and written  representations that no other reports were required
during  the  fiscal  year  ended  June  30,  2003,   all  Section  16(a)  filing
requirements applicable to our officers and directors were complied with.

                                       34

<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

     The following table sets forth  compensation for the fiscal year ended June
30, 2003 for our executive officers:

<TABLE>
<CAPTION>

                                                SUMMARY COMPENSATION TABLE

                      Annual Compensation                           Long-Term Compensation
             ---------------------------------------  --------------------------------------------------------
                                                           Restricted    Securities
   Name and                                     Other        Stock       Underlying    LTIP       All Other
   Principal            Salary     Bonus    Compensation     Awards     Options/SARS   Payouts  Compensation
Fiscal Position  Year     $          $            $            $             #            $           $
---------------- ----- --------- ---------- -------------- ----------- --------------- -------- --------------
      (a)        (b)      (c)       (d)          (e)          (f)           (g)          (h)         (i)
---------------- ----- --------- ---------- -------------- ----------- --------------- -------- --------------

<S>              <C>    <C>      <C>               <C>                      <C>
Daniel R.        2003   180,000  118,800(5)        12,288      --           660,000       --          --
Dwight,          2002   112,500     --              7,620      --         2,600,000       --          --
President and    2001      --       --               --        --              --         --          --
Chief
Executive
Officer(1)

Richard A.       2003   120,000   21,000(5)          --        --           300,000       --          --
Papworth Chief   2002   120,000     --               --        --           300,000       --          --
Financial        2001   120,000     --               --        --           448,475(3)    --          --
Officer(2)

Richard F.       2003    80,000     --               --        --              --         --          --
Tusing, Chief    2002     --        --               --        --              --         --          --
Operating        2001     --        --               --        --              --         --          --
Officer(4)


   (1) Mr. Dwight became President and Chief Executive Officer of Kronos
       effective October 16, 2001. He executed a two year employment contract on
       November 15, 2001. His contract was renewed on August 13, 2003 by the
       Board of Directors. His annual salary is $180,000.

   (2) Mr. Papworth became Chief Financial Officer effective May 19, 2000. His
       annual salary is $120,000.

   (3) Mr. Papworth was granted an option to purchase 398,475 restricted shares
       of our common stock pursuant to a letter agreement dated April 10, 2001
       amending Mr. Papworth's employment agreement, dated May 19, 2000. The
       options were fully vested as of April 10, 2001 and the exercise price is
       equal to $0.885 per share, which was the closing price of our common
       stock as quoted on the Over-the-Counter Bulletin Board on April 9, 2001.
       In addition, Mr. Papworth was granted 50,000 options on April 9, 2001.
       These options are fully vested and the exercise price is equal to $0.885
       per share.

   (4) Mr. Tusing became Chief Operating Officer of Kronos effective January 1,
       2002. Mr. Tusing executed an employment contract effective January 1,
       2003. Prior to this date, Mr. Tusing was compensated as a consultant to
       the company. His annual salary is $160,000.

   (5) Cash Bonuses were earned but not paid and have been included in accrued
       expenses.

                                       35
<PAGE>


                        AGGREGATED OPTIONS/SAR EXERCISES
                             IN LAST FISCAL YEAR AND
                      FISCAL YEAR END OPTIONS/SAR VALUES(1)

                                                                                         VALUE OF
                                                          NUMBER OF SECURITIES         UNEXERCISED
                                                         UNDERLYING UNEXERCISED        IN-THE-MONEY
                    SHARES ACQUIRED                      OPTIONS/SARS AT FISCAL      OPTIONS/SARS AT
       NAME           ON EXERCISE      VALUE REALIZED          YEAR END(1)          FISCAL YEAR END(2)
------------------- ----------------- ----------------- -------------------------- ---------------------

Daniel R. Dwight,         -0-               -0-         Exercisable:  3,581,700                $23,100
President and                                           Unexercisable:      -0-                    -0-
Chief Executive
Officer(3)

Richard A.                -0-               -0-         Exercisable:  1,048,475                $10,500
Papworth Chief                                          Unexercisable:      -0-                    -0-
Financial
Officer(4)

Richard F.                -0-               -0-         Exercisable:  1,549,700                    -0-
Tusing, Chief                                           Unexercisable:      -0-                    -0-
Operating
Officer(5)

</TABLE>

                                       36

<PAGE>

   (1) These grants represent options to purchase common stock. No SAR's have
       been granted.

   (2) The value of the unexercised in-the-money options were calculated by
       determining the difference between the fair market value of the common
       stock underlying the options and the exercise price of the options as of
       June 30, 2003.

   (3) Mr. Dwight became President and Chief Executive Officer of Kronos
       effective October 16, 2001.

   (4) Mr. Papworth became Chief Financial Officer effective May 19, 2000.

   (5) Mr. Tusing became Chief Operating Officer of Kronos effective January 1,
       2002.


                             OPTION/SAR GRANTS IN LAST FISCAL YEAR

                                       % TOTAL
                        NO. OF       OPTIONS/SAR'S
                      SECURITIES      GRANTED TO
                      UNDERLYING      EMPLOYEES    EXERCISE OR
                     OPTIONS/SAR'S    IN FISCAL    BASE PRICE
        NAME          GRANTED (#)     YEAR (%)    ($ PER SHARE)  EXPIRATION DATE
------------------- -------------   ------------- ------------ -----------------
Daniel R. Dwight         660,000          26.0%    $    0.185      March 3, 2013
President and
Chief Executive

Richard A. Papworth      300,000          11.9%    $    0.185      March 3, 2013
Chief Financial

Richard F. Tusing        118,500           4.7%    $    0.960  December 31, 2004
Chief Operating          128,000           5.0%    $    0.960      June 30, 2005
                         126,700           5.0%    $    0.960  December 31, 2005


STOCK OPTION PLAN

     On February 12, 2002, the Board of Directors  approved the TSET, Inc. Stock
Option  Plan  under  which  Kronos'  key  employees,  consultants,   independent
contractors,  officers and  directors  are  eligible to receive  grants of stock
options.  Kronos has reserved a total of 6,250,000  shares of common stock under
the  Stock  Option  Plan.  It is  presently  administered  by  Kronos'  Board of
Directors.  Subject to the  provisions  of the Stock Option  Plan,  the Board of
Directors has full and final authority to select the individuals to whom options
will be granted,  to grant the options and to determine the terms and conditions
and the number of shares issued pursuant thereto.

EMPLOYMENT AGREEMENTS

     Daniel R.  Dwight,  our  President  and Chief  Executive  Officer,  and our
Company entered into an Employment  agreement effective as of November 15, 2001.
The initial term of Mr.  Dwight's  Employment  Agreement is for 2 years and will
automatically  renew for  successive  1 year terms unless  Kronos or Mr.  Dwight
provide the other party with  written  notice  within 3 months of the end of the
initial term or any subsequent  renewal term. The Board of Directors renewed Mr.
Dwight's  Employment  Agreement  on August 13,  2003.  Mr.  Dwight's  Employment
Agreement  provides for base cash  compensation of $180,000 per year. Mr. Dwight
is eligible for annual  incentive  bonus  compensation in an amount equal to Mr.
Dwight's annual salary based on the achievement of certain bonus objectives.  In
addition,   Kronos  granted  Mr.  Dwight   1,000,000   immediately   vested  and
exercisable,  ten-year stock options at various exercise prices. Mr. Dwight 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.

                                       37

<PAGE>

     Richard  A.  Papworth,  our  Chief  Financial  Officer,  has an  Employment
Agreement dated as of May 19, 2000,  which continues for an "evergreen"  term of
two years,  unless Mr. Papworth  provides at least 90 days' prior written notice
of his resignation.  Mr. Papworth's  Employment Agreement provides for base cash
compensation  in the amount of $10,000  per  month,  a signing  bonus of $50,000
worth of fully vested and non-forfeitable restricted shares of our common stock,
plus a year-end  bonus  payable in cash and  additional  shares,  in a "blended"
amount to be determined.  Mr. Papworth 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;  however,  as of
the date of this filing,  we have not adopted or implemented  any such plans. On
April 10, 2001, we entered into a Letter  Agreement with Mr.  Papworth  amending
Mr.  Papworth's  Employment  Agreement.  Pursuant to the Letter  Agreement,  Mr.
Papworth  waived the  anti-dilution  provision  of his  Employment  Agreement in
consideration  for an option to purchase 398,475 shares of our restricted common
stock.  The option was fully vested as of April 10, 2001 and the exercise  price
is equal to $0.885 per share, which was the closing price of our common stock as
quoted on the Over-the-Counter Bulletin Board on April 9, 2001.

     Richard F. Tusing,  our Chief  Operating  Officer,  and our Company entered
into an Employment  agreement  effective as of January 1, 2003. The initial term
of Mr. Tusing's Employment Agreement is for 2 years and will automatically renew
for  successive 1 year terms unless Kronos or Mr. Tusing provide the other party
with  written  notice  within 3  months  of the end of the  initial  term or any
subsequent  renewal term. 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.

EXECUTIVE SEVERANCE AGREEMENTS

     The Employment  Agreement of Daniel R. Dwight, our Chief Executive Officer,
provides that, upon the occurrence of any transaction as defined as a "change of
control" of Kronos,  Mr.  Dwight  shall  receive his salary and  benefits  for a
period of time that is the greater of (i) one year or (ii) the  remainder of Mr.
Dwight's employment term.

     The  Employment  Agreement  of Richard  A.  Papworth,  our Chief  Financial
Officer, provides that upon the occurrence of any transaction involving a change
of control of Kronos pursuant to which his employment is terminated,  any shares
of our common stock to which Mr.  Papworth is entitled  through any stock option
or other stock  ownership plan shall  immediately  vest and Mr. Papworth will be
entitled to receive all the  compensation  and  benefits of  employment  that he
would have received for the full term of his employment but for such termination
(i.e., given the 2-year  "evergreen" term of his employment,  Mr. Papworth would
therefore receive two years' worth of such compensation),  the immediate vesting
of shares in any stock option or other stock  ownership  plan, and the immediate
vesting  of  all  matching  contributions  made  by us in any  401(k),  savings,
profit-sharing, or other similar plan or benefit program.

     The Employment Agreement of Richard F. Tusing, our Chief Operating Officer,
provides that, upon the occurrence of any transaction as defined as a "change of
control" of Kronos that is not approved by the Board of  Directors,  Mr.  Tusing
shall receive his salary,  pro-rata bonus and benefits for a period of time that
is the greater of (i) one year or (ii) the remainder of Mr. Tusing's  employment
term.

        As of the date of this filing, we have not adopted any separate
executive severance agreements.

                                       38

<PAGE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL SHAREHOLDERS

     The following table presents certain  information  regarding the beneficial
ownership of all shares of common stock at September 23, 2003 for each executive
officer and  director  of our  Company and for each person  known to us who owns
beneficially  more than 5% of the  outstanding  shares of our common stock.  The
percentage  ownership  shown in such table is based upon the  54,336,524  common
shares  issued and  outstanding  at  September  23, 2003 and  ownership by these
persons of options or  warrants  exercisable  within 60 days of such date.  Also
included  is  beneficial   ownership  on  a  fully  diluted  basis  showing  all
authorized,  but  unissued,  shares of our common stock at September 23, 2003 as
issued and outstanding.  Unless otherwise indicated, each person has sole voting
and investment power over such shares.

                                                           COMMON STOCK
                                                        BENEFICIALLY OWNED
                                                     -------------------------
NAME AND ADDRESS                                        NUMBER       PERCENT
----------------                                     ------------- -----------
Daniel R. Dwight                                     4,013,626(1)      7.4%
464 Common Street
Suite 301
Belmont, MA  02478

Richard A. Papworth                                  1,231,155(2)       2.2%
464 Common Street
Suite 301
Belmont, MA  02478

Richard F. Tusing                                    1,984,762(3)       3.6%
464 Common Street
Suite 301
Belmont, MA  02478

James P. McDermott                                     294,118            *
464 Common Street
Suite 301
Belmont, MA  02478

Erik W. Black                                          272,983(4)         *
464 Common Street
Suite 301
Belmont, MA  02478

Spencer I. Browne                                       18,000            *
464 Common Street
Suite 301
Belmont, MA  02478

All Officers and Directors of Kronos                 7,814,644 (5)     14.3%%

---------------

*     Less than 1%.

(1) Includes options to purchase 3,581,700 shares of common stock that can be
acquired within sixty days of September 23, 2003.

(2) Includes options to purchase 1,048,475 shares of common stock that can be
acquired within sixty days of September 23, 2003.

(3) Includes options to purchase 1,549,700 shares of common stock that can be
acquired within sixty days of September 23, 2003.

(4) Includes options to purchase 50,000 shares of common stock that can be
acquired within sixty days of September 23, 2003.

                                       39

<PAGE>

(5) Includes options to purchase 6,229,875 shares of common stock that can be
acquired within sixty days of September 23, 2003.

        We  are  unaware  of  any  arrangement  or  understanding  that  may, at
a subsequent date, result in a change of control of our company.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     We believe that all prior related party transactions have been entered into
upon  terms no less  favorable  to us than those  that  could be  obtained  from
unaffiliated  third parties.  Our reasonable  belief of fair value is based upon
proximate  similar  transactions  with third  parties or  attempts to obtain the
consideration from third parties.  All ongoing and future transactions with such
persons,  including any loans or compensation to such persons,  will be approved
by a majority of disinterested members of the Board of Directors.

     On August 11, 2000, we entered into a Consulting  Agreement  with Daniel R.
Dwight and Richard F. Tusing,  pursuant to which Messrs. Dwight and Tusing would
provide management, financial, strategic, and other consulting services to us in
exchange for  consulting  fees payable in cash and options of our common  stock.
Out-of-pocket  expenses incurred by Messrs. Dwight and Tusing in connection with
provision  of their  services  under  the  Consulting  Agreement  would  also be
reimbursed  by us. The  Consulting  Agreement  was entered into prior to Messrs.
Dwight's  and  Tusing's  appointment  as  members of our Board of  Directors  in
October  2000  and  was  negotiated  at  arm's  length.   We  believe  that  the
compensation  and  other  provisions  of the  Consulting  Agreement  were  fair,
reasonable, customary, and favorable to us. The Consulting Agreement was renewed
with Dwight,  Tusing & Associates  on similar terms and  conditions  with a rate
adjustment as of January 1, 2001,  and was amended on April 12, 2001 to decrease
the strike  price of the  options  granted as partial  compensation  thereunder.
Pursuant  to Kronos  and Mr.  Dwight  entering  into his  Employment  Agreement,
effective November 15, 2001, Mr. Dwight's  Consulting  Agreement is no longer in
effect.  Pursuant  to  Kronos  and  Mr.  Tusing  entering  into  his  Employment
Agreement,  effective January 1, 2003, Mr. Tusing's  Consulting  Agreement is no
longer in effect.  Pursuant  to his  Consulting  Agreement,  Mr.  Dwight  earned
$208,400 and $179,600,  respectively, in the years ended June 30, 2001 and 2002,
respectively.  Of the aggregate amount of $388,000, we have paid $223,500 to Mr.
Dwight and the balance of $164,500 remains  payable.  Pursuant to his Consulting
Agreement, Mr. Tusing earned $207,400 and $377,750,  respectively,  in the years
ended June 30, 2001 and 2002 and $190,050  through  December  31,  2002.  Of the
aggregate amount of $775,200 we have paid $349,100 to Mr. Tusing and the balance
of $426,100 remains payable.

     Pursuant to Daniel R. Dwight's Employment Agreement, effective November 15,
2001,  our company and Mr. Dwight agreed that the  Consulting  Agreement,  dated
January 1, 2001,  between our Company and Mr.  Dwight was  terminated  effective
November 15, 2001. We acknowledged  and agreed that pursuant to the terms of the
Consulting Agreement,  we owed Mr. Dwight past-due amounts equal to $250,582. We
agreed that this past-due amount will accrue interest at 1% per month until paid
in full.  Payments  from our Company to Mr.  Dwight shall be allocated  first to
out-of-pocket expenses, second to salary, and third to repayment of the past-due
amount. In addition, we acknowledged and agreed that, pursuant to the Consulting
Agreement and the Finders Agreement,  Mr. Dwight has earned 271,700 options that
are  fully  vested  and  exercisable  under  the  terms  and  conditions  of the
Consulting Agreement,  and a Letter Agreement,  dated April 12, 2001 between our
Company and Mr. Dwight.

                                       40

<PAGE>

     Pursuant to Richard F. Tusing's Employment Agreement,  effective January 1,
2003,  our company and Mr. Tusing agreed that the  Consulting  Agreement,  dated
January 1, 2001,  between our company and Mr.  Tusing was  terminated  effective
January 1, 2003.  We  acknowledged  and agreed that pursuant to the terms of the
Consulting  Agreement,  we owe Mr. Tusing past-due amounts equal to $452,000. We
agreed that this past-due amount will accrue interest at 1% per month until paid
in  full.  In  addition,  we  acknowledged  and  agreed  that,  pursuant  to the
Consulting  Agreement,  Mr.  Tusing has earned  549,700  options  that are fully
vested  and  exercisable  under  the  terms  and  conditions  of the  Consulting
Agreement,  the Finders Agreement and a Letter  Agreement,  dated April 12, 2001
between our company and Mr. Tusing.

ITEM 13.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)(1)(2)  FINANCIAL  STATEMENTS.   See  index  to  consolidated  financial
statements and supporting schedules.

      (a)(3) EXHIBITS.





                                       41
<PAGE>
<TABLE>
<CAPTION>

EXHIBIT
NO.      DESCRIPTION                                  LOCATION
-------  ----------------------------------           -----------------------------------
<S> <C>
    2.1  Articles of Merger for Technology            Incorporated by reference to
         Selection, Inc. with the Nevada              Exhibit 2.1 to the Registrant's
         Secretary of State                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001 (the
                                                      "REGISTRATION STATEMENT")

    3.1  Articles of Incorporation                    Incorporated by reference to
                                                      Exhibit 3.1 to the Registration
                                                      Statement on Form S-1 filed on
                                                      August 7, 2001

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

   10.1   Employment Agreement, dated April 16,       Incorporated by reference to
          1999, by and between TSET, Inc. and         Exhibit 10.1 to the Registration
          Jeffrey D. Wilson                           Statement on Form S-1 filed on
                                                      August 7, 2001

   10.2   Deal Outline, dated December 9, 1999,       Incorporated by reference to
          by and between TSET, Inc. and Atomic        Exhibit 10.2 to the Registration
          Soccer, USA, Ltd.                           Statement on Form S-1 filed on
                                                      August 7, 2001

   10.3   Letter of Intent, dated December 27,        Incorporated by reference to
          1999, by and between TSET, Inc. and         Exhibit 10.3 to the Registration
          Electron Wind Technologies, Inc.            Statement on Form S-1 filed on
                                                      August 7, 2001

   10.4   Agreement, dated February 5, 2000, by       Incorporated by reference to and
          between DiAural,  LLC and EdgeAudio,        Exhibit 10.4 to the Registration
          LLC Statement on Form S-1 filed on
          August 7, 2001

   10.5   Stock Purchase Agreement, dated March       Incorporated by reference to
          6, 2000, by and among TSET, Inc.,           Exhibit 10.5 to the Registration
          Atomic Soccer USA, Ltd., Todd P.            Statement on Form S-1 filed on
          Ragsdale, James Eric Anderson, Jewel        August 7, 2001
          Anderson, Timothy Beglinger and Atomic
          Millennium Partners, LLC

   10.6   Acquisition Agreement, dated March 13,      Incorporated by reference to
          2000, by and among TSET, Inc., High         Exhibit 10.6 to the Registration
          Voltage Integrated, LLC, Ingrid             Statement on Form S-1 filed on
          Fuhriman, Igor Krichtafovitch, Robert       August 7, 2001
          L. Fuhriman and Alan Thompson

   10.7   Letter of Intent, dated April 18, 2000,     Incorporated by reference to
          by and between TSET, Inc. and               Exhibit 10.7 to the Registration
          EdgeAudio.com, Inc.                         Statement on Form S-1 filed on
                                                      August 7, 2001

   10.8   Lease Agreement, dated May 3, 2000, by      Incorporated by reference to
          and between Kronos Air Technologies,        Exhibit 10.8 to the Registration
          Inc. and TIAA Realty, Inc.                  Statement on Form S-1 filed on
                                                      August 7, 2001

   10.9   Agreement and Plan of Reorganization,       Incorporated by reference to
          dated May 4, 2000, by and among TSET,       Exhibit 10.9 to the Registration
          Inc., EdgeAudio.com, Inc., LYNK             Statement on Form S-1 filed on
          Enterprises, Inc., Robert Lightman, J.      August 7, 2001
          David Hogan, Eric Alexander and Eterna
          Internacional, S.A. de C.V.

   10.10  Letter Agreement, dated May 4, 2000, by     Incorporated by reference to
          and between TSET, Inc. and Cancer           Exhibit 10.10 to the
          Detection International, LLC                Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.11  Employment Agreement, dated May 19,         Incorporated by reference to
          2000, by and between TSET, Inc. and         Exhibit 10.11 to the
          Richard A. Papworth                         Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.12  Finders Agreement, dated August 21,         Incorporated by reference to
          2000, by and among TSET, Inc., Richard      Exhibit 10.12 to the
          F. Tusing and Daniel R. Dwight              Registration Statement on Form
                                                      S-1 filed on August 7, 2001


                                       42

<PAGE>

   10.13  Contract Services Agreement, dated June     Incorporated by reference to
          27, 2000, by and between Chinook            Exhibit 10.13 to the
          Technologies, Inc. and Kronos Air           Registration Statement on Form
          Technologies, Inc.                          S-1 filed on August 7, 2001

   10.14  Letter of Intent, dated July 17, 2000,      Incorporated by reference to
          by and between Kronos Air Technologies,     Exhibit 10.14 to the
          Inc. and Polus Technologies, Inc.           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.15  Consulting Agreement, dated August 1,       Incorporated by reference to
          2000, by and among TSET, Inc., Richard      Exhibit 10.15 to the
          F. Tusing and Daniel R. Dwight              Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.16  Preferred Stock Purchase Agreement,         Incorporated by reference to
          dated September 12, 2000, by and            Exhibit 10.16 to the
          between EdgeAudio.com, Inc. and Bryan       Registration Statement on Form
          Holbrook                                    S-1 filed on August 7, 2001

   10.17  Shareholders Agreement, dated September     Incorporated by reference to
          12, 2000, by and among TSET, Inc.,          Exhibit 10.17 to the
          Bryan Holbrook and EdgeAudio.com, Inc.      Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.18  Amendment to Agreement and Plan of          Incorporated by reference to
          Reorganization dated September 12,          Exhibit 10.18 to the
          2000, by and among TSET, Inc.,              Registration Statement on Form
          EdgeAudio.com, Inc., LYNK Enterprises,      S-1 filed on August 7, 2001
          Inc., Robert Lightman, J. David Hogan,
          Eric Alexander and Eterna
          Internacional, S.A. de C.V.

   10.19  Agreement Regarding Sale of Preferred       Incorporated by reference to
          Stock, dated November 1, 2000, by and       Exhibit 10.19 to the
          between EdgeAudio.com, Inc. and Bryan       Registration Statement on Form
          Holbrook                                    S-1 filed on August 7, 2001

   10.20  Amendment to Subcontract, dated             Incorporated by reference to
          December 14, 2000, by and between           Exhibit 10.20 to the
          Bath Iron Works and High Voltage            Registration Statement on Form
          Integrated                                  S-1 filed on August 7, 2001

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

   10.22  Employment Agreement, dated March 18,       Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.22 to the
          Alex Chriss                                 Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.23  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.23 to the
          Jeffrey D. Wilson                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.24  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.24 to the
          Jeffrey D. Wilson                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.25  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.25 to the
          Daniel R. Dwight                            Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.26  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.26 to the
          Richard F. Tusing                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.27  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.27 to the
          Charles D. Strang                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

                                       43

<PAGE>

   10.28  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.28 to the
          Richard A. Papworth                         Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.29  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.29 to the
          Richard A. Papworth                         Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.30  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.30 to the
          Erik W. Black                               Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.31  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and J.      Exhibit 10.31 to the
          Alexander Chriss                            Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.32  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.32 to the
          Charles H. Wellington                       Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.33  Stock Option Agreement, dated April 9,      Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.33 to the
          Igor Krichtafovitch                         Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.34  Letter Agreement, dated April 10, 2001,     Incorporated by reference to
          by and between TSET, Inc. and Richard       Exhibit 10.34 to the
          A. Papworth                                 Registration
                                                      Statement on Form S-1
                                                      filed on August 7, 2001

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

   10.36  Finders Agreement, dated April 20,          Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.36 to the
          Bernard Aronson, d/b/a Bolivar              Registration Statement on Form
          International Inc.                          S-1 filed on August 7, 2001

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

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

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

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

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

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

                                       44

<PAGE>

   10.43  Stock Option Agreement, dated May 3,        Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.43 to the
          Jeffrey D. Wilson                           Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.44  Common Stock Purchase Agreement, dated      Incorporated by reference to
          June 19, 2001, by and between TSET,         Exhibit 10.44 to the
          Inc. and Fusion Capital Fund II, LLC        Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.45  Registration Rights Agreement, dated        Incorporated by reference to
          June 19, 2001, by and between TSET,         Exhibit 10.45 to the
          Inc. and Fusion Capital Fund II, LLC        Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.46  Mutual Release and Settlement               Incorporated by reference to
          Agreement, dated July 7, 2001, by and       Exhibit 10.46 to the
          between TSET, Inc. and Foster & Price       Registration Statement on Form
          Ltd.                                        S-1 filed on August 7, 2001

   10.47  Letter Agreement, dated July 9, 2001,       Incorporated by reference to
          by and between TSET, Inc. and The Eagle     Exhibit 10.47 to the
          Rock Group, LLC                             Registration Statement on Form
                                                      S-1 filed on August 7, 2001

   10.48  Finders Agreement, dated July 17, 2001,     Incorporated by reference to
          by and between TSET, Inc. and John S.       Exhibit 10.48 to the
          Bowles                                      Registration Statement on Form
                                                      S-1 filed on August 7, 2001

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

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

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

   10.52  Consulting Agreement, dated October 10,     Incorporated by reference to
          2001, by and between TSET, Inc. and         Exhibit 10.52 to the
          Jeffrey D. Wilson                           Registrant's Form 10-K for the
                                                      year ended June 30, 2001 filed
                                                      on October 15, 2001

   10.53  Employment Agreement, dated April 1,        Incorporated by reference to
          2002, by and between TSET, Inc. and         Exhibit 10.53 to the
          Daniel R. Dwight                            Registrant's Form 10-Q for the
                                                      quarterly period ended March 31,
                                                      2002 filed on May 15, 2002

   10.54  Stock Option Agreement, dated April 1,      Incorporated by reference to
          2002, by and between TSET, Inc. and         Exhibit 10.54 to the
          Daniel R. Dwight                            Registrant's Form 10-Q for the
                                                      quarterly period ended March 31,
                                                      2002 filed on May 15, 2002

   10.55  Agreement, dated March 1, 2002, by and      Incorporated by reference to
          between TSET, Inc. and The Eagle Rock       Exhibit 10.55 to the
          Group, LLC                                  Registrant's Form 10-Q for the
                                                      quarterly period ended March 31,
                                                      2002 filed on May 15, 2002

   10.56  Agreement, dated November 13, 2001 by       Incorporated by reference to
          and between TSET, Inc. and Fusion           Exhibit 10.56 to the
          Capital Fund II, LLC                        Registrant's Amendment No. 1 to
                                                      Form S-1 filed on August 2, 2002

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

                                       45

<PAGE>

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

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

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

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

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

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

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

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

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

   11.1   Statement re:  Computation of Earnings      Not applicable

   12.1   Statement re:  Computation of Ratios        Not applicable

   15.1   Letter re:  Unaudited Interim Financial     Not applicable
          Information

   16.1   Letter re:  Change in Certifying            Incorporated by reference to
          Accountant                                  the Company's Form 8-K filed on
                                                      August 22, 2003

   21.1   Subsidiaries of the Registrant              Not applicable

   23.1   Consent of Independent Auditors             Provided herewith

   23.2   Consent of Independent Auditors             Provided herewith

   24.1   Power of Attorney                           Not applicable

   27.1   Financial Data Schedule                     Not applicable

   31.1   Certification of Chief Executive            Provided herewith
          Officer pursuant to 15 U.S.C.
          Section 7241, as adopted pursuant
          to Section 302 of the Sarbanes-Oxley
          Act of 2002

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

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

</TABLE>

(b) REPORTS ON FORM 8-K.
------------------------------------------------------------------------------

                                       46

<PAGE>

     On May 15, 2003, Kronos filed a Form 8-K with respect to Item 7 - Financial
Statements, Pro Forma Financial Information and Exhibits and Item 9 - Regulation
FD Disclosure. The date of report on this Form 8-K was May 9, 2003.

SIGNATURES

     Pursuant to the  requirements  of  Sections  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.

      Date:  September 29, 2003.

                                   KRONOS ADVANCED TECHNOLOGIES, INC.


                                    By: /s/ Daniel R. Dwight
                                       ---------------------------------
                                            Daniel R. Dwight
                                            President, Chief Executive Officer
                                            and Director


                                    By: /s/ Richard A. Papworth
                                       ---------------------------------
                                            Richard A. Papworth
                                            Chief Financial Officer and Director



      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


SIGNATURE                          TITLE                      DATE
---------                          -----                      ----

/s/ Erik W. Black
-----------------------------
Erik W. Black                       Director               September 29, 2003


/s/ Spencer I. Browne
-----------------------------
Spencer I. Browne                   Director               September 29, 2003


/s/ Daniel R. Dwight
-----------------------------
Daniel R. Dwight                    Director, President    September 29, 2003
                                     and Chief Executive
                                     Officer

                                       47

<PAGE>

/s/ James P. McDermott
-----------------------------
James P. McDermott                  Director               September 29, 2003


/s/ Richard A. Papworth
-----------------------------
Richard A. Papworth                 Director and Chief     September 29, 2003
                                     Financial Officer

/s/ M. J. Segal
-----------------------------
M. J. Segal                         Director               September 29, 2003


/s/ Richard F. Tusing
-----------------------------
Richard F. Tusing                   Director and Chief     September 29, 2003
                                     Operating Officer



                                       48