UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
13D
Under
the Securities Exchange Act of 1934
Kronos
Advanced Technologies, Inc.
Common
Stock, $0.001 Par Value Per Share
(Title
of
Class of Securities)
John
Lack
RS
Properties I LLC
40
Wall
Street
23rd
Floor
New
York,
NY 10005
(Name,
Address and Telephone Number of Person Authorized
to
Receive Notices and Communications)
June
19, 2007
(Date
of
Event which Requires Filing of this Statement)
If
the
filing person has previously filed a statement on Schedule 13G to report
the
acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following
box
o.
The
information required on the remainder of this cover page shall not be deemed
to
be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934
(“Act”) or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the
Notes).
SCHEDULE
13D
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1
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NAME
OF REPORTING PERSON
I.R.S.
IDENTIFICATION NO. OF ABOVE PERSON
RS
PROPERTIES I LLC
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2
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CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
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(a)
ý
(b)
¨
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3
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SEC
USE ONLY
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4
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SOURCE
OF FUNDS
WC
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5
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CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d)
or 2(e)
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o
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6
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CITIZENSHIP
OR PLACE OF ORGANIZATION
UNITED
STATES
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NUMBER
OF
SHARES
BENEFICIALLY
OWNED
BY
EACH
REPORTING
PERSON
WITH
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7
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SOLE
VOTING POWER
328,571,428(1)
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8
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SHARED
VOTING POWER
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9
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SOLE
DISPOSITIVE POWER
328,571,428(1)
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10
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SHARED
DISPOSITIVE POWER
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11
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AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
328,571,428(1)
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12
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CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
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x |
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13
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PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
58%
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14
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TYPE
OF REPORTING PERSON
OO
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(1) Includes
328,571,428 shares of Common Stock issuable upon conversion of the $6,480,000
Secured Convertible Promissory Note due June 19, 2010 which was issued to
RS
Properties I LLC on June 19, 2007, but excludes up to 1,985,714,285 shares
of
Common Stock which may become issuable if such convertible note is funded
in
full.
This
Schedule 13D has been prepared taking into account that, as described in
Items
3, 4 and 5 below, pursuant to the Lender Voting Agreement (as defined below)
and
the Letter Agreement (as defined below), AirWorks Funding LLLP and RS Properties
I LLC have agreed to convert a sufficient principal amount of their respective
Notes (as defined below) to secure voting control of the Issuer and will
subsequently vote to approve an amendment to the Issuer’s articles of
incorporation to increase the authorized share capital of the Issuer to allow
the Lenders (as defined below) to convert the entire principal amounts advanced
under the Notes into shares of Common Stock of the Issuer.
As
described in Items 3, 4 and 5 below, RS Properties may be deemed to be part
of a
group with AirWorks Funding LLLP and the Critical Capital Entities (as defined
below) pursuant to the terms of the Lender Voting Agreement and the Letter
Agreement described below. The Reporting Person expressly disclaims
beneficial ownership of shares of Common Stock issuable to AirWorks Funding
LLLP
and the Critical Capital Entities upon conversion of the Notes (as defined
below). Such shares of Common Stock are not included in the amounts
specified by the Reporting Persons above.
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Item
1.
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Security
and Issuer.
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The
title
of the class of equity securities to which this statement relates is Common
Stock, par value $0.001 each (“Common
Stock”) of Kronos Advanced Technologies, Inc., a Nevada corporation (the
“Issuer”). The principal executive office of the Issuer is located at
494 Common Street, Suite 301, Belmont, MA 02478.
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Item
2.
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Identity
and Background.
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(a)
This
Statement is being filed by RS Properties I LLC (the “Reporting
Person”). John Lack is the sole officer and manager of the Reporting
Person.
(b)
The
address of the Reporting Person is 40 Wall Street, 26th floor, New York,
New
York, 10005.
(c)
The
Reporting Person is an independent investment fund making investments in,
among
other things, real estate and securities.
(d)
and
(e) The Reporting Person has not, during the last five years, been (a) convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors),
or (b) a party to a civil proceeding of a judicial or administrative body
of
competent jurisdiction as a result of which he or it is or was subject to
a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
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Item
3.
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Source
and Amount of Funds or Other
Consideration.
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On
July
19, 2007, pursuant to a Funding Agreement (the “Funding Agreement”), among the
Issuer, AirWorks Funding LLLP (“AirWorks”), Sands Brothers Venture Capital, LLC
(“SBVC I”), Sands Brothers Venture Capital II LLC (“SBVC II”), Sands Brothers
Venture Capital III LLC (“SBVC III”), Sands Brothers Venture Capital IV LLC
(“SBVC IV”), Critical Capital Growth Fund, L.P. (“Critical Capital” and together
with SBVC I, SBVC II, SBVC III and SBVC IV, the “Critical Capital Entities”) and
the Reporting Person (the Reporting Person, together with AirWorks and the
Critical Capital Entities, the “Lenders”), the Issuer issued a $6,480,000
Secured Convertible Promissory Note due June 19, 2010 (the “RS Note”) to the
Reporting Person, the outstanding principal amount of which is convertible
into
an aggregate of up to 2,314,285,714 shares of the Issuer’s Common Stock at the
initial conversion price of $.0028 per share. On July 19, 2007, the
Reporting Person made its first advance under the Funding Agreement and the
RS
Note in the amount of $920,000, which is convertible into 328,571,428 shares
of
Common Stock. Since the Issuer currently is only authorized to issue
500 million shares of Common Stock and as of May 18, 2007, 242,342,803 shares
of
Common Stock were issued and outstanding (according to filings made by the
Issuer with the Securities and Exchange Commission), the Reporting Person
will
not be able to convert the entire current outstanding principal amount of
the RS
Note until such time as the Issuer increases its authorized share capital
to
authorize additional shares of Common Stock. As described in Item 4,
pursuant to the Lender Voting Agreement and the Letter Agreement, AirWorks
and
the Reporting Person have agreed to convert a sufficient principal amount
of
their respective Notes to secure voting control of the Issuer and will
subsequently vote to approve an amendment to the Issuer’s articles of
incorporation to increase the authorized share capital of the Issuer to allow
the Lenders to convert the entire principal amounts advanced under the Notes
into shares of Common Stock of the Issuer. Assuming that the
Reporting Person funds the full principal amount of the RS Note and converts
such full principal amount, the RS Note will be convertible into 2,314,285,714
shares of Common Stock. The source of funds used for the RS Note was
the working capital of the Reporting Person. None of the funds used
in connection with the issuance of the RS Note were borrowed by the Reporting
Person.
See
Item
4 below for more information.
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Item
4.
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Purpose
of Transaction.
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Pursuant
to the terms of the Funding Agreement, the Reporting Person acquired the
RS Note
that is convertible into Common Stock. The Reporting Person considers
the RS Note and the Common Stock it is convertible into that it beneficially
owns an investment made in the ordinary course of the Reporting Person’s
business. The Reporting Person intends to review on a continuing
basis its investment in the Issuer, including the Issuer’s business, financial
condition and operating results, general market and industry conditions and
other investment opportunities and, based upon such review, may provide advances
under the Funding Agreement and the RS Note, acquire additional shares of
Common
Stock or other securities of the Issuer, or dispose of the RS Note, shares
of
Common Stock or other securities of the Issuer, in each case, in the open
market, in privately negotiated transactions or in any other lawful
manner.
Funding
Agreement and Secured Convertible Promissory Notes
Pursuant
to the Funding Agreement, the Lenders agreed to loan the Issuer up to an
aggregate of $18,159,000 (the “Loan”), evidenced by a $10,820,000 Secured
Convertible Promissory Note due June 19, 2010 to AirWorks (the “AirWorks Note”),
a $859,000 Secured Convertible Promissory Note due December 31, 2007 to the
Critical Capital Entities (the “Critical Capital Note”) and the RS Note (the RS
Note, together with the AirWorks Note and the Critical Capital Note, the
“Notes”). The first installment of the Loan, totaling $4,259,000, was
advanced to the Issuer in the following amounts: AirWorks advanced $2,480,000,
the Critical Capital Entities advanced $859,000 and the Reporting Person
advanced $920,000. Pursuant to the Funding Agreement, the Reporting
Person may advance up to an additional $5,560,000 under the RS Note and AirWorks
may advance up to an additional $8,340,000 under the AirWorks Note, at any
time,
and from time to time, prior to the maturity date of such notes, in the sole
discretion of AirWorks and the Reporting Person, respectively.
Pursuant
to the terms of the Notes, based on the amounts advanced in the first
installment of the Loan, (1) the AirWorks Note is convertible into 885,714,285
shares of Common Stock, (2) the Critical Capital Note is convertible into
306,785,714 shares of Common Stock upon the occurrence of certain events
described below and (3) the RS Note is convertible into 328,571,428 shares
of
Common Stock, in each case, based on the initial conversion price of the
Notes
(which is subject to adjustment under certain specified
circumstances). Assuming the full amount of the Notes are funded and
the entire aggregate principal amount of the Notes is converted, (1) the
AirWorks Note will be convertible into up to 3,864,285,714 shares of Common
Stock, (2) the Critical Capital Note will be convertible into up to 306,785,714
shares of Common Stock and (3) the RS Note will be convertible into up to
2,314,285,714 shares of Common Stock, in each case, based on the initial
conversion price of the Notes (which is subject to adjustment under certain
specified circumstances). The AirWorks Note and the RS Note are
convertible at any time, in whole or in part, and the Critical Capital Note
is
only convertible in the event that all principal and accrued interest is
not
paid in full to the Critical Capital Entities on or prior to the maturity
date
of the Critical Capital Note. Each of the Notes bear interest, in
arrears, at a rate of 12% per annum, payable in cash with respect to the
AirWorks and RS Note commencing on January 1, 2008 and payable in cash with
respect to the Critical Capital Note commencing on July 1, 2007. All
outstanding principal and accrued interest under the Critical Capital Note
is
due and payable on December 31, 2007. All outstanding principal and
accrued interest on the AirWorks Note and the RS Note is due and payable
on June
19, 2010. In addition, pursuant to the Notes, the Lenders have been
granted certain preemptive rights in the event the Issuer proposes to issue
or
sell any shares of Common Stock or any rights or options to purchase shares
of
Common Stock. Each of the Notes contains additional terms and
conditions, including events of default, that are generally consistent with
securities of this kind.
Pursuant
to the Funding Agreement, the Issuer has agreed to take all actions necessary
to
ensure that AirWorks and the Reporting Person have the right to designate
a
majority of the members of the board of directors of the Issuer, including
increasing the number of members of the issuer’s board of
directors.
The
Issuer’s obligations under the Notes are secured by substantially all of the
assets of the Issuer and its subsidiary Kronos Air Technologies, Inc., pursuant
to a Security Agreement dated June 19, 2007.
In
connection with the Funding Agreement, the Lenders entered into an Intercreditor
Agreement with certain existing creditors of the Issuer (the “Existing
Creditors”) whereby the Existing Creditors agreed to subordinate their security
interest to that of the Lenders. In addition, the Lenders also
entered into an Intercreditor Agreement whereby AirWorks and the Reporting
Person agreed to subordinate their security interest to that of the Critical
Capital Entities.
Voting
and Support Agreements
On
June
19, 2007, the Issuer, AirWorks, the Critical Capital Entities and the Reporting
Person entered into a Voting and Support Agreement (the “Lender Voting
Agreement”) pursuant to which the Lenders agreed to vote the shares of Common
Stock entitled to vote on the following matters in the following manner:
(1) in favor of a slate of directors to serve on the Company’s board of
directors as proposed by AirWorks and the Reporting Person, (2) in favor
or
adjusting the size of the Issuer’s board of directors such that upon the
election of the slate of directors proposed by AirWorks and the Reporting
Person, such directors hold a majority of the seats on the Issuer’s board of
directors, (3) in favor of approving an amendment to the Issuer’s articles of
incorporation to increase the Issuer’s authorized common stock to a number of
shares necessary to allow the Lenders to convert the entire principal amount
of
the Notes into share of common stock of the Company, (4) in favor of approving
the reincorporation of the Company in Delaware, (5) in favor of a reverse
stock
split proposed by AirWorks or the Issuer’s board of directors and
(6) against any action or transaction that may reasonably be expected to
impede, interfere with, delay, postpone or attempt to discourage the
consummation of any of the foregoing. The expiration of the Lender
Voting Agreement is the earlier of (a) the date on which the matters set
forth
in (1)-(5) above have been approved by the stockholders of the Issuer and
(b)
August 1, 2008.
Additionally,
on June 19, 2007, the Issuer entered into Voting and Support Agreements
(the
“Securityholder Voting Agreements”) with Messrs. Dwight, McDermott, Segal,
Tusing, Krichtafovitch, Poster, Sun and Gumbinner (collectively, the
“Securityholders”) pursuant to which the Securityholders agreed to vote the
Issuer’s securities owned by them on certain specified matters in accordance
with the Securityholder Voting Agreement. The terms and expiration
date of the Securityholder Voting Agreements are substantially similar
to those
of the Lender Voting Agreement. In addition, on June 19, 2007, each
of the Securityholders granted Mr. Perlman, the President of Compass Partners,
L.L.P., the general partner of AirWorks, a proxy to vote the Issuer’s securities
owned by each of them in accordance with the Securityholder Voting
Agreements.
Letter
Agreement
On
June
19, 2007, AirWorks and the Reporting Person entered into a letter agreement
(the
“Letter Agreement”) pursuant to which the parties agreed (1) that any advances
made to the Issuer pursuant to the Funding Agreement and the AirWorks Note
and
RS Note, respectively, at a subsequent closing, will be made 60% by AirWorks
and
40% by the Reporting Person, (2) that following the closing of the Funding
Agreement, AirWorks and the Reporting Person will secure more than 50% of
the
voting control of the Issuer with AirWorks converting such portion of the
AirWorks Note as is necessary to represent 60% of such controlling position
and
the Reporting Person converting such portion of the RS Note as is necessary
to
represent 40% of such controlling position, (3) to enter into the Lender
Voting
Agreement and (4) to make certain adjustments to the percentage of additional
advances required to be made by AirWorks and RS Note if certain specified
events
occurred. This Schedule 13D has been prepared taking into account
that, pursuant to the terms of the Letter Agreement, AirWorks and the Reporting
Person, will have voting control of the Issuer once the above actions have
been
taken and will vote their respective shares of Common Stock in accordance
with
the terms of the Lender Voting Agreement.
Registration
Rights Agreement
In
connection with the Funding Agreement, the Issuer and the Lenders entered
into a
Registration Rights Agreement dated June 19, 2007. Pursuant to the
Registration Rights Agreement, the Issuer agreed to file a registration
statement registering the Common Stock owned by the Lenders, the Common Stock
underlying the Notes and any other securities issued or issuable with respect
to
such securities upon any classification, share combination, share division,
share dividend, merger consolidation or similar event (the “Registrable
Securities”), upon demand of the holders of at least 20% of the Registrable
Securities. The Issuer is required to file such registration
statement within 45 days (or 90 days if the registration statement is on
a form
other than Form S-3) after notice is give and to use its reasonable best
efforts
to cause the registration statement to become effective as promptly as
practicable. The Issuer is required to keep such registration
statement effective until the earlier of (1) the date all Registrable Securities
covered by such registration statement have been sold or (2) the date on
which
all of the Registrable Securities may be sold without restriction pursuant
to
subsection (k) of Rule 144 of the Securities Act of 1933, as
amended. The Registration Rights Agreement also provides the Lenders
with piggy back registration rights with respect to certain offerings of
the
Issuer’s securities.
The
foregoing summaries of the Funding Agreement, the Notes, the Security Agreement,
the Intercreditor Agreements, the Lender Voting Agreement, the Securityholder
Voting Agreements, the Proxy, the Letter Agreement and the Registration Rights
Agreement are qualified in their entirety by reference to the copies of such
agreements which are attached hereto as Exhibits 1 through 13, respectively,
and
which are hereby incorporated by this reference.
Except
as
set forth herein, the Reporting Person has no present plan or proposal that
relates to or would result in any other action specified in clauses (a) through
(j) of Item 4 of Schedule 13D.
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Item
5.
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Interest
in Securities of the
Issuer.
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(a) The
Reporting Person may be deemed to beneficially own 328,571,428 shares of
Common
Stock, representing 58% of the outstanding shares of Common Stock (based
upon
242,342,803 shares of Common Stock outstanding as of May 18, 2007, as reported
in the Issuer’s quarterly report on Form 10-QSB for the quarter ended March 31,
2007). Such shares of Common Stock beneficially owned by the
Reporting Person includes 328,571,428 shares of Common Stock currently issuable
upon conversion of $920,000 principal amount of the RS Note, but excludes
up to
1,985,714,286 additional shares of Common Stock which may become issuable
if the
RS Note is funded in full.
In
addition, by virtue of any of the Lender Voting Agreement and the Letter
Agreement, a “group,” within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or Rule 13d-5(b)(1)
thereunder, may have been formed that includes, AirWorks, the Reporting Person
and the Critical Capital Entities. Such a group including AirWorks,
the Reporting Person and the Critical Capital Entities would be deemed to
beneficially own, in the aggregate, 1,214,285,713 shares of Common Stock,
representing 83% of the Common Stock outstanding (based upon 242,342,803
shares
of Common Stock outstanding as of May 18, 2007). Such shares of
Common Stock which would be deemed beneficially owned by such a group includes
(1) 328,571,428 shares of Common Stock issuable upon conversion of the funded
portion of the RS Note and (2) 885,714,285 shares of Common Stock issuable
upon
conversion of the funded portion of the AirWorks Note, but excludes (1)
1,985,714,285 shares of Common Stock which may become issuable if the RS
Note is
funded in full, (2) 2,978,571,428 shares of Common Stock which may become
issuable if the AirWorks Note is funded in full and (3) 306,785,714 shares
of
Common Stock underlying the Critical Capital Note which is not presently
convertible. The Reporting Persons expressly disclaim beneficial
ownership of Common Stock beneficially owned by RS Properties and the Critical
Capital Entities.
Since
the
Issuer currently is only authorized to issue 500 million shares of Common
Stock
and as of May 18, 2007, 242,342,803 shares of Common Stock were issued and
outstanding (according to filings made by the Issuer with the Securities
and
Exchange Commission), the Lenders will not be able to convert the entire
current
outstanding principal amount of the Notes until such time as the Issuer
increases its authorized share capital to authorize additional shares of
Common
Stock. As described above, pursuant to the Lender Voting Agreement
and the Letter Agreement, AirWorks and the Reporting Person have agreed to
convert a sufficient principal amount of the their respective Notes to secure
voting control of the Issuer and will subsequently vote to approve an amendment
to the Issuer’s articles of incorporation to increase the authorized share
capital of the Issuer to allow the Lenders to convert the entire principal
amounts advanced under the Notes into shares of Common Stock of the
Issuer.
(b) The
Reporting Person has the sole power to vote or to direct the vote and to
dispose
or direct the disposition of all of the securities reported herein.
Pursuant
to, and to the extent set forth in, the Lender Voting Agreement, it could
be
alleged that the Reporting Person shares voting power with respect to the
shares
of Common Stock beneficially owned by AirWorks or the Critical Capital
Entities. To the knowledge of the Reporting Person and based on
documents publicly filed by AirWorks and the Critical Capital Entities, Exhibit
14 sets forth certain information with respect to AirWorks and the Critical
Capital Entities, which is incorporated herein by reference. To the
knowledge of the Reporting Person and based on documents publicly filed by
AirWorks and the Critical Capital Entities, during the last five years, neither
AirWorks nor any of the Critical Capital Entities has been: (i) convicted
in a
criminal proceeding (excluding traffic violations or similar misdemeanors),
or
(ii) a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject
to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to Federal or State securities laws or finding
any violation with respect to such laws.
(c) Except
as set forth in Items 3 and 4 above, no transactions in the Common Stock
were
effected by the Reporting Person in the last 60 days.
(d)
and
(e) Not applicable.
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Item
6.
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Contracts,
Arrangements, Understandings or Relationships With Respect to Securities
of Issuer.
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See
Items
3, 4 and 5 above. Except as set forth in this Schedule 13D, to the
best knowledge of the Reporting Person, no contracts, arrangements,
understandings or relationships (legal or otherwise) exist between the Reporting
Person and any other person with respect to the securities of the
Issuer.
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Item
7.
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Materials
to be Filed as Exhibits.
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Exhibit
No.
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Description
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1.
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Funding
Agreement, dated June 19, 2007 between the Issuer, AirWorks, the
Critical
Capital Entities and RS Properties
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2.
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AirWorks
Note, dated June 19, 2007
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3.
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Critical
Capital Note, dated June 19, 2007
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4.
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RS
Properties Note, dated June 19, 2007
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5.
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Security
Agreement, dated June 19, 2007 among the Issuer, AirWorks, the
Critical
Capital Entities and RS Properties
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6.
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Intercreditor
Agreement, dated June 19, 2007 among AirWorks, the Critical Capital
Entities, RS Properties and certain existing creditors of the
Issuer
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7.
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Intercreditor
Agreement, dated June 19, 2007 among AirWorks, the Critical Capital
Entities and RS Properties
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8.
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Lender
Voting Agreement, dated June 19, 2007 among the Issuer, AirWorks,
the
Critical Capital Entities and RS Properties
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9.
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Securityholder
Voting Agreement, dated June 19, 2007 between the Issuer and the
Securityholders specified therein
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10.
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Securityholder
Voting Agreement, dated June 19, 2007 between the Issuer and the
Securityholders specified therein
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11.
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Proxy
granted in favor of Mr. Perlman dated June 19, 2007
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12.
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Letter
Agreement, dated June 19, 2007 between AirWorks and RS
Properties
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13.
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Registration
Rights Agreement, dated June 19, 2007 among the Issuer, AirWorks,
the
Critical Capital Entities and RS Properties
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14.
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Information
regarding AirWorks and the Critical Capital
Entities
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SIGNATURE
After
reasonable inquiry and to the
best of its knowledge and belief, each of the undersigned certifies that
the
information set forth in this statement is true, complete and
correct.
Dated:
June 29, 2007
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RS
PROPERTIES I LLC
By: /s/
John
Lack
Name:
John Lack
Title:
Manager
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