Edgar Filing: KRONOS ADVANCED TECHNOLOGIES INC

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

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

For the quarterly period ended December 31, 2005

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

For the transition period from __________ to __________

COMMISSION FILE NO. 000-30191

KRONOS ADVANCED TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

As of February 12, 2006, there were 105,391,826 shares outstanding of the
issuer's common stock.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The following comprise our (unaudited) consolidated financial statements for the
three and six months ended December 31, 2005.

KRONOS ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS

December 31,
2005 June 30,
Assets (Unaudited) 2005
---------------- ----------------
Current Assets
Cash $ 584,462 $ 1,554,906
Accounts receivable, net 10,000 -
Prepaids 150,003 263,490
---------------- ----------------
Total Current Assets 744,465 1,818,396
---------------- ----------------
Net Property and Equipment 3,030 2,627

Other Assets
Intangibles 2,029,863 2,138,814
---------------- ----------------
Total Other Assets 2,029,863 2,138,814
---------------- ----------------
Total Assets $ 2,777,358 $ 3,959,837
================ ================

Liabilities and Stockholders' Deficit

Current Liabilities
Accrued expenses and payables
to directors and officers $ 59,807 $ 28,837
Accounts payable 211,410 479,175
Accrued expenses 731,505 487,070
Notes payable, current portion 2,999,970 4,028,131
Notes payable to directors and
officers 294,489 397,004
---------------- ----------------
Total Current Liabilities 4,297,181 5,420,217
---------------- ----------------
Long Term Liabilities
Notes payable 2,575,000 2,400,000
---------------- -----------------
Total Long Term Liabilities 2,575,000 2,400,000
---------------- -----------------

Total Liabilities 6,872,181 7,820,217
---------------- -----------------
Stockholders' Deficit
Common stock, authorized
500,000,000 shares of $0.001 par value
Issued and outstanding - 92,216,677
and 72,686,345, respectively 92,216 72,686
Capital in excess of par value 24,635,777 23,183,747
Accumulated deficit (28,822,816) (27,116,813)
---------------- ----------------
Total Stockholders' Deficit (4,094,823) (3,860,380)
---------------- ----------------
Total Liabilities and
Stockholders' Deficit $ 2,777,358 $ 3,959,837
================ ================

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

KRONOS ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended December 31, Six months ended December 31,
------------------------------- ------------------------------
2005 2004 2005 2004
---------- -------- -------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Sales $ 22,500 $ 139,918 $ 37,500 $ 381,451

Cost of sales 8,449 115,928 8,449 333,848
----------- ----------- ----------- ----------
Gross Profit 14,051 23,990 29,051 47,603
----------- ----------- ----------- ----------

Selling, General and
Administrative expenses
Compensation and benefits 214,459 295,133 529,502 518,003
Research and development 34,931 36,577 139,925 54,565
Professional services 19,209 (65,396) 102,249 (13,057)
Depreciation and amortization 167,769 98,441 339,590 198,275
Insurance 37,144 30,228 74,288 92,241
Facilities 29,409 25,046 46,595 43,933
Other selling general and
administrative expenses 96,991 110,025 199,830 139,943
----------- ----------- ----------- ----------
Selling, General and
Administrative expenses 599,912 530,054 1,431,979 1,033,903
----------- ----------- ----------- ----------

Net Operating Loss (585,861) (506,064) (1,402,928) (986,300)

Loss on Debt Restructuring - (3,857,467) - (3,857,467)
Other Income - 403 - 403
Interest Expense (146,932) (152,547) (303,075) (294,156)
----------- ----------- ----------- ----------

Net Loss $ (732,793) $(4,515,675) $(1,706,003) $(5,137,520)
=========== =========== =========== ===========

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

Weighted average shares
outstanding 81,740,895 70,022,575 78,889,818 65,673,210
=========== =========== =========== ===========

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

KRONOS ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended December 31,
-------------------------------------
2005 2004
-------- ---------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from operations $ (1,706,003) $ (5,137,520)
Adjustments to reconcile net loss to
net cash used in operations
Depreciation and amortization 339,590 198,275
Accretion of note discount - 92,965
Loss on debt restructuring - 3,857,467
Options issued for compensation/services 61,560 -
Change In
Accounts receivable (10,000) (43,700)
Prepaid expenses and other assets (7,138) 53,222
Deferred revenue - (3,218)
Accounts payable (236,795) (271,052)
Accrued expenses and other liabilities 244,435 108,829
------------ ------------
Net cash Used in Operations (1,314,351) (1,144,732)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (2,100) -
Investment in patent protection (88,316) (54,134)
------------ ------------
Net cash Used in Investing Activities (90,416) (54,134)
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,410,000 1,324,118
Proceeds from short-term borrowings - 100,000
Repayments of short-term borrowings (1,130,677) (342,607)
Proceeds from long-term borrowings 175,000 4,400,000
Retirement and repayments of
long-term debt - (2,400,000)
Debt acquisition costs (20,000) (506,618)
------------ ------------
Net cash Provided by Financing
Activities 434,323 2,574,893
------------ ------------
NET (DECREASE) INCREASE IN CASH (970,444) 1,376,027

CASH
Beginning of period 1,554,906 69,063
------------ ------------
End of period $ 584,462 $ 1,445,090
============ ============
Supplemental disclosure of cash flow
information:

Interest paid in cash $ 2,738 $ 9,516
============ ============

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

KRONOS ADVANCED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Kronos Advanced
Technologies, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments necessary to present fairly the
information set forth therein have been included. Operating results for the
three and six months ended December 31, 2005 are not necessarily indicative of
the results that may be experienced for the fiscal year ending June 30, 2006.

These consolidated financial statements are those of the Company and its
wholly-owned subsidiary. All significant inter-company accounts and transactions
have been eliminated in the preparation of the consolidated financial
statements.

The accompanying consolidated financial statements should be read in conjunction
with the Kronos Advanced Technologies, Inc. Form 10-KSB for the fiscal year
ended June 30, 2005, which was filed on September 28, 2005.

NOTE 2 - REALIZATION OF ASSETS AND GOING CONCERN

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. The
Company has sustained losses from operations in recent years, and such losses
have continued through the three months ended December 31, 2005. In addition,
the Company has used cash in rather than provided cash through its operations.
The Company is currently using its resources to attempt 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 the continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing requirements on a
continuing basis, to maintain present financing and to succeed in its future
operations. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.

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

HoMedics. October 2002, Kronos and HoMedics executed a Licensing Agreement
granting HoMedics certain rights with respect to the distribution of the Kronos
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 technology. The initial term of the agreement is three and one half years
from the initial sale of consumer air purification products by HoMedics, which
shall be no later than December 31, 2006, with the option to extend the
Licensing Agreement for six additional years. Kronos was compensated through an
initial royalty payment and will receive ongoing quarterly royalty payments
based on a percentage of sales. HoMedics will pay minimum royalty payments of at
least $2 million during the initial three and a half year term and on-going
royalty payments to extend the agreement. Kronos will retain the rights to all
of its intellectual property. HoMedics commitment includes funding a marketing
and advertising campaign to promote the Kronos-based product line. The products
will be distributed by HoMedics. HoMedics currently distributes their products
through major domestic retailers, including Wal-Mart, Home Depot, Sears, Bed
Bath & Beyond, and Linens 'N Things.

We believe the Company has successfully completed the development of a
Kronos-based consumer standalone air purifier that is an efficient, high quality
product which is cost effective and easy to operate. In March 2005, Kronos and
HoMedics began expanding production development beyond the initial prototypes
and initiated increased product testing to complete the product claims platform.
In March and April 2005, Kronos modified the HoMedics design and ordered
prototype production devices from Kronos' preferred vendors along with select
components from a HoMedics preferred vendor. In August 2005, Kronos received
initial shipment of products from its low cost, contract manufacturer in Mexico
and China. In October 2005, Kronos completed internal testing of these products
under a testing protocol co-developed by Kronos and HoMedics. In December 2005,
HoMedics funded the Company a further $175,000 upon acceptance of Kronos testing
results.

EOL. In December 2005, Kronos executed a non-exclusive License Agreement with
EOL, LLC, a Russian Federation corporation. Based in Korolev, Moscow Region,
Russia, EOL will leverage the Kronos technology to produce, market, and
distribute Kronos commercial air purification products, bacteriological and
virus destruction devices and space heaters in select Commonwealth of
Independent States. The agreement comes after successful completion of multiple
tests in Eastern Europe, which found the Kronos technology capable of
decontaminating rooms infected with airborne viruses and bacteria. Under the
terms of the five-year agreement, EOL will provide Kronos a fixed percentage
royalty on every product sold, as well as upfront licensing and quarterly
maintenance fees. Based on contractual milestones, EOL is required to: (i)
complete initial product design by March 2006; (ii) complete initial product
prototypes by June 2006; and (iii) make product available for customer purchase
by September 2006. EOL plans to assemble the finished products in Russia from
components supplied both locally and from contract manufacturers in China. The
products will be marketed and distributed in Russia, Ukraine, Kazakhstan,
Moldova and Byelorussia.

IKEA. In May 2005, Kronos initiated a strategic relationship with IKEA of
Sweden. A world leading retailer, IKEA distributes its products to more than 400
million customers through its 200 stores. Kronos and IKEA plan to co-develop new
consumer products that embed Kronos' silent, air movement, purification and
sterilization technology into other products and devices for residential use. In
September 2005, Kronos shipped its initial prototype device to IKEA for testing
and evaluation.

U.S. Navy. In November 2002, the U. S. Navy awarded Kronos a Small Business
Innovation Research Phase II contract worth $580,000. 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 devices developed under
this contract will be embedded in existing HVAC systems in order to move air
more efficiently than traditional, fan-based technology. In May 2005, Kronos
shipped the Kronos device to Northrop Grumman for testing and evaluation. Based
on the success of these initial tests, Northrop Grumman requested additional
modifications and improvements to the device. Northrop Grumman is scheduling
further testing.

Leading Business Jet Manufacturer. In January 2003, Kronos executed 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 devices being designed and manufactured under this contract will need to
meet all FAA safety standards, including environmental, flammability and
electromagnetic interference (EMI). The Company has completed product design and
development based on the customer's specific product application requirements.
We have completed testing and prepared for shipment the prototype product. We
are waiting for shipment instructions from the customer.

Leading Automotive Manufacturer. In August 2005, Kronos extended its work into
the transportation industry by signing a Prototype Development and Evaluation
Agreement with a leading luxury automotive manufacturer. The Kronos product has
been designed and produced to meet exacting customer standards for placement
inside of automobile passenger cabins. We have completed initial customer
specified testing. Based on successful testing with the customer, Kronos and the
customer are preparing further testing protocols for the product. Kronos expects
the next round of product testing and evaluation will be conducted at the
customer's European facilities.

Washington Technology Center. In December 2004, Kronos and the University of
Washington were awarded funding for a research and technology development
project entitled "Heat Transfer Technology for Microelectronics and MEMS" by the
Washington Technology Center ("WTC"). The objective of the project is to develop
a novel energy-efficient heat transfer technology for cooling microelectronics.
Thermal management for microelectronics and MEMS systems is a challenge.
Existing cooling devices aren't meeting increasing needs for energy consumption
and heat dissipation. Kronos air handling technology is an emerging technology
that uses an electric field to exert force on ionized gas. Kronos is attempting
to develop an improved microchip air handling system that is smaller in size,
has high speed airflow, allows more targeted delivery of cooling to areas of
highest heat and is compatible with current processes. WTC will contribute
$40,000 to the project, with Kronos contributing $8,000, plus $32,000 in in-kind
services, including use of the Kronos Research and Product Development Facility.
During the quarter ended December 31, 2005, Kronos and the University of
Washington continued research into development of an energy-efficient heat
transfer technology for cooling microelectronics and initiated fabrication of a
prototype product based on the proprietary Kronos technology. In January 2006,
Kronos and the University of Washington conducted a successful bench scale
demonstration of micron cooling of a MEMS chip.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of Consolidation. The consolidated financial statements of the
Company include those of the Company and its subsidiary for the periods in which
the subsidiary was owned/held by the Company. All significant intercompany
accounts and transactions have been eliminated in the preparation of the
consolidated financial statements. At December 31, 2005, we had only one
subsidiary, Kronos Air Technologies, Inc.

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

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.
If necessary, the Company maintains an allowance for doubtful accounts for
potential losses and does not believe it is exposed to concentrations of credit
risk that are likely to have a material adverse impact on the Company's
financial position or results of operations.

Cash and Cash Equivalents. The Company considers all highly liquid short-term
investments, with a remaining maturity of three months or less when purchased,
to be cash equivalents. The Company maintains cash and cash equivalents with
high-credit, quality financial institutions. At December 31, 2005 the cash
balances held at financial institutions were in excess of federally insured
limits.

Accounts Receivable. The Company provides an allowance for potential losses, if
necessary, on trade receivables based on a review of the current status of
existing receivables and management's evaluation of periodic aging of accounts.
Accounts receivable are shown net of allowances for doubtful accounts of $0 at
December 31, 2005 and June 30, 2005. The Company charges off accounts receivable
against the allowance for losses when an account is deemed to be uncollectible.

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

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

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

Revenue Recognition. The Company recognizes revenue in accordance with Staff
Accounting Bulletin (SAB) 104, which requires evidence of an agreement, delivery
of the product or services at a fixed or determinable price, and assurance of
collection within a reasonable period of time. Further, Kronos Air Technologies
recognizes revenue on the sale of the custom-designed contract sales under the
percentage-of-completion method of accounting in the ratio that costs incurred
to date bear to estimated total costs. For uncompleted contracts where costs and
estimated profits exceed billings, the net amount is included as an asset in the
balance sheet. For uncompleted contracts where billings exceed costs and
estimated profits, the net amount is included as a liability in the balance
sheet. Sales are reported net of applicable cash discounts and allowances for
returns. Revenue from government grants for research and development purposes is
recognized as revenue as long as the Company determines that the government will
not be the sole or principal expected ultimate customer for the research and
development activity or the products resulting from the research and development
activity. Otherwise, such revenue is recorded as an offset to research and
development expenses in accordance with the Audit and Accounting Guide, Audits
of Federal Government Contractors. In either case, the revenue or expense offset
is not recognized until the grant funding is invoiced and any customer
acceptance provisions are met or lapse.

Stock, Options and Warrants Issued for Services. Issuances of shares of the
Company's stock to employees or third-parties for compensation or services is
valued using the closing market price on the date of grant for employees and the
date services are completed for non-employees. Issuances of options and warrants
of the Companies stock are valued using the Black-Scholes option model.

Stock Options. In December 2004, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 123R,
Share-Based Payment ("SFAS No. 123R"). This Statement is a revision of SFAS No.
123, Accounting for Stock-Based Compensation, and supersedes Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
its related implementation guidance. SFAS No. 123R focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. The Statement requires entities to recognize
stock compensation expense for awards of equity instruments to employees based
on the grant-date fair value of those awards (with limited exceptions). Kronos
elected to implement the provisions of SFAS No. 123R in the fiscal year ended
June 30, 2005.

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

NOTE 4 -- INCOME TAXES

The composition of deferred tax assets and the related tax effects at December
31, 2005 and June 30, 2005 are as follows:

December 31, 2005
(Unaudited) June 30, 2005
------------- -------------
Benefit from carryforward of capital and
net operating losses $ 6,528,667 $ 6,091,927
Other temporary differences 156,740 156,740
Less:
Valuation allowance (6,685,407) (6,248,667)
------------- -------------
Net deferred tax asset $ - $ -
============= =============

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

December 31, 2005
(Unaudited) June 30,2005
--------------------------- ----------------------------
% of % of
Amount Pre-Tax Loss Amount Pre-Tax Loss
------------- ------------ -------------- ------------

Benefit for income tax at federal statutory rate $ 580,041 34.0 % $ 2,411,998 34.0%
Benefit for income tax at state statutory rate 34,120 2.0 % 141,882 2.0%
Non-deductible expenses (177,421) (10.4)% (1,303,036) (18.4)%
Increase in valuation allowance (436,740) (25.6)% (1,250,844) (17.6)%
------------- ------------ -------------- ------------
$ - 0.0% $ - 0.0%
============= ============ ============== ============

The non-deductible expenses shown above related primarily to the amortization of
intangible assets and to the accrual of stock options for compensation using
different valuation methods for financial and tax reporting purposes.

At December 31, 2005, for Federal income tax and alternative minimum tax
reporting purposes, the Company has approximately $16.1 million of unused
Federal net operating losses, $2.3 million of capital losses and $11.4 million
of unused State net operating losses available for carryforward to future years.
The benefit from carryforward of such losses will expire in various years
between 2006 and 2025 and could be subject to limitations if significant
ownership changes occur in the Company.

NOTE 5 - SEGMENTS OF BUSINESS

The Company operates principally in one segment of business: The Company
licenses, manufactures and distributes air movement and purification devices
utilizing the Kronos technology. For the three and six months ended December 31,
2005 and the fiscal year ended June 30, 2005 the Company operated only in the
U.S.

NOTE 6 - EARNINGS PER SHARE

Weighted average shares outstanding used in the earnings per share calculation
were 81,740,895 and 78,889,818 for the three and six months ended December 31,
2005 and 70,022,575 and 65,673,210 for the three and six months ended December
31, 2004, respectively.

As of December 31, 2005, there were outstanding options to purchase 16,139,568
shares of the Company's common stock and outstanding warrants to purchase
42,300,000 shares of the Company's common stock. These options and warrants have
been excluded from the earnings per share calculation as their effect is
anti-dilutive. As of December 31, 2004, there were outstanding options and
warrants to purchase 12,813,812 shares of the Company's common stock and
outstanding warrants to purchase 42,300,000 shares of the Company's common
stock. These options have been excluded from the earnings per share calculation
as their effect is anti-dilutive.

NOTE 7 - NOTES PAYABLE

The Company had the following obligations as of December 31, 2005 and June 30,
2004,

December 31, 2005 June 30, 2005
(Unaudited)
--------------- ---------------
Obligations to Cornell Capital(1) $ 2,990,000 $ 4,000,000
Obligation to HoMedics (2) 2,575,000 2,400,000
Obligation to current employees (3) 294,489 397,004
Obligation for finance leases (4) 9,970 28,131
--------------- ---------------
5,869,459 6,825,135
Less:
Current portion 3,294,459 4,425,135
--------------- ---------------
Total long term obligations net of
current portion $ 2,575,000 $ 2,400,000
=============== ===============
(1) These notes have a one year term and bear interest at 12% with weekly
payments.

(2) This note has a 5 year term and bears interest at 6% with no payments
required until the earlier of Kronos receipt of royalty payments from HoMedics
sale of Kronos-based air purification products or two years. This note along
with an obligation by HoMedics to provide Kronos with an additional $750,000 in
debt financing was issued along with warrants for the purchase of 40 million
shares of the Company's common stock.

(3) These notes bear interest at the rate of 12%. They represent obligation to
current employees of the Company, which are due and payable in full.

(4) See Note 8 below.

NOTE 8 - CAPITAL LEASES

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

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

Period ended December 31,
-----------------------------------
2006 $ 10,353
---------
Total minimum lease payments 10,353
---------
Net minimum lease payments 10,353
Less: Imputed interest 383
---------
Present value of net minimum lease payments $ 9,970
=========
Of the equipment that was purchased using capital leases, $10,650 was
capitalized and the remaining $65,782 was expensed through research and
development and cost of sales. In the three and six months ended December 31,
2005, the Company paid $9,081 and $18,162 in principal and $1,090 and $2,738 in
interest on capital leases, respectively. In the three and six months ended
December 31, 2004, the Company paid $11,292 and $15,969 in principal and $3,642
and $4,999 in interest on capital leases, respectively.

NOTE 9 - CONSULTING AGREEMENTS

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

NOTE 10 - COMMITMENTS AND CONTINGENCIES

In October 2004, Kronos entered into agreements for up to $20.5 million in
equity and equity backed debt financing from Cornell Capital Partners. In
October 2004, Kronos sold 5 million unregistered shares of Kronos common stock
for gross proceeds of $500,000 to Cornell Capital Partners. Cornell Capital
Partners committed to provide $4 million pursuant to two Promissory Notes, which
was funded as follows: $2 million upon the filing of an SB-2 Registration
Statement and $2 million upon the SEC declaring the Registration Statement
effective. Kronos executed a Standby Equity Distribution Agreement for $20
million of funding which Kronos has the option to drawdown against in increments
as large as $1.5 million over the next eighteen months. In July 2005, Cornell
Capital Partners suspended until further notice weekly repayments of the Kronos
Promissory Note dated June 21, 2005. As of December 31, 2005, Kronos has
received $4.9 million in funding under these agreements and has repaid
$1,010,000 of principal on the Promissory Notes.

In October 2004, HoMedics agreed to extend repayment of Kronos debt and to
provide an additional $1 million in funding. HoMedics has agreed to provide
Kronos with an additional $1 million in financing - $925,000 in secured debt
financing and $75,000 for the purchase of additional warrants. In December 2005,
$175,000 was funded upon completion of Kronos testing of products under a
testing protocol co-developed by Kronos and HoMedics. An additional $750,000
will be paid to Kronos upon Kronos achieving two milestones (i) $250,000 shall
be funded upon obtaining tooling of the current prototype configuration and
device testing and performing to HoMedics' specifications, and (ii) $500,000
shall be funded upon the initial sale of Kronos-based air purifiers by HoMedics.
In addition, quarterly debt payments and the maturity date for existing debt
have been extended. Quarterly payments due on the outstanding $2.4 million in
secured debt financing, which had been scheduled to begin in August 2004, will
be due the earlier of Kronos receipt of royalty payments from HoMedics sale of
Kronos-based air purification products or two years. The maturity date of the
$2.4 million in debt has been extended from May 2008 to October of 2009; the
maturity date on the $925,000 will also be October 2009. The interest rate will
remain at 6% for the $2.4 million in debt; the rate will also be 6% on the
additional debt. HoMedics increased their potential equity position in Kronos to
30% of Kronos common stock on a fully diluted basis. In connection with the
October 2004 agreements, Kronos issued HoMedics a warrant to buy 26.5 million
shares of Kronos common stock. As a result of this debt restructuring, the
Company recognized a loss of $3,857,467 during the fiscal year ended June 30,
2005. This loss represented the reacquisition price less the net carrying value
of the debt restructuring. The reacquisition price is made up of $2,400,000
which is the amount of the new debt and $3,361,161 which represents the value of
the warrants using the Black-Scholes method. The net carrying value is the
$2,400,000 which is the old debt less the unamortized debt discount of $496,296.

Daniel R. Dwight, President and Chief Executive Officer, and the Company entered
into an Employment agreement effective as of November 15, 2001. The initial term
of Mr. Dwight's Employment Agreement was for 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 and again on August 15, 2004 and August 15, 2005.
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.

Richard F. Tusing, Chief Operating Officer, and the Company entered into an
Employment agreement effective as of January 1, 2003. The initial term of Mr.
Tusing's Employment Agreement 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. The Board of Directors renewed Mr. Tusing's Employment Agreement
on October 1, 2004 and again on October 1, 2005. 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.

NOTE 11 - SUBSEQUENT EVENTS

In January and February 2006, Kronos issued 13,175,149 shares of common stock
for $800,000 to Cornell under the terms of our Standby Equity Distribution
Agreement. The proceeds were used to make payments on the Promissory Note dated
March 7, 2005 and to increase the Company's cash reserves.

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

INTRODUCTORY STATEMENTS

FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

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

GENERAL

Kronos Advanced Technologies, Inc. is an application development and licensing
company that has developed and patented technology that fundamentally changes
the way air is moved, filtered and sterilized. Kronos is pursuing
commercialization of its proprietary technology for a limited number of
applications in a limited number of markets; and if we are successful, we intend
to pursue additional applications and 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 proprietary Kronos technology involves the management of corona discharge by
applying of high voltage management across paired electrical grids to create an
ion exchange. Applications for efficient high voltage management, efficient
corona discharge and ion exchange include but are not limited to:

o air movement, including dielectric fluid movement and propulsion;
o air purification, including particulate removal, biohazard destruction,
chemical and industrial gas treatment, and odor removal;
o temperature and environmental management, including space heating and
cooling;
o microchip, MEMS and other electronics devices and components cooling;
o air management, including sorting and separation of air streams by particle
content;
o sound generation, including flat panel stereo speakers and active noise
cancellation;
o high voltage management, including development of high voltage power
supplies and control of power plant energy surges and electrical
discharges;
o control of water and moisture content in air streams, including
dehumidification and humidification; and
o water treatment, including water purification, ionization and water
desalination.

Kronos is focused on prioritizing the Company's resources on developing and
licensing Kronos' proprietary technology for air movement and purification
applications to address the indoor air quality market. The Kronos technology has
numerous valuable characteristics for applications in the indoor air quality
market, including moving air and gases at high velocities while removing odors,
smoke and particulates and killing pathogens, including bacteria, mold and
spores. The technology is cost-effective and is more energy efficient than
current alternative fan and filter (including HEPA filter and ultraviolet light
based) technologies.

Although no commercial products using the Kronos technology have been sold to
date, in March 2005, the Company and its strategic consumer products partner,
HoMedics, expanded production beyond the initial prototypes and increased
product testing to complete the product claims platform. In August 2005, Kronos
received initial shipment of products from its low cost, contract manufacturer
in Mexico and China. In October 2005, Kronos completed internal testing of these
products under a testing protocol co-developed by Kronos and HoMedics. In May
2005, Kronos initiated a strategic relationship with IKEA of Sweden and, in
September 2005, Kronos shipped its initial prototype device to IKEA for testing
and evaluation. In December 2005, Kronos shipped a prototype device designed and
built under specific customer specifications to a leading auto manufacturer for
their testing and evaluation and prepared for shipment (awaiting customer
documentation) a prototype device designed and built under specific customer
specifications to a leading business jet manufacturer. Further in December 2005,
the Company executed a non-exclusive license agreement with EOL, LLC, a Russian
Federation company, for manufacturing and distributing Kronos-based commercial
standalone products in Russia and other select Commonwealth of Independent
States, and shipped products to additional commercial customers for testing and
evaluation of the purification capability of the Kronos technology in
residential, commercial and industrial environments.

A number of the scientific claims of the Kronos technology have been tested by
the U. S. and foreign governments, multi-national companies and independent
testing facilities. To date, independent laboratory testing has verified the
filtration and sterilization capability of the Kronos technology.

Filtration Testing Results:
o Aerosol and Air Quality Research Laboratory - up to 99.8% filtration of
0.02 to 0.20 micron (20 to 200 nanometers) size particles;
o LMS Industries - removal of over 99.97% of 0.10 micron (100 nanometers) and
above size particles using HVAC industry's ASHRAE 52.2 testing standard for
filtration;
o MicroTest Laboratories - HEPA Clean Room Class 1000 quality particulate
reduction;
o Intertek - tobacco smoke elimination tests in accordance with ANSI/AHAM
AC-1-1988 standard entitled "American National Standard Method for
Measuring Performance of Portable Household Electric Cord-Connected Room
Air Cleaners," which demonstrated a Clean Air Delivery Rate (CADR) for the
Kronos air purifier of over 300 for the larger size Kronos air purifier and
80 for the smaller size using consumer filtration testing standards for the
Association of Home Appliance Manufacturers (AHAM).

Sterilization Testing Results:
o Disinfection Research Institute Sterilization Laboratory in Moscow - 100%
decontamination of room infected with bacteria (Staphylococcus aureus
strain 906 (S. aureus) and Bacillus cereus strain 96 (B. cereus);
o Institute for Veterinary Medicine in the Ukraine - destroy and sterilize
air which had been inseminated with Anthrax and E.coli spores;
o New Hampshire Materials Laboratory - up to 95% reduction of hazardous
gases, including numerous carcinogens found in cigarette smoke;
o Battelle PNNL - 95% destruction of Bg (anthrax simulant);
o Dr. Sergey Stoylar, a bacteriologist from the American Bacteriological
Society - 100% destruction of Bacillus subtilis 168 (bacteria simulant).

Market Segmentation

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

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

o Air Movement and Purification. Indoor air pollution, including "sick
building syndrome" and "building related illness," is primarily caused
by inadequate ventilation, chemical contaminants from indoor and
outdoor sources and biological contaminants. There is also a demand for
smaller devices that move, heat and deodorize the indoor air stream.
The addressable air movement and purification segment is made up of
four principal target markets: (1) residential, (2) health care, (3)
hospitality and (4) commercial.

o Air Purification for Unique Spaces. Electronics, semiconductor,
pharmaceutical, aerospace, medical and many other producers depend on
clean room technology. As products such as electronic devices become
smaller, the chance of contamination in manufacturing becomes higher.
For pharmaceutical companies, clean, safe and contaminant-free products
are imperative to manufacturing and distributing a viable product.
Other potential applications for the Kronos technology include closed
environments such as automobiles, aircraft, cruise ships and other
transportation modes that require people to breathe contaminated,
re-circulated air for extended periods.

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

o Embedded Cooling. Heat generation is becoming a major bottleneck in
high density electronics. We believe that the embedded cooling market
segment offers Kronos a near term opportunity to develop an alternative
to fans for air movement and cooling inside of personal computers ,
servers and medical diagnostic equipment and a long term opportunity to
develop micro channel cooling solutions for future generation
microchips.

Technology Application and Product Development

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

Standalone Platform

Residential Products. In October 2002, Kronos and HoMedics executed a Licensing
Agreement granting HoMedics certain rights with respect to the distribution of
the Kronos 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 technology. The initial term of the agreement is three and one
half years from the initial sale of consumer air purification products by
HoMedics, which shall be no later than December 31, 2006, with the option to
extend the Licensing Agreement for six additional years. Kronos was compensated
through an initial royalty payment and will receive ongoing quarterly royalty
payments based on a percentage of sales. HoMedics will pay minimum royalty
payments of at least $2 million during the initial three and a half year term
and on-going royalty payments to extend the agreement. Kronos will retain the
rights to all of its intellectual property. HoMedics commitment includes funding
a marketing and advertising campaign to promote the Kronos-based product line.
The products will be distributed by HoMedics. HoMedics currently distributes
their products through major domestic retailers, including Wal-Mart, Home Depot,
Sears, Bed Bath & Beyond, and Linens 'N Things.

We believe the Company has successfully completed the development of a
Kronos-based consumer standalone air purifier that is an efficient, high quality
product which is cost effective and easy to operate. In March 2005, Kronos and
HoMedics began expanding production development beyond the initial prototypes
and initiated increased product testing to complete the product claims platform.
In March and April 2005, Kronos modified the HoMedics design and ordered
prototype production devices from Kronos' preferred vendor along with select
components from HoMedics preferred vendors. In August 2005, Kronos received
initial shipment of products from its low cost, contract manufacturer in Mexico
and China. In October 2005, Kronos completed internal testing of these products
under a testing protocol co-developed by Kronos and HoMedics. In December 2005,
HoMedics funded the Company a further $175,000 upon acceptance of Kronos testing
results.

Commercial and Other Standalone Products. Utilizing our recently expanded
product development resources, Kronos completed the initial design, development
and production of a series of small multifunctional devices that can be used as
space heaters, vaporizers, disinfectors, deodorizers and/or fans. Based on the
proprietary Kronos technology, these devices are currently undergoing testing
and evaluation. Kronos has been meeting with potential strategic partners for
manufacturing, marketing, selling and distributing these Kronos-based products.

In December 2005, Kronos executed a non-exclusive License Agreement with EOL,
LLC, a Russian Federation corporation. Based in Korolev, Moscow Region, Russia,
EOL will leverage the Kronos technology to produce, market, and distribute
Kronos commercial air purification products, bacteriological and virus
destruction devices and space heaters in select Commonwealth of Independent
States. The agreement comes after successful completion of multiple tests in
Eastern Europe, which found the Kronos technology capable of decontaminating
rooms infected with airborne viruses and bacteria. Under the terms of the
five-year agreement, EOL will provide Kronos a fixed percentage royalty on every
product sold, as well as upfront licensing and quarterly maintenance fees. Based
on contractual milestones, EOL is required to: (i) complete initial product
design by March 2006; (ii) complete initial product prototypes by June 2006; and
(iii) make product available for customer purchase by September 2006. EOL plans
to assemble the finished products in Russia from components supplied both
locally and from contract manufacturers in China. The products will be marketed
and distributed in Russia, Ukraine, Kazakhstan, Moldova and Byelorussia.

Embedded Platform

Residential Products. In May 2005, Kronos initiated a strategic relationship
with IKEA of Sweden. A world leading retailer, IKEA distributes its products to
more than 400 million customers through its 200 stores. Kronos and IKEA plan to
co-develop new consumer products that embed Kronos' silent, air movement,
purification and sterilization technology into other products and devices for
residential use. In September 2005, Kronos shipped its initial prototype device
to IKEA for testing and evaluation.

Military Products. The U. S. Department of Defense and Department of Energy have
provided Kronos with various grants and contracts to develop, test and evaluate
the Kronos technology for embedded applications.

U.S. Navy SBIR Contracts. In November 2002, the U. S. Navy awarded Kronos a
Small Business Innovation Research Phase II contract worth $580,000. 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 devices
developed under this contract will be embedded in existing HVAC systems in order
to move air more efficiently than traditional, fan-based technology. During
Phase II, Kronos developed and produced a fully controlled device that
represents a "cell" of an advanced distributive air management system with
medium capacity airflow in a U. S. Navy unique environment. The "cell" has been
designed to be easily adjustable to a variety of parameters such as duct size,
airflow requirements, and air quality. The goal of this development work is to
significantly reduce or replace altogether the current HVAC air handling systems
on naval ships. In May 2005, Kronos shipped the device to Northrop Grumman for
testing and evaluation. Based on the success of these initial tests, Northrop
Grumman requested additional modifications and improvements to the device.
Northrop Grumman is scheduling further testing. As of December 31, 2005, the U.
S. Navy had provided Kronos with $580,000 in funding for this effort.

As part of its air management system, Kronos has developed and intends to test
the air filtration mechanism capable of performing to HEPA quality standards. We
believe that Kronos devices could replace current HEPA filters with a permanent,
easily cleaned, low-cost solution. Among the technical advantages of the Kronos
technology over HEPA filters is the ability of the Kronos-based devices to
eliminate the energy burden on air handling systems, which must generate high
levels of backpressure necessary to move air through HEPA-based systems.
Kronos-based devices enhance the air flow while providing better than HEPA level
filtration.

Kronos is seeking to leverage its military application development work with the
U. S. Navy to develop and produce air handlers and purifiers for commercial and
industrial facilities. A future potential commercial line of Kronos-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.

Transportation Products. In January 2003, Kronos executed 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 devices
being designed and manufactured under this contract will need to meet all FAA
safety standards, including environmental, flammability and electromagnetic
interference (EMI). The Company has completed product design and development
based on the customer's specific product application requirements. We have
completed testing and prepared for shipment the prototype product. We are
waiting for shipment instructions from the customer.

In August 2005, Kronos extended its work into the transportation industry by
signing a Prototype Development and Evaluation Agreement with a leading luxury
automotive manufacturer. According to various industry reports, the amount of
time Americans have spent in their cars has risen 236 percent since 1982 (with
one report from Time Magazine noting an average motorist will spend more than 5
years stuck in traffic alone), providing optimum air circulation in automobiles
is not only a comfort factor, but can also be a critical means of improving air
quality and helping to prevent viruses and allergens that may otherwise
accumulate in filtration systems. The Kronos product has been designed and
manufactured to meet exacting customer standards for placement inside of
automobile passenger cabins. We have completed initial customer specified
testing. Based on successful testing with the customer, Kronos and the customer
are preparing further testing protocols for the product. Kronos expects the next
round of product testing and evaluation will be conducted at the customer's
European facilities.

Microelectronics Cooling Products. In December 2004, Kronos and the University
of Washington were awarded funding for a research and technology development
project entitled "Heat Transfer Technology for Microelectronics and MEMS" by the
Washington Technology Center ("WTC"). The objective of the project is to develop
a novel energy-efficient heat transfer technology for cooling microelectronics.
Thermal management for microelectronics and MEMS systems is a challenge.
Existing cooling devices aren't meeting increasing needs for energy consumption
and heat dissipation. Kronos air handling technology is an emerging technology
that uses an electric field to exert force on ionized gas. Kronos is attempting
to develop an improved microchip air handling system that is smaller in size,
has high speed airflow, allows more targeted delivery of cooling to areas of
highest heat and is compatible with current processes. WTC will contribute
$40,000 to the project, with Kronos contributing $8,000, plus $32,000 in in-kind
services, including use of the Kronos Research and Product Development Facility.
During the quarter ended December 31, 2005, Kronos and the University of
Washington continued research into development of an energy-efficient heat
transfer technology for cooling microelectronics and initiated fabrication of a
prototype product based on the proprietary Kronos technology. In January 2006,
Kronos and the University of Washington conducted a successful bench scale
demonstration of micron cooling of a MEMS chip.

Patents and Intellectual Property

Kronos has received notification that nine of its patents have been allowed for
issuance by the United States Patent and Trademark Office. These patents are
considered utility patents which describe fundamental innovations in the
generation, management and control of electrostatic fluids, including air
movement, filtration and purification. Each of the patents contain multiple part
claims for both general principles as well as specific designs for incorporating
the Kronos technology into air movement, filtration and purification products.
The patents provide protection for both specific product implementations of the
Kronos technology, as well as more general processes for applying the unique
attributes and performance characteristics of the technology.

U.S. Patents

Date U.S. Patent # Patent Title Description Protection
---- ------------- ------------ ----------- ----------

January Notice of Electrostatic Fluid effective powering of the 2022
2006 Allowance Accelerator - Power electrodes
Management

November 6,963,479 Electrostatic Fluid advanced voltage management 2023
2005 Accelerator - impacts air filtration and
Advanced Geometries sterilization, air flow and
ozone

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

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

May Notice of Electrostatic Fluid placement, utilization and 2022
2005 Allowance Accelerator Design geometries of the
Geometries electrodes - impacts air
flow, filtration and
sterilization

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

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

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

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

International Patents

In November 2004, Kronos received formal notification from the Commonwealth of
Australia Patent Office indicating that its application entitled "Electrostatic
Fluid Accelerator" has been examined and allowed for issuance as an Australian
patent. In December 2005, Kronos received formal notification from the Mexican
Institute of Industrial Property indicating that its application entitled
"Electrostatic Fluid Accelerator" has been examined and allowed for issuance as
a Mexican patent. There are a number of other patent applications corresponding
to Kronos' nine U.S. Patents that have been filed and are pending outside of the
United States.

Kronos is constantly identifying new intellectual property and will continue to
aggressively file patent applications in the U.S. and internationally. A number
of additional patent applications have been filed for, among other things, the
control and management of electrostatic fluid acceleration. These additional
patent applications are either being examined or are awaiting examination by the
Patent Office.

CRITICAL ACCOUNTING POLICIES

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

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

Valuation of Goodwill, Intangible and Other Long Lived Assets. We use
assumptions in establishing the carrying value, fair value and estimated lives
of our long-lived assets and goodwill. The criteria used for these evaluations
include management's estimate of the asset's ability to generate positive income
from operations and positive cash flow in future periods compared to the
carrying value of the asset, the strategic significance of any identifiable
intangible asset in our business objectives, as well as the market
capitalization of Kronos. We have used certain key assumptions in building the
cash flow projections required for evaluating the recoverability of our
intangible assets. We have assumed revenues from the following applications of
the Kronos technology: consumer stand-alone devices, assisted care/skilled
nursing stand-alone devices, embedded devices in the hospitality industry and in
specialized military applications. Expenses/cash out flows in our projections
include sales and marketing, production, distribution, general and
administrative expenses, research and development expenses and capital
expenditures. These expenses are based on management estimates and have been
compared with industry norms (relative to sales) to determine their
reasonableness. We use the same key assumptions for our cash flow evaluation as
we do for internal budgeting, lenders and other third parties; therefore, they
are internally and externally consistent with financial statement and other
public and private disclosures. We are not aware of any negative implications
resulting from the projections used for purposes of evaluating the
appropriateness of the carrying value of these assets. If assets are considered
to be impaired, the impairment recognized is the amount by which the carrying
value of the assets exceeds the fair value of the assets. Useful lives and
related amortization or depreciation expense are based on our estimate of the
period that the assets will generate revenues or otherwise be used by Kronos.
Factors that would influence the likelihood of a material change in our reported
results include significant changes in the asset's ability to generate positive
cash flow, loss of legal ownership or title to the asset, a significant decline
in the economic and competitive environment on which the asset depends,
significant changes in our strategic business objectives, and utilization of the
asset.

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

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

RESULTS OF OPERATIONS

Consolidated Statement of Operations For the Quarter Ended December 31, 2005.

Our net loss for the six months ended December 31, 2005 was $1,706,000, compared
with a net loss of $5,137,500 for the corresponding period of the prior year.
The decrease in the net loss for the six months ended December 31, 2005, as
compared to the prior year, was principally the result of a $3,857,500 loss on
debt incurred during the six months ended December 31, 2004 and a $398,100 or
39% increase in selling, general and administrative expenses.

Revenue. Revenues are generated through sales of services for design and
development of Kronos devices by Kronos Air Technologies, Inc. Revenues for the
six months ended December 31, 2005 were $37,500 compared with $381,500 in the
prior year. Revenues for the six months ended were from fees associated with our
prototype development and acquisition agreement with a luxury automotive
manufacturer and our new licensing partner in Russia. Revenues for the six
months ended December 31, 2004 were primarily from our U. S. Navy SBIR Phase II
and U. S. Army SBIR Phase II contracts.

Cost of Sales. Cost of sales for the six months ended December 31, 2005 was
$8,500 (or 23% of sales) compared with $333,800 (or 88%) for the prior year.
Cost of sales for the six months ended December 31, 2005 were primarily labor
associated with our with our prototype development and acquisition agreement
with a luxury automotive manufacturer. Cost of sales for the six months ended
December 31, 2004 were primarily development costs associated with our U. S.
Navy SBIR and U. S. Army SBIR contracts.

Selling, General and Administrative Expenses. Selling, General and
Administrative expenses for the six months ended December 31, 2005 increased
$398,100 from the corresponding period of the prior year to $1,432,000. The
increase was principally the result of a $141,300 increase in amortization and
depreciation as a result of the increase in the amortization of capitalized
patent costs and Cornell Capital funding costs; a $115,300 increase in
professional services as a result of the Company's increase in costs for
investor and press relations activities and legal costs associated with
licensing and development agreements with new strategic partners; and $85,400
increase in research and development costs associated with developing new
applications for the Kronos technology.

Interest expense. Interest expense for the six months ended December 31, 2005
was $303,100 compared to $294,200 for the corresponding period of the prior
year.

Consolidated Balance Sheet as of December 31, 2005

Our total assets at December 31, 2005 were $2,777,400 compared with $3,959,800
at June 30, 2005. Total assets at December 31, 2005 and June 30, 2005 were
comprised primarily of $2,029,900 and $2,138,800, respectively, of
patents/intellectual property and $584,500 and $1,554,900, respectively, of
cash. Total current assets at December 31, 2005 and June 30, 2005 were $744,500
and $1,818,400, respectively, while total current liabilities for those same
periods were $4,297,200 and $5,420,200, respectively, creating a working capital
deficit of $3,552,700 and $3,601,800 at each respective period end. This working
capital deficit is primarily due to short term borrowings from Cornell Capital
Partners.

Stockholders' deficit as of December 31, 2005 was ($4,094,800). The $1,706,000
net loss for the six months ended December 31, 2005 was partially offset by the
sale and issuance of common stock for cash ($1,410,000) and the issuance of
options for services ($61,600).

LIQUIDITY AND CAPITAL RESOURCES

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

In October 2004, Kronos entered into agreements for up to $20.5 million in
equity and equity backed debt financing from Cornell Capital Partners. In
October 2004, Kronos sold 5 million unregistered shares of Kronos common stock
for gross proceeds of $500,000 to Cornell Capital Partners. Cornell Capital
Partners committed to provide $4 million pursuant to two Promissory Notes, which
have been funded as follows: $2 million upon the filing an SB-2 Registration
Statement and $2 million upon the SEC declaring the Registration Statement
effective. Kronos executed a Standby Equity Distribution Agreement for $20
million of funding which Kronos has the option to drawdown against in increments
as large as $1.5 million over the next eighteen months. As of June 30, 2005,
Kronos had received $4.5 million in funding under these agreements. In July
2005, Cornell Capital Partners suspended until further notice weekly repayments
of the Kronos Promissory Note dated June 21, 2005 and suspended for one month
weekly repayments of the Kronos Promissory Note dated March 7, 2005. In
September 2005, Cornell Capital Partners suspended for one month weekly
repayments of the Kronos Promissory Note dated March 7, 2005. As of December 31,
2005, Kronos has received $4.5 million in funding under these agreements and has
repaid $1,010,000 of principal on the Promissory Notes.

Net cash flow used in operating activities was $1,314,400 for the six months
ended December 31, 2005. We were able to satisfy most of our cash requirements
for this period from the proceeds of the $4 million Promissory Notes with
Cornell Capital Partners and from the incremental $175,000 in debt financing
from our strategic partner, HoMedics, Inc.

We estimate that achievement of our business plan will require substantial
additional funding. We anticipate that the source of funding will be obtained
pursuant to senior debt funding from the HoMedics Secured Promissory Note;
equity funding from the Cornell Capital Standby Equity Distribution Agreement;
and/or the sale of additional equity in our Company; cash flow generated from
government grants and contracts; and cash flow generated from customer revenue.
There are no assurances that these sources of funding will be adequate to meet
our cash flow needs.

GOING CONCERN OPINION

The Report of Independent Registered Public Accounting Firm includes an
explanatory paragraph to their audit opinions issued in connection with our 2005
and 2004 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 consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

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

FACTORS AFFECTING KRONOS' BUSINESS AND PROSPECTS

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

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

We have only recently begun implementing our plan to prioritize and concentrate
our management and financial resources to fully capitalize on our investment in
Kronos Air Technologies and have yet to establish any history of profitable
operations. We incurred a net loss of $1,706,000 for the six months ended
December 31, 2005. We incurred a net loss of $7.1 million for the fiscal year
ended June 30, 2005. As a result, at December 31, 2005 and June 30, 2005, we had
an accumulated deficit of $28.8 million and $27.1 million, respectively. Our
revenues and cash flows from operations have not been sufficient to sustain our
operations. We have sustained our operations through the issuance of our common
stock and the incurrence of debt. We expect that our revenues and cash flows
from operations may not be sufficient to sustain our operations for the
foreseeable future. Our profitability will require the successful
commercialization of our Kronos technologies. No assurances can be given that we
will be able to successfully commercialize our Kronos technologies or that we
will ever be profitable.

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

At December 31, 2005 and June 30, 2005, we had working capital deficits of $3.6
million. The Report of Independent Registered Public Accounting Firm for the
year ended June 30, 2005, 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 three and six months ended December 31, 2005 and the fiscal
year ended June 30, 2005, we had an operating cash flow deficit of $1.3 million
and $1.8 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 sufficient financing from HoMedics and /or Cornell Capital Partners were to
be unavailable and if we are unable to commercialize and sell our products or
technologies, we will need to secure another source of funding in order to
satisfy our working capital needs. Even if we are able to access the funds
available under the HoMedics senior debt agreement and / or the Cornell Capital
Standby Equity Distribution Agreement, we may still need additional capital to
fully implement our business, operating and development plans. At December 31,
2005 and June 30, 2005, we had a cash balance of $584,500 and $1,554,900,
respectively. Should the financing we require to sustain our working capital
needs be unavailable, or prohibitively expensive when we require it, we would be
forced to curtail our business operations.

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

The sale of shares pursuant to our agreement with Cornell Capital Partners, the
exercise of HoMedics stock warrants or any other future equity financing
transaction will have a dilutive impact on our stockholders. As a result, our
net income per share could decrease in future periods, and the market price of
our common stock could decline. In addition, the lower our stock price is, the
more shares of common stock we will have to issue under the Standby Equity
Distribution Agreement. If our stock price is lower, then our existing
stockholders would experience greater dilution. We cannot predict the actual
number of shares of common stock that will be issued pursuant to the Standby
Equity Distribution Agreement 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.

Competition in the market for air movement and purification devices may result
in the failure of the Kronos products to achieve market acceptance.

Kronos presently faces competition from other companies that are developing or
that currently sell air movement and purification devices. Many of these
competitors have 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 products do not favorably compete with the products
sold by our competitors, we would be forced to curtail our business operations.

Our failure to enforce protection of our intellectual property would have a
material adverse effect on our business.

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

The validity and breadth of our intellectual property claims in ion wind
generation and electrostatic fluid acceleration and control technology involve
complex legal and factual questions and, therefore, may be highly uncertain.
Despite our efforts to protect our intellectual proprietary rights, existing
copyright, trademark and trade secret laws afford only limited protection.

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

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

Our net intangible assets of approximately $2.0 million as of December 31, 2005
consist principally of purchased patent technology and marketing intangibles,
which relate to the acquisition of Kronos Air Technologies, Inc. in March 2000
and to the acquisition of license rights to fuel cell, computer and
microprocessor applications of the Kronos technology not included in the
original acquisition of Kronos Air Technologies, Inc. in May 2003. Intangible
assets comprise 73% of our total assets as of December 31, 2005. Intangible
assets are subject to periodic review and consideration for potential impairment
of value. Among the factors that could give rise to impairment include a
significant adverse change in legal factors or in the business climate, an
adverse action or assessment by a regulator, unanticipated competition, a loss
of key personnel, and projections or forecasts that demonstrate continuing
losses associated with these assets. In the case of our intangible assets,
specific factors that could give rise to impairment would be, but are not
limited to, an inability to obtain patents, the untimely death or other loss of
Dr. Igor Krichtafovitch, the lead inventor of the Kronos technology and Kronos
Air Technologies Chief Technology Officer, or the ability to create a customer
base for the sale or licensing of the Kronos technology. Should an impairment
occur, we would be required to recognize it in our financial statements. A
write-down of these intangible assets could have a material adverse impact on
our total assets, net worth and results of operations.

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

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

- With a price of less than $5.00 per share;
- That are not traded on a "recognized" national exchange;
- Whose prices are not quoted on the Nasdaq automated quotation system
(Nasdaq listed stock must still have a price of not less than $5.00 per
share); or
- In issuers with net tangible assets less than $2.0 million (if the issuer
has been in continuous operation for at least three years) or $5.0 million
(if in continuous operation for less than three years), or with average
revenues of less than $6.0 million for the last three years.

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

We rely on management and research personnel, the loss of whose services could
have a material adverse effect upon our business.

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

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of the end of the period
covered by this report, the Company carried out an evaluation, under the
supervision and with the participation of the Company's Principal Executive
Officer and Principal Financial Officer of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. The Company's
disclosure controls and procedures are designed to provide a reasonable level of
assurance of achieving the Company's disclosure control objectives. The
Company's Principal Executive Officer and Principal Financial Officer have
concluded that the Company's disclosure controls and procedures are, in fact,
effective at this reasonable assurance level as of the period covered. In
addition, the Company reviewed its internal controls, and there have been no
significant changes in its internal controls or in other factors that could
significantly affect those controls subsequent to the date of evaluation or from
the end of the reporting period to the date of this Form 10-QSB.

Changes in Internal Controls. In connection with the evaluation of the Company's
internal controls during the Company's first fiscal quarter ended December 31,
2005, the Company's Principal Executive Officer and Principal Financial Officer
have determined that there are no changes to the Company's internal controls
over financial reporting that has materially affected, or is reasonably likely
to materially effect, the Company's internal controls over financial reporting
during the fiscal quarter ended December 31, 2005, or subsequent to the date of
their last evaluation, or from the end of the reporting period to the date of
this Form 10-QSB.

PART II

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

During the six months ended December 31, 2005, we issued 19,530,332 shares of
Kronos common stock to Cornell Capital Partners under our Standby Equity
Distribution Agreement. The proceeds from the issuance of these shares were used
to repay $1,010,000 of debt and to increase the Company's cash reserves by
$400,000.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. EXHIBITS

EXHIBIT NO. DESCRIPTION LOCATION
-------------------------------------------------------------------------------------------------

2.1 Articles of Merger for Technology Incorporated by reference to
Selection, Inc. with the Nevada Exhibit 2.1 to the Registrant's
Secretary of State Registration Statement on Form
S-1 filed on August 7, 2001 (the
"Registration Statement")

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

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

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

10.21 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

10.22 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

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

10.24 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")

10.25 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

10.26 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

10.27 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

10.28 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

10.29 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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.46 Termination Agreement dated March 28, Incorporated by reference to Exhibit
2005, by and between Kronos Advanced 10.63 to the Registrant's Form SB-2
Technologies, Inc. and Cornell Capital filed on April 19, 2005
Partners, LP

10.47 Standby Equity Distribution Agreement, Incorporated by reference to Exhibit
dated April 13, 2005, by and between 10.64 to the Registrant's Form SB-2
Kronos Advanced Technologies, Inc. and filed on April 19, 2005
Cornell Capital Partners, LP

10.48 Registration Rights Agreement, dated Incorporated by reference to Exhibit
April 13, 2005, by and between Kronos 10.65 to the Registrant's Form SB-2
Advanced Technologies, Inc. and Cornell filed on April 19, 2005
Capital Partners, LP

10.49 Escrow Agreement, dated April 13, 2005, Incorporated by reference to Exhibit
by and between Kronos Advanced 10.66 to the Registrant's Form SB-2
Technologies, Inc. and Cornell Capital filed on April 19, 2005
Partners, LP

10.50 Placement Agent Agreement, dated April Incorporated by reference to Exhibit
13, 2005, by and between Kronos Advanced 10.67 to the Registrant's Form SB-2
Technologies, Inc. and Cornell Capital filed on April 19, 2005
Partners, LP

10.51 Form of Equity-Back Promissory Note in Incorporated by reference to Exhibit
the principal amount of $2,000,000 dated 10.68 to the Registrant's Form SB-2
March 7, 2005 between Kronos Advanced filed on April 19, 2005
Technologies, Inc. and Cornell Capital
Partners, LP

10.52 Form of Equity-Back Promissory Note in Incorporated by reference to Exhibit
the principal amount of $2,000,000 dated 10.59 to the Registrant's Form 10-KSB
June 22, 2005 between Kronos Advanced filed on September 28, 2005
Technologies, Inc. and Cornell Capital
Partners, LP

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

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

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

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

DATED: February 14, 2006 KRONOS ADVANCED TECHNOLOGIES, INC.

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

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